In Re Potgieter
ORDER ON AMENDED TRUSTEE’S UNFAVORABLE RECOMMENDATION CONCERNING CONFIRMATION OF THE PLAN
(Doc. No. 38)
THE MATTER undеr consideration in this Chapter 13 case of Riaan and Kristy Potgieter (the Debtors) is the Amended Trustee’s Unfavorable Recommendation Concerning Confirmation of the Plan (Doc. No. 38), filed on January 29, 2010. The precise question рresented to this Court is whether a Chapter 13 Plan where the Debtors’ Plan proposes to pay unsecured, nondischargeable student loan creditors directly as a separate class of creditors from other gеneral unsecured creditors when the general unsecured creditors will receive 100% distribution under the Plan.
The issues raised by the Trustee for this Court’s consideration on the Amended Trustee’s Unfavorable Recommendation Concеrning Confirmation of the Plan are as follows.
The Debtors filed their Petition for Relief pursuant to Chapter 13 of the Bankruptcy Code on May 14, 2009. The Debtors filed with their Petitions and Schedules, the required form B22C (Debtor’s Chapter 13 Statement оf Current Monthly Income and Calculation of
The Trustee upon reviewing the Dеbtors’ Claims Register noted that the Debtors’ unsecured claims totaled $31,440.65. The Debtors’ monthly disposable income, when taken in the context of a sixty (60) month Plan, is sufficient to pay their unsecured claims in full. However, the Debtors proрose to pay the Proof of Claim 3-1 of ECMC, filed in the amount of $28,889.17, outside of the Plan while paying other unsecured claims 100% inside the Plan over forty-eight (48) months. The Debtors listed the student loan payment as a current expenditure on Schedule J at $75.00 per month. When multiplied by the forty-eight (48) month Plan as proposed by the Debtors, the student loan claim would only be paid a total of $3,600.00 of the $28,889.17 total claim, or only 12% of the student loan debt, over the life of the proposed Plan. Thus, it is the Trustee’s contention that the Plan unfairly discriminates against the student loan claim of ECMC.
It is the Debtors’ contention that since the general unsecured creditors are being paid 100% and the long-term student loan debt will be paid outside of the Plan at the contract rate, the treatment of the remaining unsecured creditors is not unfairly discriminatory and, therefore, the Debtors meet the test provided under § 1322(b)(1).
Student loan debt, which is typically unsecured, is not granted priority under the Bankruptcy Code and, therefore, there is no requirement that it be paid in full during a plan. However, in 1990, Congress passed the Student Loan Default Prevention Initiative Act of 1990, Pub. L. 101-508, §§ 3001, 3007, 104 Stat. 1388, 1388-25, 1388-28 (1990), which made certain government-sponsored educational loans nondischargeable in Chapter 13. Under BAPCPA, both government-sponsored and private student loans are non-dischargeable in a Chapter 13 bankruptcy.
See
11 U.S.C. §§ 1328(a)(2) and 523(a)(8). In addition, student loan debt claims accrue interest during the life of a Chapter 13 plan if the debtor does not maintain monthly payments. “Thus, chapter 13 debtors have a compelling reason to seek, at minimum, to pay their student loan creditors whatever portion of disposable income is required to avoid the postpetition accrual of interest and/or penalties, lest the debtors emerge from bankruptcy owing significantly more on this nondis-chargeable debt than they did upon entering bankruptcy.”
See In re Orawsky,
Various courts considering whether plans “unfairly discriminate” when they allow full monthly payments on student loan debts have come to different conclusions.
See In re Colley,
Alternatively, many cases have ruled that Chapter 13 plans thаt propose to pay student loan claims at rates substantially higher than other unsecured debts unfairly discriminate and cannot be confirmed.
In re Tucker,
The passage of BAPCPA did not alter the language of § 1322(b)(1) or § 1322(b)(5), giving pre-BAPCPA cases continued relevance. Nevertheless, the Court agrees thаt BAPCPA impacts the analysis, at least in some cases, because BAPCPA altered the calculation of “projected disposable income” which an above-median income debtor must commit to a Plan and addеd a requirement that a debt- or pay his or her “projected disposable income.”
The relevant statutory provision provides in pertinent part—
11 U.S.C.A. § 1322. Contents of plan
(b) Subject to subsections (a) and (c) of this section, the plan may—
(1) designate a class or classes of unsecured claims, as provided in section 1122 of this title [11 USCA § 1122], but may not discriminate unfairly against any class so designated; however, such plan may treat claims for a consumer debt of the debtor if аn individual is liable on such consumer debt with the debtor differently than other unsecured claims,
(4) provide for payments on any unsecured claim to be made concurrently with payments on any secured claim or any other unseсured claim;
(5) notwithstanding paragraph (2) of this subsection, provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured сlaim on which the last payment is due after the date on which the final payment under the plan is due;
11 U.S.C. § 1322(b)(1), (4) and (5).
Various courts have considered the four factors in determining whether the treatment of a class designated under § 1322(b)(1) is fair: (1) whethеr the discrimination has a reasonable basis; (2) whether the debtor can carry out a plan without such discrimination; (3) whether
Section 1322(b)(1) allows a plan to designate a class or classes of unsecured claims, as provided in Section 1122 of the Bankruptcy Code. However, a plan may not discriminate unfairly against any class so designated.
In re Leser,
The second requirement of Section 1322(b)(1) is that the court must determine whethеr the placement of the student loan debts in a separate class unfairly discriminates against other unsecured claims. “[B]y allowing for separate classes of unsecured claims, Congress anticipated some disсrimination, otherwise separate classes would have no significance. It is only unfair discrimination that is prohibited.”
Id.
at 671-72 (quoting
In re Storberg,
This Court has reviewed the Debtors’ Plan and concludes that under the circumstances of this ease it does not disсriminate unfairly. The Debtors have chosen to separately classify their unsecured student loan obligations from other unsecured debts and intend to pay the student loan obligations outside of their proposed Plan. The сlassification does not discriminate unfairly because: 1) the plan provides for a 100% repayment of all general unsecured claims; 2) the student loan obligation is non-dischargeable and, therefore, ECMC will receive 100% rеpayment; and 3) the debtor has the right under § 1322(b)(4) to provide for payments on any unsecured claim to be made concurrently with payments on any secured claim. It is the combination of these factors which persuades this Court that the plan classification does not unfairly discriminate.
Based on the foregoing, this Court is satisfied that the Chapter 13 Trustee has not demonstrated that the Debtors’ treatment of their student loan debt in this manner, and its payment outsidе of the plan, will be discriminatory to the Creditor while the Debtors pay their remaining general unsecured creditors’ claims inside the Plan. The Court recognizes that the Debtors proposed a Plan that will pay the general unsecured creditors 100% distribution under the Plan. This Court also notes that ECMC will be paid according to the Debtors individual contractual terms during the life of the Plan. ECMC will receive no more than they would receive outside of bankruptcy, and will nоt be paid in full during the life of the Debtors’ Chap
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Debtors proposed Plan, as written, is not unfairly discriminatory since ECMC’s student loan claim is a non-dischargeable dеbt and the Debtors will continue to pay the debt beyond the life of their Chapter 13 Plan. It is further
ORDERED, ADJUDGED AND DECREED that the Confirmation Hearing shall be held on June 17, 2010, beginning at 1:30 p.m. at the United States Bankruptcy Courthouse, Fort Myers, Federal Building and Federal Courthouse, Room 4-117, Courtroom E, 2110 First Street, Fort Myers, Florida, to consider confirmation of the Debtors’ Plan.