Lead Opinion
OPINION
INTRODUCTION
Michael H. Meyer, chapter 13
Renteria was less generous with her other debts; her plan proposed to pay little or nothing on account of any other unsecured claims. The court overruled the Trustee’s objection, and confirmed the plan in an opinion appearing at In re Renteria,
FACTS
The facts are not disputed. Renteria commenced her chapter 13 bankruptcy case on January 20, 2011. According to her bankruptcy schedules, she owed in aggregate roughly $100,000 in unsecurеd claims, which included approximately $20,000 she owed to her former attorney James Preston (“Preston”). In her proposed chapter 13 plan, she classified Preston’s unsecured claim separately from all of her other unsecured claims. Renteria’s plan used this separate classification to pay Preston’s claim in full, with 10% interest. Other unsecured creditors, however, were to get nothing; the plan proposed to pay a 0% dividend.
In supporting her plan, Renteria explained that she preferred Preston over all other unsecured creditors because her mother, Nellie Reser (“Reser”), was a co-debtor on the debt owed to Preston. The plan stated:
The claim of James Preston is for services provided to Debtor. Her mother*840 is jointly liable for this debt. Mr. Preston filed suit against Debtor and her mother in the Superior Court of California, Tulare County. According to the case management statement filed December 23, 2010 by plaintiff, default was entered against Debtor’s mother.
Chapter 13 Plan (Jan. 20, 2011) at p. 7.
The Trustee objected to Renteria’s plan. The Trustee argued that the preferential treatment of Preston’s claim was impermissible and constituted unfair discrimination. The Trustee’s argument tracked the unfair discrimination test this panel first adopted in Amfac Distrib. Corp. v. Wolff (In re Wolff),
In response to the Trustee’s objection, Renteria argued that her preferential treatment of Preston’s claim was not subject to the good faith portion of Wolffs test. According to Renteria, Wolff was decided in 1982, before the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, 98 Stat. 333 (1984) (BAFJA), amended the Bankruptcy Code to exempt the preferential treatment of codebtor consumer claims from the unfair discrimination test. In the altеrnative, Renteria argued that, even if codebtor consumer claims were not wholly exempt from the unfair discrimination test, her proposed plan satisfied that test.
Renteria filed a declaration in support of her response elaborating on the nature of the debt she owed to Preston and Reser’s status as a guarantor of that debt. Rente-ria explained that she retained Preston to prosecute family law litigation on her behalf for domestic violence and paternity. According to Renteria, she enlisted the help of her mother, Reser, who guaranteed in writing Renteria’s payment of attorneys’ fees and expenses in order to induce Preston to represent Renteria. As Renteria put it, she would not have been able to prosecute her family law litigation in a comрetent manner without her mother’s help in retaining Preston.
Renteria further represented that she could not afford to both pay off Preston in full, with interest, and pay more to her other unsecured creditors.
In its opinion on confirmation, In re Renteria,
The bankruptcy court thereafter entered an order confirming Renteria’s plan, and the Trustee timely appealed.
DISCUSSION
This appeal requires us to interpret § 1322(b)(1) of the Bankruptcy Code. Review of a bankruptcy court’s interpretation of the Bankruptcy Code is de novo. Consol. Freightways Corp. of Del. v. Aetna, Inc. (In re Consol. Freightways Corp. of Del.),
Section 1322 addresses the permissible and required contents of a chapter 13 plan. In pertinent part, § 1322(b)(1) permits a debtor’s plan to designate more than one class of unsecured claims, provided that the separate classification (and differing treatment) of claims meets certain criteria;
(b) Subject to subsectiоns (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, 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 debt- or differently than other unsecured claims....
Prior to 1984, § 1322(b)(1) ended with the words “so designated.” But BAFJA, enacted in 1984, amended § 1322(b)(1) to add the clause beginning with “however,” which frequently is referred to as the “however clause.” Pub.L. 98-353, § 316, 98 Stat. 333; see, e.g., Meyer v. Hill (In re Hill),
The “however clause” has been the subject of a significant amount of debate. Neither courts nor commentators have agreed on precisely what Congress intended to accomplish by adding the “however clause” to § 1322(b)(1). As this pаnel explained in Hill, the “however clause”
has perplexed and divided courts as to whether it obviates, or merely qualifies, the fairness requirement. Most courts hold that separately classified co-obligor debts must still clear the § 1322(b)(1) unfair discrimination hurdle. The consequence is that the “however” clause permitting co-obligor debts to be treated “differently” is more in the nature of a*842 qualification to the application of the unfair discrimination analysis than an exemption from it. A minority of courts ... conclude that the “however” clause excuses compliance with the § 1322(b)(1) ban on unfair discrimination.
Id. at 551 (citations and paragraph structure omitted).
The minority courts, like the bankruptcy court here, have held that the “however clause” is plain and unambiguous; that is, it clearly carves out codebtor consumer claims from the requirements of the unfair discrimination rule. See, e.g., In re Hill,
But the rule of the last antecedent is flexible and not universally binding. See id. As the Supreme Court recently explained, “this rule is not absolute and can assuredly be overcome by other indicia of meaning.... ” Barnhart v. Thomas,
More importantly, the plain meaning adherents tend to ignore or discount the distinctive language used in the unfair discrimination rule and in the “however clause.” Specifically, the former refers to “unfair discrimination” whereаs the latter refers to “different treatment.” This difference in language arguably suggests that Congress intended something other than to completely exempt codebtor consumer claims from the unfair discrimination rule. A majority of courts examining the meaning of the “however clause” have emphasized this language difference, See, e.g., In re Battista,
But this rule of construction is no more absolute than the last antecedent rule. See Sosa v. Alvarez-Machain,
Courts emphasizing the language difference between the unfair discrimination rule and the “however clause” tend to conclude that the “however clause” was not meant to wholly exempt codebtor consumer claims from the unfair discrimination rule. See Keith M. Lundin & William H. Brown, Chapter 13 Bankruptcy, 4th Edition, www.chl3online.com, § 150.1, at ¶ [3] & n.3 (Rev. Apr. 14, 2009)(collecting eases).(collecting cases). Many of these cases further point out that, if Congress intended to wholly exempt codebtor consumer claims from the unfair discrimination requirement, they easily could have done so by using more straightforward
Some of these courts have taken this argument too far, to the point of rendering the “however clause” meaningless, by giving the clause no effect whatsoever. See, e.g., In re Strausser,
Other courts have taken a middle ground, essentially concluding that the “however clause” was meant to limit the unfair discrimination rule’s application to codebtor consumer claims. See, e.g., Ramirez v. Bracher (In re Ramirez),
By all accounts, the legislative history accompanying the BAFJA amendments had nothing to say about § 1322(b)(1), the “however clause” or cоdebtor consumer claims. See, e.g., In re Ramirez,
In short, while the courts have not always agreed on what this legislative history demonstrates, most of them agree thаt the legislative history is relevant to the task of interpreting the “however clause.” Because of its importance to our analysis, we quote in full the relevant language from the Senate Report accompanying the OBIA:
A number of cases have considered whether claims involving codebtors may be classified separately from other claims. Thus far, the majority of cases have refused to permit such classification on the ground that codebtor claims are not different than other claims. See, for example, In re Utter,3 B.R. 369 (Bk.W.D.N.Y.1980); In re Montano,4 B.R. 535 (Bk.D.D.C.1980).
Although there may be no theoretical differences between codebtor claims and others, there are important practical differences. Often, the codebtor will be a relative or friend, and the debtor feels compelled to pay the claim. If the debt- or is going to pay the debt anyway, it is important that this fact be considered in*845 determining the feasibility of the plan. Sometimes, the codebtor will have posted collateral, and the debtor will feel obligated to make the payment to avoid repossession of the collateral. In still other cases, the codebtor cannot make the payment, and the effect of nonpayment will be to trigger a chapter 7 or chapter 13 petition by the codebtor, which may have a ripple effect on other parties as well. For these reasons, separate classification is often practically necessary.
Courts under both the present Act and the former law have emphasized that plans must be realistic. For example, courts have refused to confirm рlans which the debtor could not possibly perform; have insisted on realistic estimates of expenditures; and have considered debts which the debtor proposes to pay outside the plan in determining feasibility. In re Washington,6 B.R. 226 (Bk.E.D.Ya.1980). This approach is eminently sensible. No purpose is served by confirming a plan which the debtor cannot perform. If, as a practical matter, the debtor is going to pay the codebtor claim, he should be permitted to separately classify it in a chapter 13. A result which emphasizes purity in classifying claims does so at the price of a realistic plan. Neither debtors nor creditors benefit from such a rigid approach, and the Committee has determined that statutory authority to separately schedule such debts will contribute to the success of plans contemplating repayment of same. Accordingly, this authority is provided for in the proposed bill by amendment to section 1322(b)(1).
S.Rep. No. 98-65 (1983).
Those courts holding that the unfair discrimination rule still applies to codebtor consumer claims point out that the above-quoted text focuses on separate classification and does not even mention unfair discrimination. See, e.g., In re Strausser,
None of the courts interpreting the “however clause” have, as yet, examined the two bankruptcy cases, Utter and Mon-tano, which the committee report cited as exemplifying the case law Congress intended to address by amending the statute. In Utter, the joint debtors filеd a chapter 13 plan separately classifying one unsecured claim, and proposing to pay that claim a 100% dividend, whereas all other unsecured creditors would receive little or nothing. In re Utter,
Montano is quite similar to Utter. In Montano, the debtor had unsecured debt in the aggregate amount of roughly $30,000. In re Montano,
In light of the facts and holdings of Utter and Montano, and in light of Congress’s citation of these two cases as exemplifying the case law it sought to address by amending § 1322(b)(1), we hold that Congress sought to permit a chapter 13 debtor to separately classify and to prefer a codebtor consumer claim when the facts are similar to those presented in Utter and Montano.
On that basis, we conclude that the Trustee’s appeal here must fail. The record reflects that the Trustee only objected to Renteria’s plan because she proposed to pay a 100% dividend to Preston and little or no money to her other unsecured creditors. There were no disputed facts, and Renteria’s explanation for why she needed to prefer Preston — to prevent Preston from collecting from Reser as the guarantor of Renteria’s debt — was uncontested. Renteria also represented that she had no additional net income to pay any greater dividend to her general unsecured creditors, and the Trustee did not challenge that representation. Furthermore, the Trustee waived or conceded all other confirmation issues.
We acknowledge that our decision leaves open the issue of the precise relationship between the “however clause” and the unfair discrimination rule. We intentionally have left unanswered the question of when (if ever) does the preferential treatment of a codebtor consumer claim violate the unfair discrimination rule. We decline to answer that question until we receive an appeal with a record and issues squarely presenting that question for decision.
CONCLUSION
For the reasons set forth above, we AFFIRM the bankruptcy court’s order confirming Renteria’s chapter 13 plan.
Notes
. Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
.The Wolff test is:
(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 goоd faith; and (4) whether the degree of discrimination is directly related to the basis or rationale for the discrimination. Restating the last element, does the basis for the discrimination demand that this degree of differential treatment be imposed?
Id.
. As stated in the Trustee's Opening Brief to this panel, "The Trustee objected to confirmation of Debtor’s proposed Chapter 13 plan on one ground; Debtor’s plan did not comply with 11 U.S.C. § 1322(b)(1).”
. Renteria’s declaration also indicated that she had agreed at her § 341(a) meeting of creditors to increase her plan payments by an additional $7,196.06 over the three-year life of her plan. At oral argument, we were informed that the source of this increase was
. The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(L), and we have jurisdiction under 28 U.S.C. § 158.
. One case, In re Thompson,
. Indeed, two of the leading bankruptcy treatises, Chapter 13 Bankruptcy and Collier on Bankruptcy, appear to favor differing interpretations of the "however clause." Compare Chapter 13 Bankruptcy, supra, § 150.1 (appearing to favor interpretation that unfair discrimination rule still applies to codebtor consumer claims), with 8 Collier on Bankruptcy ¶ 1322. 05[1] (Alan N. Resnick and Henry J. Sommer eds., 16th ed. 2011) (appearing to favor interpretation that "however clause” exempts codebtor consumer claims from the unfair discrimination rule).
. The OBIA proposed that § 1322(b)(1) should be amended to read as follows:
(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 which are specified in section 523(a) or involve a codebtor differently than other unsecured claims...."
S. 445, 98th Cong. § 219 (1983) (emphasis added). The corresponding proposed amendment in the BIA was virtually identical. See S. 2000, 97th Cong. § 17 (1981); 127 Cong. Rec. 32, 197 (1981).
. The committee report accompanying the BIA, S.Rep. No. 97-446, at 28 (1982), has virtually identical language explaining the purpose of its version of the “however clause.”
. Section 1122(a) provides: “Except as provided in subsection (b) of this section, 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.” This panel (and a number of other courts) have rejected the
. The Trustee thus framed the issue on appeal as an issue of law as simply "whether the bankruptcy court erred in finding that 11 U.S.C. Section 1322(b)(1) permits the separate classification of a consumer codebtor claim without proving that the differential treatment of the cosigned debt does not unfairly discriminate against the other general unsecured creditors.”
. While this panel's reasoning is significantly different than the bankruptcy court’s, we may affirm on any ground fairly supported by the record. See Wirum v. Warren (In re Warren),
Concurrence Opinion
concurring.
I agree entirely with the disposition in the majority Opinion with respect to the issue presented in this appeal. I write separately to stake out some turf based on further interpretation of § 1322(b)(1) in light of information from the factual record on which the Trustee did not focus.
The Trustee insisted on a “zero-sum game” in this case. It did not have to be that way. Although the plan that originally was proposed projected a 0% dividend to the general unsecured creditors, at the § 341(a) meeting, Renteria stipulated to increase her plan payments by an additional $7,196.06 over the 36-month life of the plan in light of a loan payoff during the plan term. See note 4 in the majority Opinion, supra. There is no evidence in the record before us that the Trustee attempted to negotiate any further increase in the distribution to general unsecured creditors in Renteria’s plan. Thе Trustee further admitted that Renteria’s plan was filed in good faith. The stipulated increase in plan payments was not offset by any projected increases in expenses. Renteria’s Schedules I and J reflected net disposable income of Renteria and her nonfiling spouse of $709.60 per month.
Based on the language of § 1322(b)(1), its interpretation by federal courts at all levels, and the sparse legislative history, so ably analyzed in the majority Opinion, to me, the most plausible interpretation of the “however clause” is that Congress wanted to make crystal clear, in light of Utter and Montano, that a chapter 13 debtor has the right to classify separately unsecured claims with co-obligors from other unsecured claims without eliminating
Section 1322(b)(1) clearly allows unsecured claims with co-obligors to be treated “differently” than other unsecured claims. In my view, “differently” means that some separately classified claims can be treated “better” or “worse” than others. As noted in the ChapteR 13 BaNKruptoy treatise,
The 1984 amendments to § 1322(b)(1) complement or work contrary to the co-debtor stay in § 1301, depending on your perspective. Debtors are protected by the codebtor stay from indirect collection actions, to the extent the plan proposes to pay the cosigned claim; creditors with cosigners typically [but not always] get more favorable treatment through the plan because of § 1322(b)(1). The 1984 amendments reward the creditor that demanded a cosigner at the time of the original loan and somewhat balance the extraordinary injunction in § 1301.
Chapter 13 BaNkruptcy, supra, § 150.1[9]. The “however clause” recognizes that reality, while allowing for a fact-based determination in each case as to whether such different treatment crosses the “unfair discrimination” line.
The 1984 amendment is awkwardly worded. To give meaning to all words in the amended section [1322(b)(1) ], it must be true that a debtor’s power to treat cosigned consumer debts “differently” has content separate from the proscription against unfair discrimination: The awkward language is resolved by holding that all different treatments are not necessarily fair discriminations.
Nelson v. Easley (In re Easley),
In this case, Renteria separately classified Preston’s claim, providing for payment in full with interest to Preston in order to protect her mother as co-obligor. As confirmed, Renteria’s plan further provided for additional plan payments in excess of $7,000 that would allow for a significant distribution to the other unsecured creditors. Renteria’s plan provided for different treatment of Preston’s claim from other unsecured claims, as expressly allowed by § 1322(b)(1), but did not leave the general unsecured creditors with no potential for a meaningful distribution. The Trustee conceded that Renteria’s plan was proposed in good faith. Based on the factual record before us, that does not look like unfair discrimination to me.
. To the extent that a nonfiling spouse regularly contributes to the family’s actual household expenses, such contributions are included in the definition of "current monthly income.” § 101(10A)(B). See also § 1325(b)(4); In re Vollen,
Concurrence Opinion
Concurring.
In this appeal, the Panel wrestles with a common task: interpreting a provision of the Bankruptcy Code containing what some consider to be “awkward” language, § 1322(b)(1). The issue: whether, after
The majority Opinion prefers to affirm the bankruptcy court’s decision based on the facts. While providing a comprehensive justification for a possible interpretation of § 1322(b)(1), this Opinion stops short of adopting its solution to the underlying statutory mystery for now, suggesting that the Panel must wait for better facts before taking a firm stand.
My concurring colleague would also affirm, but in contrast to the majority, does so by confidently concluding that, in adopting the however clause, “Congress wanted to make crystal clear ... that a chapter 13 debtor has the right to classify separately unsecured claims with co-obligors from other unsecured claims without eliminating the prohibition [in the pre-1984 language of § 1322(b)(1) ] on unfair discrimination.” While this opinion is certainly definitive, in my view, I respectfully disagree with the conclusion it reaches.
As for me, I also think we should announce a clear rule in our ruling today disposing of this issue. However, in my opinion, we should hold that since the addition of the however clause to § 1322(b)(1), different chapter 13 debtor plan treatments accorded consumer debts eo-signed by another individual are no longer subject to the unfair discrimination rule. In аrriving at my conclusion, I am tempted to join those bankruptcy courts, including the bankruptcy court in this case, that hold that in adding the however clause to § 1322(b)(1), Congress plainly created an unambiguous exception to the prohibition against unfair discrimination in plan claim treatment for a limited, defined class of creditors: those individual creditors that were liable with the debtor on consumer debt. See, e.g., In re Hill,
However, I acknowledge that more than a few courts have, like my two colleagues, considered the amended language of § 1322(b)(1) to be ambiguous, requiring application of statutory construction techniques to unravel. But see Lamie v. U.S. Trustee,
I will not attempt an extended justification for my construction of § 1322(b)(1).
Congress recognized that, as a practical matter, many debtors will attempt to pay a co-signed debt regardless of whether the plan that is confirmed allows for such a preferred distribution. After acknowledging that many debtors are “going to pay the [co-signed] debt anyway,” it would be a meaningless exercise to continue to impose a burden of demonstrating that the classification did not unfairly discriminate. By expressly accepting this reality, it apрears that Congress effectively relieved debtors of the burden of proving that such classifications did not result in unfair discrimination against other unsecured creditors. Congress expressed no intent to better police the debtors’ behavior but instead indicated an intent to allow for explicit acknowledgment of such practical considerations within the context of the plan. Indeed, Congress made clear that the overriding policy was to determine that the proposed plan was feasible so it could be successfully completed. I am mindful that some courts have expressed a concern that exempting cosigned debt from the unfair discrimination test would be an invitation to abuse. Nevertheless, I believe that the good faith requirement under section 1325(a)(3) remains a safeguard agаinst abuse.
Id. at 600 (citations omitted).
I would hold that, because Congress authorized it, a chapter 13 plan may treat cosigned consumer claims differently, even though that treatment may, in some cases, be unfair when compared to that given the claims of other creditors.
I acknowledge that my interpretation of § 1322(b)(1) potentially sanctions the unfairness inherent in unequal treatment of creditors. But even if the solution to the problem it perceived is an overly broad one, any criticisms must be directed to Congress to remedy, not to the courts. Simply put, I would therefore affirm the decision of the bankruptcy court because the unfair discrimination restriction in § 1322(b)(1) does not apply to plan provisions treating co-signed consumer debts.
. Like beauty, the "fairness” of plan treatment is in the eye of the creditor. In addition to conferring beneficial treatment, § 1322(b)(1) also plainly authorizes a debtor to separately classify and treat a co-signed consumer claim less favorably than other unsecured creditors. Such plan treatment may be necessary and appropriate, for example, when the codebtor received the consideration for the original debt {e.g., the debtor cosigned a relative's car loan), or where there may have been a change in the relationship of the debtor and codebtor since the debt was incurred (e.g., claim was co-signed by a former spouse who was later ordered to pay the debt in a divorce decree). Presumably, in such cases, the general body of unsecured creditors would consider the "different” treatment of the co-signed claim “fair,” though the impacted creditor may disagree.