IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 97-10999
Summary Calendar
IN THE MATTER OF: BILLY G. RUSSELL; JUDY E. RUSSELL,
Debtors,
_________________________________
TEXAS COMPTROLLER OF PUBLIC ACCOUNTS,
Appellants,
versus
BILLY G. RUSSELL; JUDY E. RUSSELL,
Appellees.
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Appeal from the United States District Court
for the Northern District of Texas
(3:96-CV-3008-K)
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February 15, 1999
Before HIGGINBOTHAM, JONES and DENNIS, Circuit Judges.
EDITH H. JONES, Circuit Judge:*
§The only issue in this case is the amount and rate of
interest to be included in the state’s claim for unpaid sales
taxed In this Chapter 13 bankruptcy case.2 Concluding that the
*
Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
2
The Russells do not take issue with the back sales tax of
$17,304.03, and they waived their objection to the Comptroller’s
claim for penalties since the penalty would be treated as a
general unsecured claim in their Chapter 13 case.
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bankruptcy and district courts erred in falling to award the
state certain amounts of interest at the state rate (10%), we
reverse and remand for entry of a revised judgment.
Before these debtors filed a Chapter 13 case, they had been
debtors in a previous Chapter 7 bankruptcy (converted from
Chapter 11). In the prior case they objected to the state
Comptroller’s claim for unpaid sales tax, together with interest
and penalties, and asserted that the tax claim was dischargeable.
As a matter of bankruptcy court procedure, their assertion was
voiced in an adversary proceeding commenced by the debtors
against the State of Texas requesting that the bankruptcy court
“deny the claim of the State of Texas for all sales tax, and for
further relief.” The state responded, praying that its proof of
claim be allowed in full as filed. In pretrial stipulations, the
debtors agreed that if the court should find sales tax was due on
their laundry services and that they are liable for uncollected
sales tax, “the Comptroller’s calculations of tax, interest and
penalty are correct.” The interest and penalties at that time
amounted to approximately $6,000.
After hearing arguments in the adversary proceeding, the
bankruptcy court entered judgment stating that:
The Adversary filed by Billy Russell and
Judy Russell, Debtors, is hereby denied.
The Court further finds that the Sales
Tax Liability in the amount of $17,304.03
was owed by the Debtors to the State of
Texas; the Court further finds that the
amount of money owed by the Debtors is
not dischargeable in bankruptcy.
Moving to the present case, the bankruptcy court stated that
the debtors filed their current Chapter 13 case, in part, to
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address the state’s subsequent claim against them for non-
dischargeable sales tax interest and penalties. Ruling on the
debtors’ objection to the state’s Chapter 13 proof of claim,
which now includes interest and penalties of over $8,000, the
bankruptcy court decided that in reality, in the first adversary
proceeding, it entered judgment against the debtors and in favor
of the State of Texas for $17,304.03. Consequently, that
affirmative judgment, from which the state sought no relief, was
entitled to bear interest only at the federal judgment rate of
5.49%. See 28 U.S.C. § 1961. The district court affirmed the
bankruptcy court’s judgment, and this appeal followed.
The state first contends that in the original adversary
proceeding, the bankruptcy court did not enter judgment against
the debtors on the state’s sales tax claim. We agree. The state
never sought the relief, and the limited purposed of the
adversary proceeding were to determine the amount of the state’s
claim against the debtor’s estate and whether that claim, if
unpaid in bankruptcy, was non-dischargeable. A finding of non-
dischargeability is not the same as entry of judgment on the
claim. No pleading of any party in the adversary proceeding
suggests that the bankruptcy court was asked to or did in fact
enter an enforceable judgment in favor of the state and against
the debtors.3 Since the bankruptcy court did not enter a money
judgment against the Russells, it had no warrant to reduce the
applicable interest rate from the governed by state law to the
3
Whether the court could have done so, consistent with its
core jurisdiction, raises a question we leave for another day.
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lower federal judgment rate.
In finding that the debt owed to the state was non-
dischargeable, however, the bankruptcy court only included the
principal amount owed ($17,304.03), and not the back interest or
penalties; the judgment of non-dischargeability specifically did
not include those other amounts. The state may not at this late
juncture interpret the bankruptcy court’s judgment to include
those additional pre-chapter 7 amounts. Even though the state
asserts that the debtors never contested the amount of interest
or penalties, we may not go behind the express terms of the
judgment in what amounts to a collateral attack by the state.
The state should have asked the bankruptcy court to revise its
judgment to include pre-chapter 7 interest and penalties while
the court still had jurisdiction over the original adversary
proceeding. Thus, the state may not now assert continuing
liability of the Russells for pre-chapter 7 interest and
penalties.
On the other hand, the state compellingly points out that
its proof of claim in the Chapter 7 case could not legally
include post-chapter 7 accruals of interest, and any such claim
was also not a part of the non-discharge ability proceeding.
After the principal amount of the tax debt was ruled non-
dischargeable, interest could accrue against the debtors from and
after the date of the filing of their Chapter 7 petition. That
interest continued to accrue until the debtors filed their
Chapter 13 case. The bankruptcy court should have awarded this
portion of the state’s claim for interest in its ruling on the
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state’s Chapter 13 proof of claim.
To conclude with specificity, the state is entitled to
collect interest at the state’s default rate from the date of
filing of the Russells’ Chapter 7 petition until the date of
filing of their Chapter 13 petition. The applicable interest
rate is therefore 10% for that period of time rather than the
federal judgment rate.
The judgment is REVERSED and the case REMANDED for entry of
judgment as specified.
REVERSED and REMANDED.