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Prepetition Claims

7th Circuit Court Seal

Unsecured Creditors’ Comm. v. Ind. Family & Soc.Servs. Admin.
7 Cir. Court of Appeals Case No.14-2420 Date August 28, 2015

Facts
Hospital had to pay a state-imposed Hospital Assessment Fee (HAF) as part of the new Indiana program to increase Medicaid reimbursements. After the Hospital failed to pay its HAF, the Indiana Family and Social Services Administration (FSSA) began withholding Medicaid reimbursements. This lead to cashflow problems at the Hospital, which filed for Chapter 11 Bankruptcy protection on June 19, 2012. On June 19, 2012 the Hospital filed for Chapter 11 bankruptcy. FSSA continued to withhold reimbursements in satisfaction of its HAF debt.

Procedural History
The Hospital filed an adversary complaint against FSSA claiming that the HAF was a pre-petition claim subject to the Automatic Stay. The Bankruptcy Court agreed, and ruled the HAF was an “act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case” per 11 U.S.C. 362(a)(6) that was subject to the stay. The Court ordered FSSA to repay the full amount it had withheld. The District Court reversed as to the HAF for fiscal year 2013.

Ruling
The 7th Circuit reversed, finding that the 2013 HAF, like the 2012 HAF, is a prepetition claim subject to the Automatic Stay. FSSA was aware of its claims against the Hospital—for both fiscal years 2012 and 2013—well before it filed for bankruptcy

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