Wayne Crawford appeals from the district court’s affirmance of the bankruptcy court’s refusal to confirm his Chapter 13 plan. Chapter 13 is a counterpart to Chapter 11 (reorganization) but designed for individuals of modest means.
In re Heath,
Crawford’s nonpriority unsecured debts consist of some $19,000 owed the IRS; $18,000 owed the county as a result of Crawford’s having been delinquent for a period in his child support payments (he is now current) and the county’s having paid welfare to the mother and taken in exchange an assignment of her entitlement to child support; and $500 owed to a pair of trade creditors. The debt that Crawford owes the county is nondischargeable. 11 U.S.C. § 523(a)(5)(A).
The plan proposed to divide Crawford’s debts into two classes, one consisting of the debt to the county and the other of the other debts. The county debt would be paid first and only after it was paid in full would he begin to pay the debts of the second class. Originally the plan envisaged that over the course of its three years the county debt would be paid in full with enough left over to pay the other unsecured creditors between 3 and 6 percent of what they were owed. But this wаs contingent on Crawford’s prevailing in a dispute he had with the IRS. He did not prevail and as a result the plan had to be amended. Under the amended plan, the county debt will not be paid in full but two-thirds of it will be paid, while the other unsecured creditors will get nothing at all, whereas without the preferred treatment of the county debt but with the same aggregate level of periodic payment as under the amended plan each unsecured creditor would receive roughly 32 cents on the dollar.
Section 1322(b) of the Bankruptcy Code, while forbidding as we have said
A number of cases use a four-factor test: “1) whether the discrimination has a reasonable basis; 2) whether the debtor can carry out a plan without the discrimination; 3) whether the discrimination is proposed in good faith; and 4) whether the degree of discrimination is directly related to the basis or rationale for the discrimination.”
In re Leser,
Another test one finds in sоme cases is whether the debtor has a “legitimate” basis for the classification.
In re Brown,
A third test insists that the classification presumptively give the disfavored creditors at least 80 percent of what they would get without the classification,
In re Sullivan,
We haven’t been able to think of a good test ourselves. We conclude, at least provisionally, that this is one of those areas of the law in which it is not possible to do better than to instruct the first-line decision maker, the bankruptcy judge, to seek a result that is reаsonable in light of the purposes of the relevant law, which in this case is Chapter 13 of the Bankruptcy Code; and to uphold his determination unless it is unreasonable (an abuse of discretion). This approach has support in
In re Bentley,
Mention of the statute’s language should аt least serve to remind bankruptcy judges that Chapter 13 is designed for the protection of creditors as well as debtors.
In re Andrews,
At the other extreme is a nondischargeable debt consisting of a fine imposed, or restitution ordеred, in respect of a criminal fraud that the Chapter 13 debt- or committed, together with other unsecured debts, and he proposes a classification under which the nondischargeable debt will be paid in full and the other creditors will receive nothing at all. Approval of such a plan would be unreasonable.
In re Bennett,
Crawford’s rejected plan lies in between our examples, but it is closer to the second and close еnough to require us to affirm its rejection. The nonpayment of child support is a serious matter and in fact a nationwide problem, which is why Congress has determined that child-support debts, of which the debt owed the county» is a version, are nondischargeable. The retributive and deterrent interests are weaker than in the case of a deliberate criminal act, since nonpayment сan be involuntary as well as voluntary; but no reason has been shown for allowing Crawford to shift two-thirds of this debt to his other unsecured creditors. Had he proposed to carve-down his nondischargeable debt to the principal owed on it (roughly $12,000), and had he shown that without such a carve down he would be staggering under such a crushing load of undischarged debt as to make it inevitable or nearly so that he would soon be back in bankruptcy court, this time under Chapter 7, the bankruptcy court might deem such a plan reasonable and we presumably would affirm — especially if the unsecured crеditors would do worse in Chapter 7 than they would do under Crawford’s revised Chapter 13 plan. It is true that he has a
We do not hold that child-support debts, or, as in this case, a debt arising from the assignment of the right to child support, cannot be classified. Nor do we hold that Crawford cannot formulate an acceptable plan that would involve an element of classifiсation. We hold only that the bankruptcy court did not abuse its discretion in rejecting, as an unfair discrimination against his other creditors, the plan he proposed, which would if approved have shifted two-thirds of his nondischargeable debt to his other creditors, leaving them with nothing.
Affirmed.