In re Chacon, Bankruptcy No. 98-30602
| Decision Date | 11 August 1998 |
| Docket Number | Bankruptcy No. 98-30602,98-30674.,98-30651,98-30618 |
| Parties | In re Oscar CHACON, Jr. and wife Patricia Chacon Travis J. MATSON Salomon RAMIREZ and wife Maria A. Ramirez Deloris SIMMONS |
| Court | United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Western District of Texas |
Edgar J. Borrego, El Paso, TX, for Debtors.
Phyllis Bracher, El Paso, TX, Chapter 13 Trustee.
On June 23, 1998, the court held hearings on the confirmation of the respective Chapter 13 plans in the four captioned cases. Each Debtor had the same law firm and substantially the same boilerplate plan provisions. One provision, which has attracted the objection of the Chapter 13 Trustee, Phyllis Bracher, is the separate classification and payment of co-signed consumer debt ahead of the general unsecured claims. The query raised is whether this treatment unfairly discriminates against the general class of unsecured claims. After hearing the evidence and considering the parties' arguments, the court took this matter under advisement. This is a core proceeding pursuant to 28 U.S.C. section 157(b)(2)(L). The following represents the court's findings of facts and conclusions of law as required by Fed. R.Bankr.Pro. 7052.
In each of these cases, the Trustee has not challenged the Debtors' position that each of the preferred co-signed claims represent consumer debt which was incurred for the Debtors' benefit and not that of the co-signers.
Also, in each case, the Debtors' plans contain the following identical provision:
Oscar Chacon, Jr. and Patricia Chacon — 98-30602:
The Debtors pay the trustee $188 per month for a period of 60 months. The estimated payout to the general unsecured claims is 38%. The co-signed claim at issue is to TSWAG-FCU in the amount of $1,180. This debt was co-signed by the Debtor's father.
The Debtors propose to pay the co-signed consumer debt 100% with interest at 12%, and to pay it in full before any sums are distributed to the general unsecured claims. It is estimated that it will be approximately four years before any sums would be available for distribution to the general unsecured claims.
The Debtors allege that the father is on a fixed income, cannot repay this debt on his own and they do not want to "hurt" his credit history. No evidence was presented on these allegations, nor on the payment history of this claim, nor even on what the pre-petition terms and conditions for payment of this debt are.
Travis J. Matson — 98-30618:
This Debtor pays the trustee $418 per month for a period of approximately 33 months. The estimated payout to the general unsecured claims is 100%. The co-signed debt at issue is to Bank One for $3,683. This debt was co-signed by the Debtor's ex-wife, represents primarily credit card debt, and the Debtor was ordered to repay it by the divorce court decree.
General unsecured claims are to be repaid without interest and only receive disbursements after the secured claims and this co-signed claim are paid in full, with interest. It is estimated that it will be approximately 18-20 months before sums will be available for distribution to the general unsecured claims.
The Debtor presented no evidence on the necessity for this classification nor any evidence on what the normal, pre-petition terms and conditions of repayment of this debt were. The only reason given for the classification was that he might encounter problems later and thus he wanted to "get rid" of this claim.
Salomon Ramirez and wife Maria A. Ramirez — 98-30651:
The Debtors pay the trustee $125 per month for a period of 60 months. The estimated payout to the general unsecured claims is 20%. The co-signed debt at issue is to Mervyns Credit in the amount of $844, and this debt was signed by Mrs. Ramirez's sister.
The Debtors propose to pay the co-signed consumer debt 100% plus interest at the rate of 12%, and further to pay it in full before any sums are distributed to the general unsecured claims. It is estimated that it will be approximately 33 months before any sums would be available for distribution to the general unsecured claims.
No evidence was introduced as to any hardship to the sister which could occur if she is forced to repay this co-signed debt. No reason was given for the classification other than the debt was for the benefit of the Debtors and not the sister. No evidence was introduced on the payment history of this claim or what its pre-petition terms and conditions of payment were.
Deloris Simmons — 98-30674:
This Debtor pays the trustee $370 per month for a period of 43 months. The estimated payout to the general unsecured claims is 100%. The co-signed claims at issue are to Capital One for $1,253 and to The Associates for $2,886. This debt was co-signed by the Debtor's ex-husband, currently incarcerated at Ft. Sill, Oklahoma.
This plan, like the others, proposes to repay the co-signed debt in full, with interest at 12%, before any distributions are to be made to the general unsecured claims. It is estimated that it will take approximately 24 months before any sums would be available for distribution to the general unsecured claims. This Debtor also has a new 1998 Honda Accord automobile and is paying this $19,500 debt outside the plan.
No reason was given for the classification scheme other than the Debtor thought she might possibly have future financial troubles and wanted to get these two debts satisfied. No information as to the pre-petition status or terms of these two debts was introduced nor as to the financial abilities of the ex-husband.
Separate Classification in Chapter 13 Plan.
Section 1322(b)(1) of the Bankruptcy Code governs whether a Debtor can separately classify a claim in a Chapter 13 plan. Section 1322(b)(1) provides:
Subject to subsections (a) and (c) of this section, the plan may — (I) 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. (emphasis added).
Although the wording of the statute is awkward, the section clearly permits the separate classification in a Chapter 13 plan of a co-signed debt. The real issue is whether the separate classification must meet the unfair discrimination test. The Debtors urge the court to adopt an interpretation which provides that a Chapter 13 plan may designate a class of unsecured co-signer claims without regard to the prohibition against unfair discrimination. Under the Debtors' interpretation, the term "however" causes debtor's entitlement to separately classify a codebtor liability to be exempt from the unfair discrimination prohibition contained in the first sentence of this Code section.
Legislative History.
Legislative history on this issue is sparse. Congress amended Section 1322(b)(1) in 1984 specifically to permit a debtor to separately classify a debt when another individual guarantees the repayment of the debt. In re Thompson, 191 B.R. 967, 969 (Bankr.S.D.Ga. 1996). In modifying Section 1322(b)(1), Congress intended to overrule the majority of cases that refused to separately classify co-debtor claims. S.Rep. No. 65, 98th Cong., 1st Sess., pp. 17-18 (1983). These courts rationalized that codebtor claims were not sufficiently different from other type of claims to justify a separate classification. Id. In response, Congress determined that there are important practical differences between codebtor claims and other unsecured claims that justify a separate classification. Id. For example, a debtor often will feel compelled to pay a codebtor claim over other unsecured claims when the codebtor is a friend or relative. Id. In addition, Congress was concerned with the possible ripple effect of a...
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