In re Kovich
Decision Date | 09 June 1980 |
Docket Number | HG 80 194.,Bankruptcy No. HG 80 294 |
Citation | 4 BR 403 |
Parties | In re Daniel Thomas KOVICH, Karen Leann Kovich, Debtors. In re Joseph MARSHALL, Debtor. |
Court | U.S. Bankruptcy Court — Western District of Michigan |
Bankruptcy Law Clinic, P.C., Murray B. De Groot, Steven J. Carpenter, Grand Rapids, Mich., for debtor.
CLASSIFICATION OF CLAIMS — CODEBTOR — RENT ARREARAGE
At the hearing on confirmation of these cases, the trustee requested the Court to determine whether the placement of obligations involving a codebtor and landlord in separate classes providing for payment of larger percentages on these debts than other unsecured debts violates the provisions of 11 U.S.C. § 1322.
For the purposes of this opinion only, I adopt the facts as set forth in the Debtors' brief:
The sole issue before the Court is whether the plans must fail because of separate classifications accorded the obligations involving a codebtor and landlord which would result in full payment while other unsecured creditors are paid only a portion of their debts. The debtors have reserved the right to amend their plans to increase the percentage payable to unsecured creditors generally. Therefore, if I decide that the classification is not fatal, I shall not determine whether these plans should be confirmed as filed.
Section 1301 (11 U.S.C. § 1301) of the Bankruptcy Code provides for a stay of actions against a codebtor. However, as set forth in subsection (c), the stay shall be lifted upon request of the creditor if provision is not made in the plan to pay the claim in full.
One of the five basic defects of Chapter XIII under the old Act was lack of protection accorded accommodation codebtors who were usually inexperienced friends or relatives of the debtor.
S.Rep.No.95-989, 95th Cong., 2d Sess. (1978) p. 13, and H.R.Rep.No.95-595, 95th Cong., 1st Sess. (1977) pp. 121-123, U.S. Code Cong. & Admin.News 1978, p. 5787.
Section 1301 was enacted to correct this problem.
Section 646, (11 U.S.C. § 1046), of the Bankruptcy Act of 1898 required that all unsecured creditors be accorded equal treatment.
The provisions of the Code dealing with classification of claims in a Chapter 13 plan are:
Several points should be made at this time. The classification of unsecured claims under Chapter 13 is permissive. However, if there is classification, it must be "as provided in Section 1122." 11 U.S.C. § 1322(b)(1). A class can only contain claims which are "substantially similar." 11 U.S.C. § 1122(a). There is no requirement that all claims which are "substantially similar" be placed in the same class. Collier on Bankruptcy, 15th Ed. Vol. 5, pp. 1122-4. The phrase "substantially similar" means similar in legal character or effect as a claim against the debtor's assets. Id. A plan "may not discriminate unfairly" against any designated class of unsecured claims. 11 U.S.C. § 1322(b)(1).
There is no question that the plans by paying a class consisting of one creditor in full and a class of all other unsecured creditors a percentage of their claims are discriminatory. But is the discrimination unfair?
I have found two cases in which bankruptcy courts have permitted separate classes and treatment for unsecured debts. In re Sutherland, 3 B.R. 420, 6 B.C.D. 13 (Bkcy.Ct.W.D.Ark.1980) and In re Curtis, 2 B.R. 43, 1 C.B.C.2d 314 (Bkcy.Ct.W.D.Mo. 1979). The Sutherland court held the debtor could pay something to some unsecured creditors for medical and trade debts and nothing to other unsecured creditors because under the liquidation test of 11 U.S.C. § 1325(a)(4) unsecured creditors would receive nothing under Chapter 7, and consequently, there was no unfair discrimination. In Curtis the court held that a 100% payment on child support arrearage and 10% to other unsecured creditors was "fair" because child support was a nondischargeable debt.
Collier also supports the proposition that payment of different percentages to unsecured creditors is not necessarily unfair discrimination:
Collier on Bankruptcy, supra, p. 1322-7. (Emphasis Supplied)
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