Groves, In re

• Decision Date: 04 November 1994
• Docket Number: No. 93-3981,93-3981
• Citation: 39 F.3d 212
• Parties: , Bankr. L. Rep. P 76,189 In re Clarice Morris GROVES, Ethyl Mae Davis, Joyce Belle Harvel-Barney, Debtors. Clarice Morris GROVES, Ethyl Mae Davis, Joyce Belle Harvel-Barney, Plaintiffs-Appellants, v. John V. LaBARGE, Jr., Defendant-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 212

39 F.3d 212

63 USLW 2295, Bankr. L. Rep. P 76,189

In re Clarice Morris GROVES, Ethyl Mae Davis, Joyce Belle

Harvel-Barney, Debtors.

Clarice Morris GROVES, Ethyl Mae Davis, Joyce Belle

Harvel-Barney, Plaintiffs-Appellants, v. John V. LaBARGE, Jr., Defendant-Appellee.

No. 93-3981.

United States Court of Appeals,

Eighth Circuit.

Submitted May 12, 1994.

Decided Nov. 4, 1994.

Norman W. Pressman, St. Louis, MO, argued (Norman W. Pressman and Teresa A. Generous, on the brief), for appellants.

Diana Spulh Daugherty, St. Louis, MO, argued, for appellee.

Before LOKEN, Circuit Judge, HENLEY, Senior Circuit Judge, and HANSEN, Circuit Judge.

LOKEN, Circuit Judge.

Clarice Morris Groves, Ethyl Mae Davis and Joyce Belle Harvel-Barney appeal the district court ¹ judgment affirming bankruptcy court ² orders refusing to confirm their proposed Chapter 13 plans. The issue is whether a plan that proposes to separately classify and fully repay nondischargeable student loans discriminates unfairly against other unsecured creditors who will receive only partial repayment of their dischargeable claims. We affirm.

Chapter 13 permits a consumer debtor with relatively small debts to obtain a discharge in bankruptcy after repaying debts with disposable income for three to five years under a confirmed plan of reorganization. The debtor remains in possession of his or her property during the life of the plan, and adverse creditor actions are automatically stayed, see 11 U.S.C. Secs. 1301(a), 1306(b), 1322(c). The debtor may "designate a class or classes of unsecured claims [for purposes of repayment] but may not discriminate unfairly against any class so designated." 11 U.S.C. Sec. 1322(b)(1).

In these cases, debtors each filed a proposed Chapter 13 plan that placed their unsecured student loan claims into one class and all other unsecured creditors in another. The plans provided for full repayment of the student loans over the life of the plans but only 10-40% repayment of other unsecured claims. At the completion of a Chapter 13 plan, the unpaid portions of most unsecured debts are discharged but student loans, unless fully repaid during the plan period, are not discharged. See 11 U.S.C. Sec. 1328(a)(2). ³ Thus, debtors' proposed classifications would maximize the benefits of Chapter 13 protection by allowing them to repay nondischargeable debts at the expense of their other unsecured creditors.

The trustee objected to each plan as unfairly discriminating against these other unsecured claims. The bankruptcy court consolidated the cases and sustained the trustee's objections, concluding that the nondischargeability of student loans is an insufficient basis for discriminatory classifications. Debtors successfully moved to stay dismissal of their Chapter 13 cases pending appeal and then appealed to the district court under 28 U.S.C. Sec. 158(a). The district court affirmed, 160 B.R. 121, and debtors now appeal to this court under 28 U.S.C. Sec. 158(d).

In Lewis v. Farmers Home Admin., 992 F.2d 767 (8th Cir.1993), we held that a bankruptcy court order denying confirmation of a Chapter 13 plan without dismissing the case is not a final order under Sec. 158(d). Once again, as happens all too often, bankruptcy practitioners have briefed and argued an appeal to this court paying no attention to our controlling jurisdictional precedents. The Chapter 13 cases of Clarice Groves and Joyce Harvel-Barney were pending when debtors appealed the district court order. Those appeals are dismissed for lack of jurisdiction.

However, we have reviewed the bankruptcy court file and conclude that the appeal by Ethyl Davis stands in a different posture. Five months before the district court entered the order here at issue, the bankruptcy court granted the trustee's motion to dismiss Davis's Chapter 13 case. Therefore, we have jurisdiction over Davis's appeal because the district court order "effectively terminated the proceeding on the merits," leaving only the ministerial tasks of approving the trustee's final account and closing the case. In re Ficken, 2 F.3d 299, 300 (8th Cir.1993). We therefore turn to the merits of that appeal.

A Chapter 13 debtor's plan of reorganization may place unsecured claims in separate classes "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." In re Leser, 939 F.2d 669, 671 (8th Cir.1991). Davis has the burden of proving that the proposed classification does not discriminate unfairly. See In re Scheiber, 129 B.R. 604, 606 (Bankr.D.Minn.1991). The appropriate standard of appellate review is less clear. Leser treated a similar issue as "solely one of legal interpretation," 939 F.2d at 671. But in Hanson v. First Bank of S.D., 828 F.2d 1310, 1313 (8th Cir.1987), we noted "the broad discretion of the bankruptcy court in matters of classification," and reviewed a classification issue under the clearly erroneous standard of Bankruptcy Rule 8013. Like the parties and the district court, we will treat the issue presented in this case as primarily one of statutory construction, to be reviewed de novo. But application of the "discriminate unfairly" standard in other cases may involve little more than exercise of the bankruptcy court's broad discretion.

The issue in this case is of recent origin because the 1990 amendments to the Bankruptcy Code made student loans nondischargeable in Chapter 13 proceedings. Davis argues that this change in the law makes it appropriate to place these claims in a priority class because it reflects a congressional policy that student loans be repaid, like the public policy favoring child support that caused us to approve the separate classification of support obligations in Leser. Davis further argues that the resulting discrimination against other unsecured creditors is not unfair because of the congressional intent to provide debtors a "fresh start," and because these unsecured creditors would have received nothing had she proceeded under Chapter 7.

We agree with the reasoning of the bankruptcy court and the district court in rejecting these contentions. The bankruptcy court explained:

The Eighth Circuit and the bankruptcy courts which addressed separate classification of child support claims allowed the discrimination in favor of child support claimants because, in light of the public policy favoring payment of child support, they could not conceive of confirming a Chapter 13 plan which did not provide for payment in full of such obligations. As a practical matter then, separate classification had to be permitted to enable debtors to pay child support claims in full unless the debtors were able to pay all unsecured claims in full.

With respect to student loan obligations, however, public policy does not dictate full payment of such debts during the life of the plan. Thus, there is nothing to stop a debtor from carrying out a Chapter 13 plan without separate classification of these claims. The debtor need only formulate a plan...