In Re Barnes
- Reporters:
- , , ,
- Before:
- Parker
MEMORANDUM AND ORDER
BARRINGTON D. PARKER, District Judge.In thеse consolidated appeals, the appellants, Wavalene N. Barnes and Abel Monta-no, urge reversal of both procedural and substantive rulings of the Bankruptcy Court. The appellants had petitionеd that Court for Debt Adjustment Plans under Chapter 13 of the new Bankruptcy Code. * The Court determined that venue was improper in each proceeding and ordered transfer to the districts in which the debtors were domiciled. Barnes resides in Maryland and Montano in Virginia.
Because these orders were appealed to this Court, the bankruptcy judge issued a stay and proceeded to consider the merits of each plan. He then determined that Ms. Barnes’ repayment plan, which provided for a 1% repayment of her debts to unsecured creditors, failed to meet the “good faith” requirement for confirmation under
This Court concludes that, because the bankruptcy judge proceeded to the merits of the debtors’ claims, the venue determination is moot and need not be addressed on appeal. After evaluating the briefs of the parties and the records below, the Court determines that the bankruptcy judgе erred in ruling that the Chapter 13 plan must provide meaningful repayment to unsecured creditors to meet the good faith requirement of
I.
Wavalene Barnes filed a Chapter 13 Debt Adjustment Plan in December 1979. She has two dependent children and is employed as a secretary in a government agency. Her net monthly income is $749 and she lists monthly expenses of $658. Unsecured indebtedness totals $8,008, whilе her secured debts are approximately $2,400. She proposed to repay her debts at a monthly rate of $91 for three and a half years, providing 100% repayment to secured creditors to the extent of their sеcurity interests and 1% repayment of unsecured debts.
Abel Montano filed a petition and plan seeking Chapter 13 relief in February 1980. His plan anticipates $949 in net monthly wages from employment as a government clerk. He lists expenses of $749 a month for his wife, dependent child and himself. Montano proposed under the plan to repay $31,507 in unsecured indebtedness from the remaining $200 in monthly income. The debtor’s plan provided for 100% repayment оf approximately $7,000 in claims guaranteed by cosigners and a 1% repayment of the remaining $24,507 in claims of creditors that were not guaranteed by a cosigner.
II.
Under the new Bankruptcy Code, a Chapter 13 Debt Adjustment Plan must
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comply with the conditions of
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(3) the plan has been proposed in good faith and not by any means forbidden by law;
(4) the value, as of the effective date of the plan, of the property to be distributed under the plan on account of eaсh allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under Chapter 7 of this title on such date;
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(6) the debtor will be able to make all payments undеr the plan and to comply with the plan.
If these conditions are met, confirmation of the plan is mandatory. S.Rep. No. 95-989, 95th Cong.2d Sess. 142 (1978); H.R.Rep. No. 95-595, 95th Cong. 1st Sess. 430 (1977), U.S. Code Cong. & Admin.News 1978, p. 5787. The purpose behind Chapter 13 is to give the debtor a fresh start by providing him an opportunity to repay all or a percentage of his debts in full settlement of creditors’ claims, while enabling the debtor to maintain support of himself and of his family. H.R.Rep. at 117-118. The provisions of Chapter 13 also insure that this favоrable treatment of debtors does not harm creditors: under subsection (a)(4), a repayment plan can only be approved where it provides that each unsecured creditor will receive at least the amount he would receive in a Chapter 7 liquidation proceeding.
The “good faith” requirement of subsection (a)(3) was read by the bankruptcy judge to require that the debtor’s plan under Chapter 13 provide a “meaningful” rеpayment to unsecured creditors. A 1% payment plan was rejected by the Court under this standard as only de minimus. Support for this conclusion is drawn from a statement in the House Report which provides that one purposе of Chapter 13 is to provide significantly less losses to creditors than they would suffer in a Chapter 7 proceeding. H.R.Rep. at 118. The judge also relied on a number of other bankruptcy decisions that have read “good faith” to require that a meaningful repayment to creditors is a “quid pro quo” for the liberal discharge treatment under Chapter 13. See e. g., In re Howard, 3 B.R. 75 (Bkrtcy.S.D.Cal.1980); In re Bloom, 3 B.R. 467 (Bkrtcy.C.D.Cal.1980).
This Court finds support for the bankruptcy judge’s reading of the Act’s legislative history. However, nothing in the Bankruptcy Code suggests that “good faith” as used in
The good faith provision does not address the amount of repayment at all. Rather, good faith is lacking under
This Court believes that it will bode ill for the Bankruptcy Courts to use the *1000 requirement of “Gоod Faith” as a peg from which they spin a web of nebulous judicial requirements for confirmation which have not been made by Congress. In an area fraught with enmity and misunderstanding as is created by discharge of debts in bankruptcy, this Court is reticent to tack onto the work of Congress its own notions of what debtors ought to do in order to be afforded discharge from their debts.
Indeed, reading a “meaningful” repayment requirement into the good faith provision of
Whether appellant Montano’s repayment plan met the good faith standing in the absence of a meaningful repayment requirement is a question the Court need not examine. For the reasons set out below, the plan’s classification of unsecured debts fails in the first instance by unfairly discriminating against a group of unsecured creditors under
III.
A debtor’s repayment plan under Chapter 13 may distinguish among groups of creditors if certain conditions are met.
(b) ... the plan may
(1) designate a class or classes of unsecured claims, as provided in section 1122 of this title, but may not discriminate unfairly against any class so designated;
Claims classified together must be substantially similar according to the terms of section 1122(a). This requires a similarity in the lеgal nature of the claims. 5
Collier on Bankruptcy
¶ 1122.03 at 1122-4. As the bankruptcy judge properly concluded, a separate classification is not allowable merely on the basis of the presence of a co-obligor debt, becаuse its holder has no more legal right to the debtor’s assets than a general unsecured creditor. In re
Iacovoni,
2 B.R. 256, 260-61 (Bkrtcy.D.Utah 1980). However, a further rationale suggests itself for rejecting appellant Montano’s debt classification. Where the classification provides for
full
repayment to one group of unsecured creditors, but only token repayment to another class, it is difficult to conclude that fairness exists in the classification. Such a difference in treatment is too extreme to satisfy
IV.
Appellant Barnes notes in the brief that since the Bankruptcy Court’s rejection of her plan, her level of income has increased.
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On remand the Court should determine whether she remains unable to
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meet the payments proposed in her plan in light of the changed circumstances. Altеrnatively, if the Court determines that she is unable to meet the plan’s payments, the debtor is entitled to propose another repayment plan to meet the requirements of
Accordingly, it is this 22nd day of April, 1981,
ORDERED, (1) The decision of the Bankruptcy Court 5 B.R. 376, rejecting the Debt Adjustment Plan of appellant Barnes is reversed and remanded;
(2) The decision of the Bankruptcy Court 4 B.R. 535 rejecting the Debt Adjustment Plan of appellant Montano is sustained and affirmed.