In re Frank J. LESER and Alicia K. Leser.
J.J. MICKELSON, Trustee of the Bankruptcy Estate of Frank J.
Leser and Alicia K. Leser, Appellant,
v.
Frank J. LESER and Alicia K. Leser, Appellees.
No. 90-5492.
United States Court of Appeals,
Eighth Circuit.
Submitted March 13, 1991.
Decided Aug. 1, 1991.
Rehearing and Rehearing En Banc
Denied Sept. 17, 1991.
Thomas J. Lailler, argued (Carole L. Clark, on brief), for appellant.
Curtis K. Walker, Minneapolis, Minn., for appellees.
Before BOWMAN, Circuit Judge, HEANEY, Senior Circuit Judge, and DUMBAULD,* District Judge.
BOWMAN, Circuit Judge.
The question before us is whether a Chapter 13 plan may provide for the separate classification and treatment of unsecured claims for child support arrearages assigned to county collection departments by the debtor's former wife. According to the plan confirmed by the Bankruptcy Court,1 the counties would receive full payment of their claims, while other general unsecured creditors would be paid 8% of their claims on a pro rata basis. J.J. Mickelson, the trustee of the bankruptcy estate of debtors Frank J. and Alicia K. Leser, appeals the decision of the District Court2 affirming the plan's confirmation. We аffirm that decision.
This case presents an issue of first impression. Although several courts have decided, with divided results,3 whether a Chapter 13 plan may designate claims for child support in a class separate from other unsecured claims, no court has published an opinion addressing whether Chapter 13 of the Bankruptcy Code, 11 U.S.C. Sec. 1301 et seq. (1988), permits child support arrearages assigned tо a county collection agency to be separately classified.
Our standard of review over bankruptcy appeals is the same as that of the District Court. We must determine whether the bankruptcy court's challenged legal conclusions are correct and whether its challenged factual findings are clearly erroneous. Wegner v. Grunewaldt,
The starting point of our analysis is the Bankruptcy Code, specifically the section governing the classification of debts in a Chapter 13 plan. Section 1322(b)(1) allows the plan to "designate a class or classes of unsecured claims, as provided in section 1122 of this title, but [the plan] may not discriminate unfairly against any class so designated." 11 U.S.C. Sec. 1322(b)(1) (1988). Thus, nothing prohibits a debtor from placing unsecured claims in separate classes in his or her Chapter 13 plan as long as the classification 1) complies with section 1122 of the Code and 2) does not result in unfair discrimination between the claims grouped separately.
The portion of section 1122 pertinent to our discussion states that "a plan may place a claim or an interest in a particular class only if such claim or interest is substantially similar to the other claims or interests of such class...." 11 U.S.C. Sec. 1122(a) (1988).4 In setting forth the "substantially similar" requirement, the section tells us when claims may be included in the same class; it does not tell us when they must be. Although some courts have read section 1122 to require the placement of all unsecured claims in the same class, seе, e.g., In re Iacovoni,
Unlike the case at hand, Hanson involved a Chapter 11 plan. This distinction was emphasized at oral argument by counsel for the trustee. Emphasizing the remedies available to unsecured crеditors in Chapter 7 and 11 cases but not under Chapter 13, the trustee argues against separate classification of the counties' unsecured claims. We are unpersuaded by this line of reasoning. Tо adopt the trustee's interpretation of section 1122 "would conflict with section 1322(b)(1), which specifically authorizes designation of more than one class of unsecured creditor, each рresumably with equal legal rights to the debtor's estate." Barnes v. Whelan,
Turning to the second requirement of section 1322(b)(1), we examine whether placement of the counties' claims in a separate class unfairly discriminates agаinst the other unsecured claims. As noted by the Bankruptcy Court, "by allowing for separate classes of unsecured claims, Congress anticipated some discrimination, otherwise separate сlasses would have no significance. It is only unfair discrimination that is prohibited." In re Storberg,
Although the Bankruptcy Court did not explicitly apply each part of the test to determine that the Lesers' Chapter 13 plan did not unfairly discriminate between the counties and the other unsecured creditors, we are satisfied that its conclusion based on its implicit findings is correct. In reaching his decision, Judge Kressel relied upon his analysis set forth in Storberg. There, following a lengthy discussion of "the overwhelming publiс policy in favor of providing for support of children, [Judge Kressel rejected the trustee's argument] that the debtor's separate classification for such support is unfair."
Judge Kressel's determinatiоn is further supported by the Code's indistinguishable treatment between claims for child support held by a custodial parent and claims assigned to a county collection agency. The assignment of a claim for delinquent child support to a county agency does not render the obligation dischargeable. Section 523(a)(5) provides that a discharge under section 1328(b)
does not discharge an individual debtor from any debt ... to a spouse, former spouse, or child of the debtor, for ... support of such ... child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement, but not to the extеnt that ... such debt is assigned to another entity, voluntarily, by operation of law, or otherwise (other than debts assigned pursuant to section 402(a)(26) of the Social Security Act, or any such debt which has been assigned to the Federal Government or to a State or any political subdivision of such State )....
11 U.S.C. Sec. 523(a)(5) (1988) (emphasis added). See also In re Wilson,
Emphasizing the nondischargeability feature of past due child support claims, one bankruptcy court found that the separate classification of thеse claims met the four-part test:
[T]he discrimination in favor of the payment of back child support has a reasonable basis since it pertains to a debt which is not dischargeable in Chaptеr 13. Further ... the failure to pay back child support in full indicates a lack of good faith barring confirmation. Thus, it is doubtful that a Chapter 13 plan could be confirmed in most instances without a separate classification for child support, absent the relatively rare 100% payout plan. The practical effect on the remaining unsecured creditors, whose debts are not paid in full, is virtually non-еxistent since their debts would be generally discharged under Chapter 7 in any event while the child support arrearages would not."
In re Davidson,
For the reasons stated above, we affirm the decision of the District Court upholding the confirmation of the Lesers' Chapter 13 plan.
Notes
The HONORABLE EDWARD DUMBAULD, Senior Unitеd States District Judge for the Western District of Pennsylvania, sitting by designation
The Honorable Robert J. Kressel, United States Bankruptcy Judge for the District of Minnesota
The Honorable David S. Doty, United States District Judge for thе District of Minnesota
See, e.g., In re Storberg,
Although not applicable in this case, subsection (b) explicitly permits the separate classification of certain unsecured claims for administrative convenience. 11 U.S.C. Sеc. 1122(b) (1988). "[I]t has always been assumed that the purpose of Sec. 1122(b) was to allow special treatment for small claims, so that they could be eliminated early and reduce the number of claims that would have to be paid over time." Storberg,
Although Dziedzic states the fourth part of the test as "the treatment of the class discriminated against," In re Dziedzic,