In re Davidson
| Decision Date | 13 April 1987 |
| Docket Number | 86 B 8921 E and 86 B 9822 E.,Bankruptcy No. 86 B 7905 E |
| Citation | 72 BR 384 |
| Parties | In re David Lee DAVIDSON, Debtor. In re Marty Eugene TESH and Diane Rachael Tesh, Debtors. In re David Ross SHARON and Clydia Rose Sharon, Debtors. |
| Court | U.S. Bankruptcy Court — District of Colorado |
Edward I. Cohen, Denver, Colo., for David Lee Davidson and David Ross Sharon and Clydia Rose Sharon.
Thomas O. Murphy. III, Longmont, Colo., for Marty Eugene Tesh and Diane Rachall Tesh.
These cases have been consolidated for the purposes of this opinion only. These matters are all before the Court on the motions of the Debtors to confirm their chapter 13 plans. In each case no creditor nor the Standing Chapter 13 Trustee ("Trustee") has objected to confirmation. Each debtor proposes to deal with child support arrearages and the Court, sua sponte, set hearings on confirmation to determine the propriety of dealing with past due child support through a Chapter 13 plan.
Each of the three cases involves slightly different responses to the issue of past due child support and the manner of dealing with the repayment of that obligation through the medium of a Chapter 13 plan. The individual cases are as follows:
1. Marty Eugene Tesh and Diane Rachael Tesh — These Debtors propose to pay $170.00 per month to the Trustee for 36 months. The Debtors' priority claims for trustee compensation and attorneys fees are $1,712.00. The unsecured debt of $9,624.00 includes $2,944.00 owed to the Larimer County, Colorado Department of Social Services for past due child support. The Debtors' proposed plan classifies the unsecured debt into two classes, one being for the past due child support and the other for all other unsecured creditors. Pursuant to the terms of the plan, the past due child support is to be paid in full after which $170.00 will be distributed pro rata among the remaining unsecured creditors. These Debtors' situation is somewhat unique in that they were previously divorced and the past due child support obligations were incurred while they were separated. They have since remarried and have now filed this Chapter 13 case.
2. David Lee Davidson — Mr. Davidson has no priority debts, no secured debts and unsecured debts totalling $23,259.36 of which $14,075.00 is listed as back child support. The Debtor's amended plan purports to exclude the child support arrearages from treatment under the plan. Instead, the Debtor has included, as part of his monthly budget, an expense allocation of $250.00 for child support. Of the $250.00 amount, $150.00 represents current child support payments and $100.00 is to be allocated to the past due child support. The other unsecured creditors under the plan will share in the net $40.00 per month to be paid in plan payments for a period of 36 months.
3. David Ross Sharon and Clydia Rose Sharon — These Debtors propose to pay $50.00 per month for 36 months to the Trustee. Their schedules reflect unsecured debt of $15,167.00 of which $2,500.00 is past due child support owed to Riverside County California Social Services. No provision is made under the plan for the back child support, but the amended plan does specify that the back child support will be "paid outside the Chapter 13 plan." The Debtors' budget allocates $75.00 per month to be applied to child support payments, but no indication was given as to how the $75.00 figure is to be divided between the current and past due child support.
In each of these cases the debtors have submitted proposed orders to confirm their respective plans. In each case the proposed order directs that the monthly plan payment amounts are to be paid to the Trustee, but none of the orders indicates that the debtor is to pay any creditor on a direct basis. Pursuant to the provisions of all of the plans, upon confirmation all of the property of the estate will vest in the debtors.
The question of the propriety of the confirmation of the plans in these cases arises because of the fact that the Bankruptcy Code evidences a strong social policy to require parents (or divorced spouses owing alimony) to honor their obligations to their former families to provide ongoing support. Thus, in general, a discharge in bankruptcy is not effective to discharge obligations owed for child support, alimony or maintenance, whether owed to a former spouse or child or to a governmental agency by way of assignment. 11 U.S.C. § 523(a)(5). This exception to discharge applies even in Chapter 13 cases, notwithstanding the broader dischargeability generally available in Chapter 13. 11 U.S.C. § 1328.
The exception to discharge provided by Section 523(a)(5) recognizes that matters pertaining to family relationships are to generally be left to the state law. Bankruptcy courts are not to become domestic relations courts. Caswell v. Lang, 757 F.2d 608 (4th Cir.1985); In re McCray, 62 B.R. 11 (Bankr.D.Colo.1986). It is for the state to determine, in the exercise of the state's public policy, the necessity for and the amount and time for the payment of child support and alimony. Thus, the Bankruptcy Court cannot redetermine the amount of support payments to be paid, nor can the Bankruptcy Code "be used to deprive dependents, even if only temporarily, of the necessities of life." Caswell v. Lang, supra, p. 610; Matter of Bernstein, 20 B.R. 595 (Bankr.M.D.Fla.1982).
A Chapter 13 plan can be confirmed only if "the plan has been proposed in good faith and not by any means forbidden by law". 11 U.S.C. § 1325(a)(3). It already has been recognized in this District that debtors' Chapter 13 plans which propose to discharge back child support obligations by including such obligations as a part of the unsecured class, which class is then paid a small fraction of the total amount due, are not filed in good faith and confirmation of such plans should be denied. In re Tumbleson, 28 B.R. 663 (D.C.D.Colo.1983).
A second type of plan is like that of the Debtors Tesh. They have proposed to classify the past due child support in a separate class of unsecured creditors and to pay that class in full out of the payments made to the Trustee before any distributions are made to the other unsecured creditors. The attempted treatment of child support arrearages in this manner raises two questions. The first question is whether it is permissible to separately classify the past due child support obligations as against the interests of the other unsecured creditors. The second question is pertinent only if separate classification is permitted as to other creditors. The question then becomes whether it is permissible to utilize Chapter 13 to delay the divorced wife or the minor child in their efforts, if any, to enforce prompt collection of the support obligations due them.
The Bankruptcy Code does not, by its terms, expressly bar the classification of unsecured claims. The Code specifies that if the plan classifies claims, it must provide the same treatment for each claim within a particular class. 11 U.S.C. § 1322(a)(3). The Code also provides that the plan may designate a class or classes of unsecured claims, but may not discriminate unfairly against any class so designated. 11 U.S.C. § 1322(b)(1). The plan further may include any provisions which are not inconsistent with Title 11 of United States Code. 11 U.S.C. § 1322(b)(10).
The Bankruptcy Court in this District early recognized the right of a debtor to have separate classes of unsecured debt. That issue was specifically addressed in the case of In re Gay, 3 B.R. 336 (Bankr.D. Colo.1980). The Court there concluded that classification is not improper so long as it is not unfairly discriminatory. In determining whether the classification is discriminatory the Court should consider a variety of factors, including:
1. The creditors' rights, if any, against third parties;
2. The importance of the classification to the debtor's "fresh start;"
3. The ability of the debtor to perform under his plan with or without the classification;
4. The propriety of each proposed classification considered with respect to the facts of each case; and,
5. The utilization of sound judicial discretion to determine whether from both the creditors' and debtor's points of view a proposed classification is unfairly discriminatory. In re Gay, supra, p. 338. The views expressed by the Court in the Gay decision, supra, represent a "middle of the road" approach between the opposite views of the courts. Compare In re Iacovoni, 2 B.R. 256 (Bankr.D.Utah 1980), and In re Sutherland, 3 B.R. 420 (W.D.Ark.1980).
The cases have since developed a trend to focus on a four-part test to help determine whether a particular classification is fair. The four factors considered are:
1. Whether the discrimination has a reasonable basis;
2. Whether the debtor can carry out a plan without such discrimination 3. Whether such classification is proposed in good faith; and
4. The treatment of the class discriminated against. In re Harris, 62 B.R. 391 (Bankr.E.D.Mich.1986).
Because the Code presumes that creditors of like position will be treated equally, the courts additionally have held that the burden of proof on the question of whether the discrimination is fair is on the debtor. In re Bowles, 48 B.R. 502 (Bankr.E.D.Va. 1985); In re Cook, 26 B.R. 187 (Bankr.D.N. M.1982); In re Harris, supra. In the view of the Harris court the application of the four-part test is consistent with the policy of the Bankruptcy Code to allow debtors to emerge from bankruptcy with a "fresh start" and to provide them with a degree of flexibility in proposing plans which will allow them to pay their debts without undue hardship, yet exit from bankruptcy in sounder financial shape than when they filed for relief.
Classifying past-due nondischargeable child support separately in a Chapter 13 plan falls within the criteria of the four-part test enunciated and...
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