In re Osorio, Case No.: 13–36671–ABA

• Decision Date: 08 December 2014
• Docket Number: Case No.: 13–36671–ABA, Case No.: 14–26372–ABA
• Citation: 522 B.R. 70
• Parties: In re: Roberto Osorio and Julia M. Osorio, Debtors. In re: Emily T. Beck, Debtor.
• Court: U.S. Bankruptcy Court — District of New Jersey

522 B.R. 70

In re: Roberto Osorio and Julia M. Osorio, Debtors.

In re: Emily T. Beck, Debtor.

Case No.: 13–36671–ABA
Case No.: 14–26372–ABA

United States Bankruptcy Court, D. New Jersey.

Signed December 8, 2014

522 B.R. 73

Eric Clayman, Jenkins & Clayman, Audubon, NJ, for Debtors Roberto Osorio, Julia M. Osorio and Emily T. Beck.

Raymond H. Shockley, Jr., Office of the Ch. 13 Standing Trustee, Cherry Hill, NJ, for Trustee Isabel C. Balboa.

Stephanie F. Ritigstein, Jenkins and Clayman, Audubon, NJ, for Debtor Emily T. Beck.

Chapter: 13

MEMORANDUM DECISION

Honorable Andrew B. Altenburg, Jr., United States Bankruptcy Court

I. INTRODUCTION

These matters are comprised of two separate chapter 13 bankruptcy cases in which the debtors Roberto and Julia Osorio and Emily Beck (collectively, the “Debtors”¹ ) filed chapter 13 plans which propose to separately classify municipal court fines and pay those fines in full but offer a 0% distribution to the remaining unsecured creditors. Isabel C. Balboa, the Chapter 13 Standing Trustee (the “Trustee”) filed objections to confirmation of the Debtors' plans arguing that such treatment is an unfair discrimination between the classes of unsecured claims. The parties filed written submissions and the court conducted oral argument on the matters after which it took the matters under advisement.

Section 1322(b)(1) of the Bankruptcy Code permits a chapter 13 debtor to designate a separate class of unsecured claims so long as that class does not unfairly discriminate against any other class of unsecured claims. The question presented in these cases is whether a below median income debtor in a chapter 13 case unfairly discriminates in proposing to separately classify and make full payment from the debtor's projected monthly disposable income on unsecured dischargeable municipal court fines, while at the same time, offering no payments to the remaining general unsecured claims. The court concludes that such treatment is unfair discrimination during the applicable commitment period—here 36 months—and violates Section 1325(b)(1)(B). By contrast, the court concludes that after the applicable commitment period, payments in full to one class of creditors with no payments to other general unsecured claims would not unfairly discriminate.

II. JURISDICTION AND VENUE

The court has jurisdiction over this contested matter under 28 U.S.C. §§ 1334(a) and 157(a) and the Standing Order of the United States District Court dated July 10, 1984, as amended October 17, 2013, referring all bankruptcy cases to the bankruptcy court. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(L). Venue is proper in this Court pursuant to 28 U.S.C. § 1408. The statutory predicates for the relief sought herein are 11 U.S.C. §§ 1322(b)(1) and 1325(b)(1)(B). Pursuant to Fed.R.Bankr.P. 7052, the court issues the following findings of fact and conclusions of law.

522 B.R. 74

III. FINDINGS OF FACT

Roberto and Julia Osorio filed a chapter 13 bankruptcy case on December 6, 2013. They disclosed no secured or priority unsecured debts and $129,993.84 in unsecured debts, all jointly owed. The Osorios propose in their chapter 13 plan to pay $221 per month for 60 months, for a total of $13,260. The plan will pay their attorney fees of $2,781 (plus any future fees), the

Trustee's commission, and a total of $8,109 to eight municipal courts for court fines (the “Osorio Fines”). The Osorios offer no distribution to the remaining unsecured creditors under the plan.

Upon request of the court, the Osorios' attorney supplemented the record concerning the Osorio Fines:

Town	Amount	Infraction
Northfield	$248.59	driving on a suspended license
Mt. Laurel	$692.94	driving on a suspended license
Winslow	$420.00	loading vehicle wrong way
Winslow	$ 65.00	driving on a suspended license
Waterford	$1,209.00	exterior property condition
Pennsauken	unknown	unknown
Camden	unknown	unknown

There is also a criminal complaint for restitution with the Township of Berlin.

Only one of the municipalities the plan proposes to pay, Winslow Township, filed a proof of claim alleging a secured claim of $420. Other general unsecured creditors filed a total of $36,304.98 in claims.

Emily Beck filed chapter 13 bankruptcy case on August 8, 2014. She disclosed a secured debt on a 2006 Volkswagon valued at $1,500, no priority unsecured debts, and $50,338.02 in unsecured claims. In her plan, she proposes to pay $164 per month for 40 months, for a total of $6,560. She will pay her attorney fees of $3,070, the Trustee's commission, $1,595 to the secured lender on her vehicle, and a total of $1,345 to two municipal courts for court fines (the “Beck Fines” collectively with the Osorio Fines, the “Municipal Court Fines”). Beck offers no distribution to the remaining unsecured creditors under the plan.

Upon request of the court, Ms. Beck's attorney supplemented the record concerning the Beck Fines:

Town	Amount	Infraction
Washington	$260	failure to exhibit documents and failure to provide child safety seat
Gloucester	$1,000	speeding ticket
		Failure to possess insurance (hearing pending)
Failure to possess insurance (2d ticket) (hearing pending)

522 B.R. 75

Proofs of claim filed by these municipalities in the Beck bankruptcy allege $260 owed to Washington Township but only $222 owed to Gloucester Township. Other creditors filing claims total $3,754 in general unsecured claims.

The Trustee objected to the plans in both cases, arguing that the Municipal Court Fines are dischargeable and that by paying the Municipal Court Fines in full while providing nothing to the remaining unsecured creditors, the Debtors are unfairly discriminating against the remaining unsecured creditors under 11 U.S.C. § 1322(b)(1). The Debtors argue that because there is a possibility of incarceration for not paying the Municipal Court Fines, there is a basis for the separate treatment and that they are thus not unfairly discriminating under the plans.

On the return date of the hearing on the Trustee's objection to their plans, the Debtors conceded that the Municipal Court Fines were debts “for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit,” and “not compensation for actual pecuniary loss” which fall under 11 U.S.C. § 523(a)(7), and that the Municipal Court Fines were potentially dischargeable in a chapter 13 case. The Debtors also acknowledged, and the Trustee agreed, that the Debtors are below median income debtors as calculated pursuant to Part I of Form B22C. Finally, only the Debtors' projected monthly disposable income, as determined by 11 U.S.C. § 1325(b)(2) and (3), is being used to fund their plans. The applicable commitment period is three years.

Also at the hearing, the Debtors' counsel stated to the court that when he has a chapter 13 client with a license suspension, counsel sends notice of the bankruptcy filing to the municipal court clerk which then might restore the license. Once counsel has a confirmed plan that pays a municipality in full, many municipalities, although not all, will reinstate the license. Counsel stated that for those municipalities which will reinstate a license, the municipality usually...