A consumer’s lawyer in Kansas designed a chapter 13 plan that would not leave his client with a larger nondischargeable obligation on a student loan than she owed on filing her petition.
The plan did not pass muster with Topeka, Kan., Bankruptcy Judge Dale L. Somers because he said it unfairly discriminated against other unsecured creditors.
The debtor was below median income and thus had a three-year commitment period. She would have paid off her lawyer’s $3,000 fee in the first 17 months of the plan, then commenced paying $185 a month toward the some $6,000 she owed on her nondischargeable student loan. At the end of the plan, she would have paid off about half of the student loan.
Other unsecured creditors would have received nothing under the plan.
The chapter 13 trustee objected to confirmation, saying the plan unfairly discriminated against other unsecured creditors. Judge Somers agreed, essentially invoking the First Circuit Bankruptcy Appellate Panel’s Bentley definition of unfair discrimination.
The debtor had no discretionary income, only the projected disposable income she was required to pay to creditors under Section 1325(b)(1)(B). That was the critical fact for Judge Somers. If the debtor had discretionary income, Judge Somers intimated that she might have been able to route that money exclusively to the student loan.
Judge Somers said that any similar plan “will probably always” fail confirmation because it would “try to impose a distribution scheme for the mandatory contributions that is different than the scheme imposed by the Bankruptcy Code.”
Judge Somers said he was sympathetic to the notion that precluding discrimination was bad policy when applied to student loans, but he said the argument should be presented to Congress, which chose to make student loans not dischargeable while not affording them priority.