MEMORANDUM OPINION AND ORDER ON TRUSTEE'S OBJECTION TO CONFIRMATION OF CHAPTER 13 PLAN

JOHN E. HOFFMAN, JR., Bankruptcy Judge.

I. Introduction

In her Chapter 13 plan, Erica Jane Russell proposes to pay a higher dividend to holders of cosigned consumer debts than to her other general unsecured creditors. The Chapter 13 trustee contends that this differential treatment unfairly discriminates against creditors holding debts that are not cosigned. But the Bankruptcy Code permits a Chapter 13 debtor's plan to pay a higher dividend to creditors holding cosigned consumer debts than it pays to other unsecured creditors, and there is no other basis to conclude that the plan discriminates unfairly against creditors holding non-cosigned debts. The Court finds, therefore, that the plan does not violate the Bankruptcy Code's prohibition against unfair discrimination.

II. Jurisdiction

The Court has jurisdiction to hear and determine this contested matter pursuant to 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. This is a core proceeding. See 28 U.S.C. § 157(b)(2)(L).

III. Background

On January 3, 2013 ("Petition Date"), Russell commenced her bankruptcy case by filing a petition for relief under Chapter 13 of the Bankruptcy Code. That same day, she filed a Chapter 13 plan. Jeffrey P. Norman, the Chapter 13 trustee ("Trustee"), objected to the plan because, among other things, it gave creditors holding cosigned consumer debts more favorable treatment than those creditors holding non-cosigned debts. Russell filed an amended plan, followed by a second amended plan (Doc. 18) ("Plan"). Like the original plan, the Plan called for the payment of a higher dividend to holders of cosigned consumer claims than it provided to other unsecured, nonpriority claim holders. Apparently anticipating another objection from the Trustee, Russell filed a memorandum in support of confirmation (Doc. 25) in which she took the position that the Plan treated all of her unsecured creditors fairly. The Trustee filed an objection to the Plan ("Objection") (Doc. 26) on the ground that it "does not meet the requirements of 11 U.S.C. § 1322(b)(1)," which prohibits unfair discrimination in the treatment of unsecured claims in Chapter 13 cases. The Trustee also filed a memorandum supporting the Objection (Doc. 28).

The parties also filed joint stipulations of facts ("Stipulations") (Doc. 27), which state:

Stipulations at 1-2.

IV. Legal Analysis

A. Section 1322(b)(1)

The Trustee's only objection to confirmation is that the Plan violates § 1322(b)(1) by discriminating unfairly against creditors holding non-cosigned debts. The Court interprets § 1322(b)(1) by "start[ing] where all such inquiries must begin: with the language of the statute itself." Ransom v. FIA Card Servs., N.A., ___ U.S. ___, 131 S.Ct. 716, 723, 178 L.Ed.2d 603 (2011) (internal quotation marks omitted). Under § 1322(b)(1), a Chapter 13 plan may:

11 U.S.C. § 1322(b)(1).

The Trustee relies on the first part of § 1322(b)(1), which states that a plan "may not discriminate unfairly against" any class of unsecured claims. In this context, discrimination means treating a class of unsecured claims in a different manner than other classes of unsecured claims. See Bentley v. Boyajian (In re Bentley), 266 B.R. 229, 237 (1st Cir. BAP 2001) (discussing dictionary definitions of the word discriminate). Thus, a plan discriminates against a class of unsecured claims if it treats that class less favorably than it treats other classes of unsecured claims. Section 1322(b)(1) prohibits this differential treatment if it is unfair. But, as discussed below, the statutory text of § 1322(b)(1) contains more than a general prohibition against unfair discrimination.

Russell relies on the final clause of § 1322(b)(1), under which a plan that separately classifies claims for consumer debts "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." 11 U.S.C. § 1322(b)(1).1 Because this part of § 1322(b)(1) begins with the word "however," courts commonly refer to it as the "however clause." See, e.g., Meyer v. Renteria (In re Renteria), 470 B.R. 838, 841 (9th Cir. BAP 2012). In the context of § 1322(b)(1), the word "however" is an adverb meaning "in spite of that." Merriam-Webster Unabridged Dictionary, available at http://unabridged.merriam-webster.com/unabridged/however. See also Ramirez v. Bracher (In re Ramirez), 204 F.3d 595, 599 (5th Cir.2000) (Benavides, J., concurring) ("`However' is defined as `in spite of that; on the other hand; BUT.'"). Thus, despite the prohibition against treating classes of unsecured claims differently if doing so is unfair, a 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." 11 U.S.C. § 1322(b)(1) (emphasis added).

The phrase liable on such consumer debt with the debtor "include[s] [claims held by] codebtors, sureties, and guarantors." Meyer v. Hill (In re Hill), 268 B.R. 548, 553 (9th Cir. BAP 2001). Because Russell's mother cosigned the debts, the claims of Arrowood and Peoples fall squarely within the category of "claims for a consumer debt of the debtor [on which] an individual is liable on such consumer debt with the debtor." 11 U.S.C. § 1322(b)(1). The however clause therefore permits the Plan to treat those claims differently than it treats other unsecured claims. The analysis, though, does not end there.

B. The Ambiguity of the However Clause

In any case in which the however clause applies, the difficulty is determining the extent to which the plan may treat cosigned consumer debts differently. Indeed, the clause has created a number of interpretative questions regarding the circumstances under which a plan may treat codebtor consumer claims differently than it treats other unsecured claims. For example, several bankruptcy courts have held that the clause does not permit a debtor to pay cosigned consumer debts a lower dividend than other unsecured, nonpriority claims,2 but the language of § 1322(b)(1) can be — and has been — read to support a contrary conclusion. See Renteria, 470 B.R. at 850 n. 14 (Pappas, J., concurring) ("In addition to conferring beneficial treatment, § 1322(b)(1) also plainly authorizes a debtor to separately classify and treat a co-signed consumer claim less favorably than other unsecured creditors.").

If confirmed, the Plan would pay a higher dividend on codebtor consumer claims than it would pay on other unsecured claims. And, as noted above, Russell's mother cosigned the Arrowood and Peoples debts for the benefit of Russell, the Chapter 13 debtor. The Court, therefore, limits its analysis of the however clause to circumstances in which (1) the plan pays cosigned consumer debts a higher dividend than it pays other unsecured claims and (2) a nondebtor cosigned the debt for the debtor's benefit. But even with those limitations, there are at least two possible interpretations of the however clause.

First, the however clause could be read as an exception to the prohibition against unfair discrimination. Under this interpretation, a court — without conducting an unfair — discrimination analysis — may confirm a Chapter 13 plan that treats cosigned consumer debts better than other unsecured claims. Courts adopting this approach find support for it in the language and structure of § 1322(b)(1): its second part begins with the word "however," which arguably makes that part an exception to the first, and, because the first part prohibits unfair discrimination, the types of claims that are subject to the exception need not be analyzed for unfair discrimination.3 According to these courts, if the however clause is not an exception to the first part of § 1322(b)(1), then it serves no purpose. This is the minority view. See Renteria, 470 B.R. at 842 ("The minority [of] courts ... have held that the `however clause' ... carves out codebtor consumer claims from the requirements of the unfair discrimination rule.... These cases emphasize the placement of the `however clause' immediately following the unfair discrimination rule.").

Second, the however clause could be read as a qualification of the prohibition against unfair discrimination. This is the majority view. See id. at 841-42 ("Most courts hold that separately classified co-obligor debts must still clear the § 1322(b)(1) unfair discrimination hurdle. The consequence is that the `however' clause permitting co-obligor debts to be treated `differently' is more in the nature of a qualification to the application of the unfair discrimination analysis than an exemption from it." (quoting Meyer v. Hill (In re Hill), 268 B.R. 548, 550 (9th Cir. BAP 2001))). According to the majority view, while debtors might propose to treat cosigned unsecured debts differently in a myriad of ways, the however clause does not mean that Congress intended to permit them all. Like the courts in the minority camp, courts adopting this approach find support for it in the language of § 1322(b)(1). The however clause, they point out, states that a plan may treat codebtor consumer claims differently; it does not say that a plan may discriminate unfairly in favor of such claims. See id. at 842 (noting that the first part of § 1322(b)(1) "refers to `unfair discrimination' whereas the [however clause] refers to `different treatment'" and stating that "[t]his difference in language arguably suggests that Congress intended something other than to completely exempt codebtor consumer claims from the unfair discrimination rule").

Even as applied to the facts of this case, therefore, there are at least two plausible ways to interpret the however clause. Because a statute is ambiguous if it is "capable of being understood in two or more possible senses or ways[,]" Chickasaw Nation v. United States, 534 U.S. 84, 90, 122 S.Ct. 528, 151 L.Ed.2d 474 (2001) (internal quotation marks omitted), several courts have found the however clause to be ambiguous.4 The Court thus concludes that § 1322(b)(1) is ambiguous insofar as its application to the Plan is concerned. Given this ambiguity, the Court looks to the legislative history leading to the enactment of the however clause for interpretive guidance.5

C. The History of the Provision

When originally enacted as part of the Bankruptcy Reform Act of 1978, § 1322(b)(1) did not include the however clause. Instead, it stated only that a plan may "designate a class or classes of unsecured claims, as provided in section 1122 of this title, but may not discriminate unfairly against any class so designated." 11 U.S.C. § 1322(b)(1) (1978) (amended 1984).

Early on, the majority of courts interpreting the original version of § 1322(b)(1) held that it was per se unfair for a plan to provide a higher dividend to holders of cosigned debts than to other unsecured creditors.6 These courts reasoned that creditors with equal rights to property of the estate were entitled to equal treatment; that all holders of unsecured, nonpriority claims had equal rights to property of the estate; and that a plan therefore could not pay holders of cosigned consumer debts a higher dividend than it paid other unsecured, nonpriority creditors. See, e.g., Montano, 4 B.R. at 537 ("Inasmuch as the holder of a co-obligor debt has the same legal rights against the debtor's assets as other general unsecured creditors, a separate classification is not allowable.... For the same reasons, such classification, where cosigned debts are to be paid in full and other general unsecured debts are to be paid much less, unfairly discriminates against the latter class...."); Utter, 3 B.R. at 369 ("[A]ll allowed, non-priority, unsecured claims have equal right to pro rata distribution of assets after payment of secured and priority claims." (quoting Iacovoni, 2 B.R. at 260)).

Although the Bankruptcy Improvements Act of 1981 ("1981 Act"), H.R. 4786, 97th Cong. (1981), would have amended § 1322(b)(1) to permit Chapter 13 plans to separately classify cosigned debts, it was not enacted. The Omnibus Bankruptcy Improvements Act of 1983 ("1983 Act"), S. 445, 98th Cong. (1983), was later proposed, but, like the 1981 Act, it did not result in § 1322(b)(1)'s amendment.7

Congress ultimately did amend § 1322(b)(1) to add the however clause as part of the Bankruptcy Amendments and Federal Judgeship Act of 1984 ("BAFJA"), H.R. 5174, 98th Cong. (1984). BAFJA's legislative history did not provide any explanation for the amendment. But for purposes of the issue before the Court, the however clause is substantially similar to the amendment to § 1322(b)(1) proposed by the 1983 Act. See S. 445, 98th Cong. § 219 (1983) (stating that the 1983 Act would have amended § 1322(b)(1) to provide that a Chapter 13 plan may "designate a class or classes of unsecured claims, as provided in section 1122 of this title, but may not discriminate unfairly against any class so designated; however, such plan may treat claims which are specified in section 523(a) or involve a codebtor differently than other unsecured claims").8 When interpreting the however clause, therefore, the Court may consider the 1983 Act's legislative history. See, e.g., Renteria, 470 B.R. at 844.9

In the 1983 Act's legislative history, the Senate Judiciary Committee recognized that debtors often feel obligated to propose plans that protect nondebtor cosigners. Thus, one purpose of the proposed amendment was to permit debtors to fulfill this sense of obligation:

S.Rep. No. 98-65 (1983), available at BANKR84-LH 4 (Westlaw).

In addition, the committee report mentioned two cases, Utter and Montano, as examples of cases that "refused to permit [separate] classification on the ground that codebtor claims are not different than other claims." See S.Rep. No. 98-65 (1983), available at BANKR84-LH 4 (Westlaw). In Utter, the bankruptcy court held that classifying codebtor consumer claims in one class and paying them a hundred cents on the dollar while separately classifying other unsecured claims and paying them "little or nothing" constituted unfair discrimination. Utter, 3 B.R. at 369. Similarly, in Montano the bankruptcy court considered a plan providing for "100% payments to the unsecured creditors with claims guaranteed by co-signers ... [and] a 1% payment to the remaining unsecured creditors[,]" Montano, 4 B.R. at 536, holding that where "cosigned debts are to be paid in full and other general unsecured debts are to be paid much less, [the plan] unfairly discriminates against the latter class, and thus is [im]permissible under § 1322(b)(1)." Id. at 537.

The 1983 Act's legislative history stated that a purpose of the "amendment to section 1322(b)(1)" was to "permit[] separate classification of ... codebtor obligations so as to facilitate payment of the amount the holders of such claims would have received but for the chapter 13 proceedings." S.Rep. No. 98-65 (1983), available at BANKR84-LH 4 (Westlaw) (emphasis added). Of course, most Chapter 13 plans offer unsecured, nonpriority creditors much less than the amount they would have received absent a Chapter 13 case. And Congress would have been aware that paying cosigned consumer debts in full, as was attempted by the debtors in Utter and Montano, dilutes the distribution to other unsecured, nonpriority creditors. Yet the legislative history evidences an intent to overrule Utter and Montano and permit holders of cosigned consumer debts to be paid the amount they would have received but for the Chapter 13 case.

The history of the enactment of the however clause, therefore, makes at least one thing clear: a plan may propose to pay creditors with cosigned consumer debts the amount they would have received but for the Chapter 13 case, while paying the holders of other unsecured, nonpriority claims less (even much less) than they would have received had they been paid pro rata with the cosigned debts. See Renteria, 470 B.R. at 846 ("In light of the facts and holdings of Utter and Montano, and in light of Congress's citation of these two cases as exemplifying the case law it sought to address by amending § 1322(b)(1), we hold that Congress sought to permit a chapter 13 debtor to separately classify and to prefer a codebtor consumer claim when the facts are similar to those presented in Utter and Montano."). Thus, the disparity in the dividend paid on codebtor consumer claims as compared to that paid on other unsecured claims should not be a factor in analyzing whether a plan complies with § 1322(b)(1).

The Trustee argues to the contrary, maintaining that a plan violates § 1322(b)(1) if the discrepancy between the dividend paid on claims arising from cosigned consumer debts and the dividend paid on other unsecured claims is "great." Tr.'s Mem. at 4. In support of this argument, the Trustee relies on several decisions issued in the student loan context. Those decisions, however, did not arise in the context of cosigned student-loan debt; the issue in those cases was whether the nondischargeability of student loan claims and/or the long-term nature of student loan debt justified paying student-loan claims a higher dividend than other unsecured claims. See Tr.'s Mem. at 4-5. (citing cases holding that neither the nondischargeability of student loan claims nor the long-term nature of those claims justified paying the claims a significantly higher dividend than other unsecured claims). Russell, though, has never argued that the nondischargeability of her student-loan debt warrants paying the claims of Arrowood and Peoples a higher dividend than other unsecured claims. And, as already explained, she is no longer making the argument that the long-term nature of those claims renders the discrimination fair.

The Trustee does cite a cosigned debt case decided after the enactment of the however clause that analyzed unfair discrimination by looking at, among other factors, "[t]he difference between what the creditors discriminated against will receive as the plan is proposed, and the amount they would receive if there was no separate classification." In re Strausser, 206 B.R. 58, 60 (Bankr.W.D.N.Y.1997) (internal quotation marks omitted). But using that factor to assess the confirmability of a plan discriminating in favor of a cosigned consumer debts after the addition of the however clause is inconsistent with congressional intent in adding the however clause to § 1322(b)(1), i.e., to permit, in an exercise of practicality, holders of codebtor consumer claims to receive "payment of the amount the holders of such claims would have received but for the chapter 13 proceedings." S.Rep. No. 98-65 (1983). As explained above, in light of the however clause, a disparity — even a large one — between the dividend paid on such claims and the dividend paid on other unsecured claims does not itself constitute unfair discrimination.

D. Cosigned Consumer Debts and Unfair Discrimination

Whether Congress intended courts to apply some form of unfair discrimination analysis in the face of other objections based on § 1322(b)(1) is another question. The answer to this question lies in the recognition that debtors sometimes propose to pay creditors holding cosigned consumer debts more than they would have received in the absence of a Chapter 13 case — a result Congress did not intend. For example, debtors have proposed plans that would accelerate payments to such creditors. See In re Whitelock, 122 B.R. 582, 586 (Bankr.D.Utah 1990) ("The plan classified into one class all unsecured claims except the FSB cosigned claim[,] [whose] treatment would result in the accelerated payment of FSB's claim in 60 months, instead of the 108 months provided by the terms of the note."). In addition, debtors have proposed to "reimburs[e] interest where none is due or reimburs[e] more than the actual amount of the cosigned debt." Chacon v. Bracher (In re Chacon), 202 F.3d 725, 726 (5th Cir.1999).

As the legislative history demonstrates, Congress did not intend to permit debtors to accelerate the payment of cosigned consumer debts, to overpay such debts or to pay interest to which creditors are not entitled; after all, this would result in creditors holding codebtor consumer claims receiving more than "the amount the holders of such claims would have received but for the chapter 13 proceedings." S.Rep. No. 98-65 (1983). Yet there is nothing in the however clause that prohibits those practices. Instead, the prohibition lies in the first part of § 1322(b)(1). See Chacon, 202 F.3d at 726-27 (affirming the judgment of the bankruptcy court and the district court denying confirmation of the debtor's Chapter 13 plan where "[t]he debtor proposed to pay the cosigned debt in full, with 12% interest, prior to any distributions to the general unsecured class" because "[n]o justification appears for a high and preferential interest rate"); Whitelock, 122 B.R. at 591 ("[A]n accelerated payment beyond a legal obligation at the expense of other creditors [is an] indicia of unfairness."). The Court therefore concludes that Congress intended courts to apply some form of unfair discrimination analysis in the context of cosigned consumer debts. This is the overwhelming majority view.10

As discussed above, courts have found unfairness whenever debtors pay holders of cosigned debts more than they would have received but for a Chapter 13 case.11 In addition, courts have held that preferring cosigned consumer debts is unfair where the discrimination inappropriately protects assets and income that are effectively the debtor's. For example, "a Chapter 13 debtor [might propose to] pay[] 10% to general unsecured creditors, but 100% to unsecured creditors who have received the co-signature of a spouse" even though "the spouse may have an abundance of disposable income, may be paying for high value luxury items, or may be protecting extensive property holdings[,]" all of which may inure to the benefit of the debtor. In re Martin, 189 B.R. 619, 628 (Bankr.E.D.Va.1995). The Martin court pointed out that "[i]t would be difficult for [a bankruptcy court] to look with favor on a debtor's plan which proposes to pay 10% to general unsecured creditors and 100% to co-signed unsecured creditors while the debtor's spouse makes payments on a Lamborghini." Id. See also Cheak, 171 B.R. at 58 ("The separate income of the debtor's wife presumably benefits the debtor to the extent they, as a married couple, pool their income for household expenses. Thus, if the debtor were permitted to pay 100% of this co-signed claim through his Chapter 13 plan, he would protect his wife's income and thereby benefit himself at the expense of other unsecured creditors."). The facts of these cases suggest a desire on the part of the debtor to accomplish a goal other than merely protecting the nondebtor cosigner.

E. Application to the Plan

Here, there is no suggestion that the Plan would pay Arrowood and Peoples more than they would have received but for the Chapter 13 case or that the Plan would accelerate the payment of the amounts they are owed. Further, prior to the Petition Date, Arrowood and Peoples agreed not to pursue Regan in exchange for the monthly payments proposed in the Plan, and Russell's motivation for paying a greater dividend to Arrowood and Peoples is to protect her mother from attempts by Arrowood and Peoples to collect on the student loans. Thus, the treatment proposed by the Plan presents the quintessential case that motivated Congress to amend § 1322(b)(1) to add the however clause.

The sole basis for the Objection is that the Plan proposes to pay significantly higher dividends on the claims of Arrowood and Peoples than it pays on Russell's other unsecured claims. But because the however clause permits the preferential treatment of the Arrowood and Peoples claims, the Plan does not run afoul of § 1322(b)(1).

V. Conclusion

For the reasons stated above, the Court concludes that the Plan complies with § 1322(b)(1). The Objection therefore is OVERRULED.

IT IS SO ORDERED.