Meyer v. Hill (In Re Hill)Meyer v. Hill (In Re Hill)
Lead Opinion
OPINION
The chapter 13 trustee appeals a plan confirmation in which the bankruptcy court excused the debtor from proving that a plan classification favoring her mother over other creditors did not discriminate unfairly. The court held in a published decision, In re Hill,
We do not reach this interesting question because the record indicates that the
Facts
Jill Hill filed a voluntary chapter 7 bankruptcy and soon converted to chapter 13, filing a plan providing for payment of $400 per month for 60 months ($24,000).
The schedules listed zero secured debt, zero priority debt, and unsecured debt totaling $57,306. Plan distributions would be to administrative expenses, any priority creditors, and unsecured creditors in two classes.
The first-class unsecured treatment was for “[o]bligations on which [debtor’s mother] Betty J. Nelson is also liable: Chase ($9,147), Chase ($3,941), Discover ($5,243), Bank of America ($6,000) [which] shall be paid in full.” The total first-class unsecured debt was $24,331.
The second-class unsecured treatment was for “[a]ll other unsecured creditors (IRS, Wachovia, University of Utah, Phillips) [which] shall be paid nothing.” The total second-class unsecured debt was $32,975.
Nothing in the appellate record indicates how $24,000, minus expenses of chapter 13 administration, would suffice to pay unsecured debt of $24,331 “in full.”
The chapter 13 trustee objected to plan confirmation, focusing upon a legal and a procedural notice issue. The legal issue was whether a debtor proposing a chapter 13 plan with separate classifications treating co-signed unsecured debt more favorably than other unsecured debt must demonstrate that the classification does not
The chapter 13 trustee’s procedural issue was whether due process considerations require written notice to creditors of the factual basis for a proposed discrimination whenever the bankruptcy court limits chapter 13 confirmation hearings to those cases in which timely objection to confirmation is filed.
The debtor’s evidence supporting plan confirmation consisted of this declaration: “In my filing I scheduled obligations to Chase ($9,147), Chase ($3,941), Discover ($5,243) and Bank of America ($6,000) for debts incurred by me using Betty J. Nelson’s credit cards. Betty J. Nelson is my Mother. Betty J. Nelson did not incur any of the debts scheduled by me.”
The court overruled the objection. Ignoring the procedural issue, it ruled that
This appeal ensued.
Jurisdiction
The bankruptcy court had jurisdiction per
Standard of Review
The interpretation of
Analysis
This is a matter of statutory interpretation as to which we stumble at the threshold.
I
The statute in question is Bankruptcy Code
(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; however, such plan may treat claims for a consumer debt of the debtor if an individual is liable on such consumer debt with the debtor differently than other unsecured claims[.]
The focus is on the emphasized “however” clause. That clause — which was added to
Most courts hold that separately classified co-obligor debts must still clear the
A minority of courts, including the bankruptcy court in this appeal, conclude that the “however” clause excuses compliance with the
A few courts think the debate of little consequence because overreaching in favor of co-obligors can be dealt with under the good faith requirement of
While we have not heretofore decided the narrow question of the impact of the
(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 ... [i.e.,] does the basis for the discrimination demand that this degree of differential treatment be imposed?
Amfac Distrib. Corp. v. Wolff (In re Wolff),
If we were to disagree with the bankruptcy court and conclude that the
II
The threshold question is whether the
The
The debtor, as the chapter 13 plan proponent, has the burden of proof on all elements of plan confirmation. Wolff,
If the debtor does not prove facts sufficient to establish the application of the
A
The term “consumer debt” is statutorily defined to mean debt incurred by an individual “primarily for a personal, family, or household purpose.”
It is settled in this circuit that the purpose for which the debt was incurred affects whether it falls within the statutory definition of “consumer debt” and that debt incurred for business ventures or other profit-seeking activities does not qualify.
The record is silent as to the purpose of the debt. The evidence to support the existence of consumer debt is limited to some probabilistic inference from the fact that most personal credit card debt is consumer debt. Thus, the evidence to support this element is, at best, thin.
B
Although the term “consumer debt of the debtor” is not separately defined, the language necessitates focus upon the precise liability “of the debtor.”
There are two pertinent questions. First, who is the creditor? Second, what is the nature of the liability?
Here, the sole evidence of record was the debtor’s declaration that there were “debts incurred by me using Betty J. Nelson’s credit cards.” There is no hint that the debtor herself has any contractual relationship with her mother’s credit card issuers or that they even know who the debtor is.
Assuming that the debtor has an enforceable obligation, it is likely to be an obligation to reimburse her mother based on some apparently-informal agreement.
Thus, the scant record indicates that the creditor is the debtor’s mother and that the nature of the obligation is reimbursement or indemnification.
c
The fatal defect in this case is, however, the third essential element for invoking the
1
When the phrase “liable on such consumer debt with the debtor” was added to
The plain language suggests that there be some form of shared liability. Buried within the phrase are two distinct concepts: “liable on” and “liable with.” The fact that the co-obligor must be both “liable on” the debt and “liable with” the debtor, implies that the debtor and the coobligor must both be liable to some third party.
The phrase “liable with” is understood to include codebtors, sureties, and guarantors. E.g., H.Rep. No. 95-595, at 354 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6309-10 (“codebtor, surety or guarantor”); 4 Lawrence P. King et al., Collier on Bankruptcy ¶ 502.06[2][b] (15th ed. rev.2001) (“Collier”).
Although discussions of chapter 13 cases typically speak of the phrase as applying to co-signers, e.g., Lundin § 150.1, we see
In any event, some version of shared liability is essential. Dant & Russell, Inc. v. Burlington N. R.R. Co. (In re Dant & Russell, Inc.),
There is not the requisite shared liability when A is liable to B and B is liable to C but A is not liable to C. LTV Steel Co. v. Shalala (In re Chateaugay Corp.),
It is inescapable that the “liable with” requirement means that both the debtor and the co-obligor must be liable to some other creditor. That is the element that is missing here.
2
The mother’s credit card debt, viewed from the perspective of the card issuers, is the debt of the mother alone. If she does not pay, they will pursue her, not the debtor. In other words, as far as the mother’s creditors are concerned, the debtor is not hable with the mother within the meaning of
From the debtor’s perspective, the debt- or’s liability that is described is, at most, a liability directly to her mother. Assuming that there would be an enforceable obligation as between mother and daughter, any such obligation would as a matter of law be separate from the obligations as between mother and creditor.
In the absence of evidence that the creditors were parties to the arrangement between mother and daughter regarding the use of the mother’s credit cards, the debt- or’s mother does not qualify as an individual who is “liable on [the] debt with the debtor” within the meaning of
The
Without someone “liable with” the debt- or, the
Correlatively, there was neither an attempt to demonstrate nor a determination by the bankruptcy court that the separate classification in the plan did not unfairly discriminate against the other class of unsecured claims as required by
Ill
Finally, the appellee has questioned the chapter 13 trustee’s appellate standing, which is a jurisdictional matter that can be raised for the first time on appeal. Menk v. LaPaglia (In re Menk),
The chapter 13 trustee has an affirmative statutory duty to appear and be heard on the question of plan confirmation.
In view of the fact that creditors are not afforded an opportunity to accept or reject chapter 13 plans, this duty of the trustee is particularly important to the proper functioning of chapter 13. The trustee is charged with serving the interests of all creditors, secured and unsecured. Andrews,
The Ninth Circuit reasoned in Andrews that the requirement to “appear and be heard” under
By the same reasoning, we conclude that the chapter 13 trustee’s
Likewise, the U.S. trustee has filed a brief amicus curiae in support of the chapter 13 trustee. It is settled that the U.S. trustee has appellate standing under
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In sum, the § 1322(b)(1) “however” clause does not apply in this instance because there is no individual who is “hable with” the debtor on the debts. The bankruptcy court’s decision ruling that the clause preempts the § 1322(b)(1) fairness element for plan confirmation related to a purely hypothetical question. Under the factual record as presently constituted, the debtor must show that the plan does not unfairly discriminate against other unsecured creditors even if the bankruptcy court’s interpretation of the (irrelevant) “however” clause were to be correct. We imply no view and leave that interesting question to another day.
The order confirming the chapter 13 plan, as to which both the chapter 13 trustee and the U.S. trustee have appellate standing, will be VACATED and the cause REMANDED for further proceedings in which the plan proponent may attempt to prove all essential elements for plan confirmation.
Notes
. Section 502(e) requires disallowance of certain claims:
... for reimbursement or contribution of an entity that is liable with the debtor on or has secured the claim of a creditor....
Section 509(a) provides that: ... an entity that is liable with the debtor on, or that has secured, a claim of a creditor against the debtor, and that pays such claim, is subrogated to the rights of such creditor to the extent of such payment.
Section 1301 provides for a codebtor stay of any act to collect a consumer debt:
... from any individual that -is liable on such debt with the debtor, or that secured such debt....
Concurrence Opinion
concurring.
Although I agree with the outcome in this case and join part III, I disagree with the approach taken by the majority in parts I and II.
As to part I of the opinion, I would hold that the § 1322(b)(1) “however” clause merely qualifies, rather than preempts, the fairness analysis. I would, therefore, reverse and remand to allow the trial court to determine whether the discrimination is unfair.
As to part II of the opinion, I agree with the majority’s initial substantive paragraph:
The § 1322(b)(1) “however” clause does not apply in a particular case unless three essential elements exist: there must be “consumer debt” that is “consumer debt of the debtor” and as to which there is “an individual [who] is liable on such consumer debt with the debtor.”11 U.S.C. § 1322(b)(1) .
I agree with the majority that the debt- or has not carried her burden of proof on any of the three elements of