This appeal is from a bankruptcy court's order denying confirmation of a proposed Chapter 13 plan of reorganization. We affirm.
I. FACTUAL AND PROCEDURAL HISTORY
The facts of this appeal are not in dispute. The debtors, Salomon and Maria A. Ramirez, filed a petition for relief under Chapter 13 of Title 11 of the United States Code. Pursuant to 11 U.S.C. section 1321, the debtors filed a proposed bankruptcy plan. After subtracting monthly expenses from their net income, the debtors were left with $185 in disposable income each month. The plan proposed that the debtors would pay the trustee $125 each month for a period of sixty months.
More specifically, the plan separated all unsecured debts into classes and proposed a different level of repayment for each class. "Class One" was comprised entirely of a debt in the amount of $844 to Mervyns Credit that had been co-signed by Maria Ramirez's sister. The plan proposed to pay the entire amount of this co-signed consumer debt plus twelve percent interest. After paying off the entire debt to
The overall estimated payout under the proposed plan to the general, unsecured claims was twenty percent. However, if the money designated to pay the Mervyns debt was diverted instead to the class of general, unsecured claims, the percentage of repayment to the class of general, unsecured claims would rise from twenty percent to twenty-five percent. The trustee objected to the plan on the basis that the proposed payments to the class of co-signed debt unfairly discriminated against the class of general, unsecured claims.
The bankruptcy judge held a hearing on the confirmation of the plan. At that hearing, the debtors failed to offer any evidencethat the proposed discrimination favoring the co-signed debt over other classes of unsecured debt was in fact fair.
The debtors' sole argument on appeal is that the bankruptcy court erred in holding that 11 U.S.C. § 1322(b)(1)
Like the instant case, that case involved a bankruptcy plan that proposed to pay a co-signed debt in full, with twelve percent interest, prior to any distributions to the general unsecured class of debt. There, we stated that no justification appeared for such a high and preferential interest rate. We therefore affirmed the judgment of the bankruptcy court denying confirmation of the plan.
Because the relevant facts in that case are identical to the case at bar, In re Chacon is controlling. Accordingly, applying the holding of In re Chacon to the case at bar, we AFFIRM the judgment of the bankruptcy court denying confirmation of the bankruptcy plan.
BENAVIDES, Circuit Judge, specially concurring:
I join the per curiam opinion because it is apparent that it is controlled by our
As articulated in the instant per curiam opinion, the debtors' sole argument on appeal is that the bankruptcy court erred in holding that 11 U.S.C. § 1322(b)(1) requires a debtor to demonstrate that a proposed payment plan that prefers co-signed, unsecured debt does not unfairly discriminate against other unsecured debt. The instant question, therefore, is one of statutory construction.
The original version of § 1322(b)(1) provided, in pertinent part, that a bankruptcy plan may "designate a class or classes of unsecured claims, . . . but may not discriminate unfairly against any class so designated." In 1984, Congress amended the statute by adding the following phrase: "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." Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, 98 Stat. 333 (1984) (BAFJA).
In In re Chacon, after recognizing the split among bankruptcy courts regarding whether the amended clause should be interpreted to exempt co-signed consumer debt from the unfair discrimination test, this Court opined, in part, as follows:
In re Chacon, 202 F.3d at 726 (quotation marks added).
I fully agree with the analysis of In re Chacon up to this point. It is at this juncture, however, I part ways with our prior reasoning. As explained in more detail below, only one result follows once one accepts the premise that the "however clause" serves no purpose if the statute is interpreted to allow co-signed debt to be prioritized only if it does not discriminate: co-signed debt is not subject to the unfair discrimination test.
In other words, treatment that is "unfair discrimination" and being treated "differently" cannot constitute the same type of treatment. Because all unfairly discriminatory treatments, by any definition, are different, the set of treatments that comprise unfair discrimination is subsumed within the larger set of different treatments. Therefore, the set of different treatments consists of both fair and unfair discrimination. Different treatments, which the statute expressly authorizes for co-signed debts, sometimes result in unfair discrimination.
Contrary to my preceding analysis, the previous panel next opined as follows:
In re Chacon, 202 F.3d at 726.
The first excerpt from the previous panel's opinion recognizes that retaining the
As set forth previously, the debtors contend that the added clause carves out an exception allowing co-signed debts to be treated differently from other unsecured debts, regardless of whether it results in unfair discrimination against another class of unsecured debts. The plain language of section 1322(b)(1), the debtors argue, expressly allows this special treatment of co-signed debts. I disagree with the debtors' argument to the extent that they are asserting that the language of this provision is clear. Although the bankruptcy courts have split on the question of "whether the 'however' clause is a carveout from the unfair discrimination test,"
The debtors contend that Congress's choice of the word "however" to begin the clause that was added to section 1322(b)(1) evidences its intent to "carve out" an exception to the unfair discrimination test for co-signed debt. The debtors' position is the one chosen by a minority of bankruptcy courts. See In re Riggel, 142 B.R. at 204, In re Dornon, 103 B.R. at 64-65. The court below and a majority of bankruptcy courts have interpreted the "however clause" as serving to specifically allow debtors to designate a class of co-signed debt, separate from other classes of unsecured debt, with no consequence to the requirement that discrimination among the separate classes must be fair. See e.g., In re McKown, 227 B.R. 487, 491-92 (Bankr.N.D.Ohio 1998); In re Applegarth, 221 B.R. 914, 915-16 (Bankr.M.D.Fla.1998); In re Battista, 180 B.R. at 357; In re Easley, 72 B.R. at 956.
In matters of statutory construction, we begin by looking to the literal meaning of
Further, there was no need for Congress to separately address the manner in which co-signed debts are treated ("differently") if it intended such debts to receive the same treatment as other unsecured debts, i.e., subject to the unfair discrimination test.
Several courts have relied on the following analysis to hold that co-signed debts are not exempt from the discrimination test:
In re Easley, 72 B.R. at 956. I, like certain bankruptcy courts, find the abovequoted analysis quite persuasive; however, it leads me to draw the opposite conclusion. If all different treatments are not necessarily fair discrimination, then implicit in that statement (or the corollary to it) is that different treatments sometime result in unfair discrimination.
Additionally, prior to the 1984 amendment, several courts prohibited debtors from classifying co-signed consumer debt as a separate class under section 1322(b)(1). See e.g., In re Montano, 4 B.R. 535 (Bankr.D.D.C.1980); In re Utter, 3 B.R. 369 (Bankr.W.D.N.Y.1980).
The following excerpt from a Senate Report illustrates at least some of the impetus behind Congress's amendment of section 1322(b)(1) to allow co-signed, unsecured debt to be classified separately from other unsecured debt:
S.Rep. No. 65, 98th Cong., 1st Sess., 17-18 (1983)[S.445].
Congress recognized that, as a practical matter, many debtors will attempt to pay a co-signed debt regardless of whether the plan that is confirmed allows for such a preferred distribution. After acknowledging that many debtors are "going to pay the [co-signed] debt anyway," it would be a meaningless exercise to continue to impose a burden of demonstrating that the classification did not unfairly discriminate. By expressly accepting this reality, it appears that Congress effectively relieved debtors of the burden of proving that such classifications did not result in unfair discrimination against other unsecured creditors. Congress expressed no intent to better police the debtors' behavior but instead indicated an intent to allow for explicit acknowledgment of such practical considerations within the context of the plan. Indeed, Congress made clear that the overriding priority was to determine that the proposed plan was feasible so it could be successfully completed.
I am mindful that some courts have expressed a concern that exempting co-signed debt from the unfair discrimination test would be an invitation to abuse. See e.g., In re Martin, 189 B.R. 619, 628 (Bankr.E.D.Va.1995). Nevertheless, I believe that the good faith requirement mandated under section 1325(a)(3)
As previously stated, I recognize that the language of section 1322(b)(1) is not clear, hence the split in authority among the bankruptcy courts. I also acknowledge my natural inclination to follow the majority of bankruptcy courts that have held the unfair discrimination test is applicable to co-signed debt. It is not, however, our task to determine what we believe Congress should have enacted. I am persuaded that my interpretation of this provision is the best implementation of Congress's intent.
In sum, I concur in the judgment of the per curiam opinion because it is controlled by our prior precedent. Nonetheless, I write to set forth my concerns regarding the analysis contained in that prior precedent. But for the existence of our prior opinion in In re Chacon, 202 F.3d 725, I would vacate the judgment of the bankruptcy court and remand for further consideration of the debtors' plan.
Id. (other citations omitted).