Filed: Jul. 12, 2017
Latest Update: Jul. 12, 2017
Summary: ORDER OVERRULING THE TRUSTEE'S OBJECTION TO DEBTOR'S CHAPTER 13 PLAN MARK A. RANDON , Bankruptcy Judge . I. INTRODUCTION There is one impediment to confirmation of Debtor's Chapter 13 plan: the Trustee objects to Debtor's proposal to pay the Michigan Unemployment Insurance Agency ("the Agency") $12,000.00 of its negotiated claim, to the detriment of other general unsecured creditors. The Court heard argument on July 5, 2017. Because: (1) Debtor's treatment of the Agency's claim was the r
Summary: ORDER OVERRULING THE TRUSTEE'S OBJECTION TO DEBTOR'S CHAPTER 13 PLAN MARK A. RANDON , Bankruptcy Judge . I. INTRODUCTION There is one impediment to confirmation of Debtor's Chapter 13 plan: the Trustee objects to Debtor's proposal to pay the Michigan Unemployment Insurance Agency ("the Agency") $12,000.00 of its negotiated claim, to the detriment of other general unsecured creditors. The Court heard argument on July 5, 2017. Because: (1) Debtor's treatment of the Agency's claim was the re..
More
ORDER OVERRULING THE TRUSTEE'S OBJECTION TO DEBTOR'S CHAPTER 13 PLAN
MARK A. RANDON, Bankruptcy Judge.
I. INTRODUCTION
There is one impediment to confirmation of Debtor's Chapter 13 plan: the Trustee objects to Debtor's proposal to pay the Michigan Unemployment Insurance Agency ("the Agency") $12,000.00 of its negotiated claim, to the detriment of other general unsecured creditors. The Court heard argument on July 5, 2017.
Because: (1) Debtor's treatment of the Agency's claim was the result of settlement negotiations, which reduced a potentially nondischargeable debt by 56 percent; (2) Debtor proposes to commit additional potential income to the plan, more of which will go to general unsecured creditors as a result of the settlement; and (3) no creditor objected to their treatment, the Trustee's objection is OVERRULED; Debtor's plan can be confirmed as it does not unfairly discriminate against the class of general unsecured creditors.
II. BACKGROUND
The Agency filed a claim in Debtor's bankruptcy for $85,750.98. Nine other creditors filed general unsecured claims totaling $44,944.12: Cavalry Investments, LLC has a claim in the amount of $39,666.79; the remaining creditors' claims total $5,277.33.1
On January 30, 2017, the Agency filed an adversary proceeding alleging its debt is nondischargeable. The parties resolved the dispute through a Consent Judgment providing, in pertinent part, as follows:
IT IS FURTHER ORDERED that $12,000.00 of the Consent Amount shall be classified as a Class 8 debt and paid in full through the Chapter 13 Plan.
* * *
IT IS FURTHERED ORDERED that, if the Defendant fails to make monthly payments in accordance with the terms of this Consent Judgment, Defendant shall be considered to be in default, and Plaintiff shall serve a notice of default by first-class mail upon Defendant. Defendant shall then have 15 days from the mailing date of the notice to cure such default. If Defendant does not cure the default, the Judgment Amount (minus any payments made) will be accelerated, the Judgment Amount (minus any payments made) will be imposed, and Plaintiff may collect the balance of the Judgment Amount through any and all methods allowed under the Michigan Employment Security Act, Mich. Comp. Laws § 421.1, et seq., including but not limited to liens, garnishments, levies, attachments, recoupment of future unemployment benefits, and interception of federal and state tax refunds.
As a result of the Consent Judgment, Debtor filed a Second Amended Chapter 13 Plan that separates unsecured creditors into two classes: (1) the Agency will be paid $12,000.00 through the plan; and (2) the remaining general unsecured creditors will split approximately $500.00. Had Debtor not reached a settlement, all general unsecured creditors—including the Agency—would have received their pro rata share of the distributions. Although the difference in the actual distributions to be received by the remaining unsecured creditors is not significant, separating the creditors into two classes is discriminatory. The question is whether it unfairly discriminates.
III. ANALYSIS
Section 1322(b)(1) provides that "the plan may[] designate a class or classes of unsecured claims . . . but may not discriminate unfairly against any class so designated[.]." The plain language of the statute permits some discrimination among classes of unsecured claims; only unfair discrimination is prohibited.
"Unfair discrimination" is not defined in the Bankruptcy Code. Instead, fairness is left to the discretion of the bankruptcy judge. In re Engen, 561 B.R. 523, 535 (D. Kan. 2016). To be fair, a plan that treats unsecured creditors differently must show a correlative benefit to the other unsecured creditors. In re Bentley, 266 B.R. 229, 243 (1st Cir. 2001).
After reviewing the totality of the circumstances, the Court finds there is no unfair discrimination in this case. First, Debtor expects to submit her income tax refunds and profit sharing checks into the plan. Given the settlement with the Agency, this will increase the dividend to the remaining general unsecured creditors.
Second, all creditors received Debtor's plan with the proposed discriminatory treatment. None objected.
Finally, there is a benefit to the Debtor in that she will substantially reduce a potentially nondischargeable debt, helping her obtain the fresh start contemplated in the Bankruptcy Code.
IV. CONCLUSION
Because Debtor's plan does not unfairly discriminate against the class of general unsecured creditors, the Trustee's objection is OVERRULED; Debtor's plan can be confirmed. The parties must submit an order confirming plan on or before July 24, 2017.
IT IS ORDERED.
