United States District Court, N.D. Illinois, Eastern Division
September 30, 2004.
In re: RONALD BELDA, Debtor. MARILYN O. MARSHALL, Trustee, Appellant,
RONALD BELDA, Appellee.
The opinion of the court was delivered by: REBECCA PALLMEYER, District Judge
MEMORANDUM OPINION AND ORDER
In this case, the court is asked to weigh in on an issue that
has divided the bankruptcy courts: whether a Chapter 13 plan may
discriminate between payments to cover long-term student loans
and payments to other unsecured creditors. Appellant Marilyn O.
Marshall, Bankruptcy Trustee, appeals an October 9, 2003 oral
ruling and order*fn1 of the bankruptcy court confirming
Debtor Ronald Belda's proposed Chapter 13 plan of reorganization.
As part of the plan, Belda proposed that he continue making
contractual student loan payments as he had been to the United
States Department of Education (the "DOE") in the amount of
$68.50 per month. This proposal would not accelerate payment on
the student loan or result in full payment of that loan within
the period of the plan. It would, however, allow the DOE to
recover 62% of its loan during the term of the plan, while
Belda's other unsecured creditors would receive only 10% of the
amounts owed to them. The Trustee objected that the plan unfairly
discriminated among unsecured creditors in violation of
11 U.S.C. § 1322(b)(1). The bankruptcy court disagreed and confirmed the
plan, and the Trustee appealed. For the reasons set forth here, the
decision of the bankruptcy court is reversed.
The parties agree that there are no factual issues relevant to
this appeal and that the court need only decide legal questions
regarding the application of 11 U.S.C. § 1322(b)(1) to long-term
student loans under 11 U.S.C. § 1322(b)(5). The court will
nonetheless provide a brief factual background to place the legal
dispute in context. The facts are drawn from the parties'
submissions before the bankruptcy court and are assumed true
solely for purposes of this appeal.
Belda filed for bankruptcy under Chapter 13 of the Bankruptcy
Code on May 20, 2003. On September 2, 2003, he filed an amended
plan of reorganization proposing, among other things, that over
the 60-month term of the plan, he would make monthly student loan
payments to the DOE in the amount of $68.50.*fn2 As a
result, Belda would pay $4,110.00 of the DOE's $6,661.09 general
unsecured claim an approximately 62% dividend. Because student
loans are not dischargeable in bankruptcy,*fn3 Belda would
pay the remaining $2,551.09 owed to the DOE after the plan term ended, also in monthly payments of $68.50. All other general
unsecured creditors would receive a dividend of not less than 10%
of their claims out of monthly payments totaling $2,022.00. If,
however, Belda paid all general unsecured creditors, including
the DOE, equally, each would receive a dividend of approximately
35%. In the case of the DOE, that would amount to $2,331.38
during the life of the plan.
The Trustee objected to the plan, arguing that it violated §
1322(b)(1)'s prohibition against unfair discrimination:
the [Chapter 13] plan may (1) designate a class or
classes of unsecured claims . . . but may not
discriminate unfairly against any class so
designated; 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.
11 U.S.C. § 1322(b)(1). According to the Trustee, it was unfairly
discriminatory to pay the DOE 62% of its claim while paying other
unsecured creditors only 10% of their claims.
Belda responded that § 1322(b)(1) does not apply to his student
loan because it constitutes a long-term debt under § 1322(b)(5).
Under that provision,
the [Chapter 13] plan may (5) notwithstanding
paragraph (2)*fn4 of this subsection, provide
for the curing of any default within a reasonable
time and maintenance of payments while the case is
pending on any unsecured claim or secured claim on
which the last payment is due after the date on which
the final payment under the plan is due.
11 U.S.C. § 1322(b)(5). Belda observes that Congress intended
Chapter 13 debtors to emerge from their plans debt-free, but
student loans must always be paid in full. If Belda were to pay a smaller portion of the DOE's claim, he contends, he "would have
to win a small lotto to pay the remaining balance of his student
loan [at the conclusion of the plan] as it will accumulate over
the years as the Debtor makes his payments to the Chapter 13
Trustee." (Debtor's Response to Trustee's Objection to
Confirmation, at 5.) If § 1322(b)(1) did apply, Belda argued, the
bankruptcy court needed to hold a hearing to determine whether
the differential treatment of the DOE and the other unsecured
creditors was "unfair." Belda proposed that the test should be
whether the other unsecured creditors "[were] to receive as much
as [they] would have received in a Chapter 7 bankruptcy." (Id.
at 7.) Presumably, Belda believes that the unsecured creditors
will receive at least as much under his plan as they would have
received had he filed for bankruptcy under Chapter 7.
The bankruptcy court held that § 1322(b)(1) does not limit §
1322(b)(5) and that the two provisions "are free-standing
entitlements." (Tr. at 6, 7) (citing In re Banner, 156 B.R. 631
(Bankr. D. Minn. 1993), and In re Chandler, 210 B.R. 898
(Bankr. D.N.H. 1997).) The bankruptcy court found it significant
that Belda was not seeking to accelerate payments under his
student loan or to pay it off in full during the term of the
plan; instead, he merely wanted to maintain his regular monthly
payments. As Judge Doyle observed, "[m]any courts have
acknowledged that this is entirely permissible under Section
1322(b)(5) and have applied the unfair discrimination test only
when the debtor seeks not only to pay the regular monthly
payments and arrearages but also to pay off the entire loan."
(Tr. at 7) (citing In re Groves, 39 F.3d 212, 215 (8th Cir.
1994)) (noting that plans proposing 100% payment on student loans
during the life of a plan of reorganization versus "at best, 40%"
repayment of other unsecured claims "more than overbalance[d] the
debtors' desire for a clean slate as against fairness to their
general unsecured creditors").
In reaching this conclusion, the bankruptcy court distinguished
the Seventh Circuit's opinion in In re Crawford, 324 F.3d 539
(7th Cir. 2003). The debtor in Crawford proposed paying
two-thirds of his child support obligation which, like student
loans, is not dischargeable in bankruptcy, and nothing to his other unsecured creditors. Id. at 541. See
also 11 U.S.C. § 523(a)(5)(A). The bankruptcy and district
courts both refused to confirm the plan as unfairly
discriminatory under § 1322(b)(1). The Seventh Circuit first
rejected all of the tests for unfairness that had been
articulated by other courts, stating:
We haven't been able to think of a good test
ourselves. We conclude, at least provisionally, that
this is one of those areas of the law in which it is
not possible to do better than to instruct the
first-line decision maker, the bankruptcy judge, to
seek a result that is reasonable in light of the
purposes of the relevant law, which in this case is
Chapter 13 of the Bankruptcy Code; and to uphold his
determination unless it is unreasonable (an abuse of
Id. at 542. The court recognized that nonpayment of child
support is a serious matter and that such payments may be
separately classified under § 1322(b)(1), but it also noted that
"Chapter 13 is designed for the protection of creditors as well
as debtors." Id. at 543, 544. The court held that the
bankruptcy court did not abuse its discretion in rejecting the
debtor's plan because he had provided no reasonable basis for
"shift[ing] two-thirds of his nondischargeable debt to his other
creditors, leaving them with nothing." Id. at 544.
In dicta, the Seventh Circuit suggested that a reasonable
basis for such discrimination might exist where a plan seeks to
"carve-down" the debtor's nondischargeable debt upon a showing
that doing so is necessary to avoid "a crushing load of
undischarged debt [that would] make it inevitable or nearly so
that he would soon be back in the bankruptcy court, this time
under Chapter 7." Under such circumstances, the court said, it
would presumably affirm the proposal, "especially if the
unsecured creditors would do worse in Chapter 7 than they would
do under [the debtor's] revised Chapter 13 plan." Id.
In distinguishing Crawford from this case, the bankruptcy
court noted that Crawford did not deal with a student loan or
with § 1322(b)(5); "there were no arrearages to cure and no
continuing long-term payments to be made." (Tr. at 9.)*fn5 In the
bankruptcy court's view, "[t]he fact[s] of Crawford, a debtor
attempting to pay most of the non-dischargeable debt while giving
the rest of his creditors absolutely nothing are egregious and
are not analogous to the facts in this case." (Id.) Even if §
1322(b)(5) did apply in this case, the bankruptcy court stated,
Belda would find himself in financial trouble were he not allowed
to continue his payments to the DOE:
[I]f he does not maintain his current payments to the
department of education, he will be liable upon
completion of his case for a substantial lump sum of
past due payments. The lender would be free to
initiate collection proceedings, thereby eliminating
in large part the fresh start to which the debtor is
entitled in bankruptcy.
(Tr. at 10.) In addition, the creditors "will receive the same
return as they would in a Chapter 7 case, if not more." (Tr. at
11.) The bankruptcy court found the differential treatment
reasonable and confirmed Belda's plan.
I. Standard of Review and Jurisdiction
This court has subject matter jurisdiction over the Trustee's
appeal from the bankruptcy court pursuant to 28 U.S.C. § 158(a).
The district court functions as an appellate court when reviewing
bankruptcy court decisions. Bielecki v. Nettleton,
183 B.R. 143, 145 (N.D. Ill. 1995) (citing FED. R. BANKR. P. 8013). In a
bankruptcy appeal, the court examines the "bankruptcy court's
factual findings for clear error and its legal conclusions de
novo." Meyer v. Rigdon, 36 F.3d 1375, 1378 (7th Cir. 1994).
The parties in this case raise exclusively questions of law,
which the court will review de novo.
This case presents the question whether long-term student loan
payments under § 1322(b)(5) are subject to the unfair
discrimination limitations of § 1322(b)(1) and, if so, whether
Belda's proposed plan is "fair." The Seventh Circuit has not yet
addressed this issue and bankruptcy courts are split. The Trustee argues that a Chapter 13
plan cannot discriminate as between payments to cover student
loans and payments to cover debt owed to other unsecured
creditors, and that Belda's proposed plan is "unfair" because it
does just that. Belda claims that § 1322(b)(1) is inapplicable
and that, in any event, his plan does not violate that provision.
II. Discrimination in Favor of Student Loans
Student loans were dischargeable under Chapter 13 until 1990,
when Congress amended the Bankruptcy Code to make them
nondischargeable. See McCullough v. Brown, 162 B.R. 506, 508
(N.D. Ill. 1993) (Shadur, J.) Section 1322(b)(5), which addresses
long-term nondischargeable debt, was traditionally used by
debtors as a means of curing home mortgage defaults, but it has
also been applied in the context of student loans. See In re
Coonce, 213 B.R. 344, 345 n. 2 (Bankr. S.D. Ill. 1997). Section
1322(b)(1) permits separate classification of unsecured claims as
long as the proposed discrimination is fair. Crawford,
324 F.3d at 541; Coonce, 213 B.R. at 345-46. As noted, there is
currently a split of authority as to whether student loan
payments that qualify for § 1322(b)(5) treatment are also subject
to § 1322(b)(1)'s prohibition against unfair discrimination.
In the case of In re Chapman, 146 B.R. 411 (Bankr. N.D. Ill.
1992) (Ginsberg, J.), a case not addressing § 1322(b)(5), the
debtor sought to pay off his student loans in full during the
term of the plan while paying other unsecured creditors, except
those with claims to co-signed debts, only 10% of their claims.
Id. at 412. The bankruptcy court held that "there is no
reasonable basis for the debtor to discriminate against the
general unsecured claims class by paying the student loan class
in full while paying the general unsecured claims class only ten
percent." Id. at 417. The bankruptcy court reasoned that it
"would be clearly unfair" to allow the debtor to "equitably
subordinat[e] 90% of the claims of those creditors holding
dischargeable claims to the nondischargeable student loans."
Id. at 418. This conclusion, the bankruptcy court stated, was
bolstered by the fact that in making student loans
nondischargeable, Congress did not afford them any special treatment or make them a priority in Chapter 13. In
addition, § 1322 is intended as a "creditor protection device,"
but, as the court observed, only the debtor (and the student loan
creditors) derived any benefit from the proposed discrimination.
Id. at 419.
The Eighth Circuit reached a similar conclusion in Groves, in
which a plan proposed to fully repay student loans over the life
of the plan but to provide just 10-40% repayment for other
unsecured claims. 39 F.3d at 214. The court rejected the notion
that discriminating in favor of student loans was "fair" based on
Congress' intent that they be repaid in full and that debtors
obtain a "fresh start" after bankruptcy. Id. at 215. Unlike
child support obligations, the court stated, public policy does
not dictate full payment of student loans during the life of the
plan. In addition, the fact that the debtors may emerge from
bankruptcy with a continuing obligation "may be the result
envisioned by Congress in . . . mak[ing] student loans
nondischargeable in a Chapter 13 case." Id. Thus, the court
agreed with the bankruptcy court that the debtor may avoid
discrimination by paying student loan creditors pro rata with
other unsecured creditors, or by "treat[ing] the student loan
obligation as a long term indebtedness under § 1322(b)(5), curing
arrearages within a reasonable time and thereafter maintaining
regular payments." Id. As for the debtor's claim that unsecured
creditors would have received nothing had she proceeded under
Chapter 7, the court found it "irrelevant whether or not there
exists an undesirable end-run around an otherwise correct
Other courts have found that debtors are allowed to
discriminate in favor of student loans as long as they are not
attempting to accelerate the loan payments. In Benner, for
example, the debtors proposed paying the outstanding balance of a
student loan debt to the Higher Education Assistance Foundation
("HEAF") outside the plan, while curing the arrearages on the
loan within the plan. HEAF would therefore receive 57% of its
claim during the plan period, whereas other unsecured creditors
would receive 5% of their claims. 156 B.R. at 632. The bankruptcy
court found that this proposal was not unfairly discriminatory in
violation of § 1322(b)(1). First, the court held, a debtor's interest in receiving a fresh start and emerging
from bankruptcy without substantial nondischargeable debt
provided a reasonable basis for discriminatory classification.
Id. at 634. In addition, by making student loans
nondischargeable, Congress demonstrated an intent that such debts
be paid in full. Significantly, the plan merely sought to cure
arrearages within the plan, and not to accelerate or pay off the
entire loan. Id. at 634-35.
The debtors in In re Cox, 186 B.R. 744 (Bankr. N.D. Fla.
1995), similarly proposed paying off student loans outside of the
Chapter 13 plan, and giving other unsecured creditors an 18%
dividend on their claims. Id. at 745. In reaching its decision
to confirm that plan, the bankruptcy court began by expressing
disagreement that student loans could be treated differently
merely because they are nondischargeable. While recognizing that
courts have allowed such differential treatment with respect to
child support payments, the bankruptcy court found
nondischargeable student loans distinguishable because "[t]he
federal government's need for the repayment of student loans,
while an important policy objective, does not approach a family's
need for the immediate payment of alimony or child support
obligations." Id. (citing Groves, 39 F.3d at 215). Citing
Benner, the bankruptcy court noted that the debtors in Cox
were not trying to accelerate the loans and would not pay them
off during the life of the plan. The bankruptcy court thus
concluded that the proposed payment plan was not unfairly
discriminatory because § 1322(b)(5) expressly provides for the
curing of such long-term debt. Id. at 746. Compare In re
Strickland, 181 B.R. 598 (Bankr. N.D. Ala. 1995) ("[i]t will be
this Court's policy to allow nondischargeable student loans to be
paid as a general unsecured creditor on a pro rata basis for the
first 36 months of the plan. The remaining 24 months of the plan
may be devoted solely to the payment of the student loan").
The following year, a Maryland bankruptcy court rejected plans
calling for 100% repayment of student loans and pro rata
distributions to all other unsecured creditors representing
approximately 10% of their claims. In re Kolbe, 199 B.R. 569,
570 (Bankr. D. Md. 1996). The bankruptcy court reviewed several
tests for "unfair" discrimination under § 1322(b)(1) and adopted a five-factor approach set forth in In re Husted, 142 B.R. 72,
74 (Bankr. W.D.N.Y. 1992).*fn6 Id. at 572, 574. Applying
those factors, the bankruptcy court stated that while the
debtors' inability to fully repay the student loans would
undermine their fresh start, "the nondischargeability of student
loan debts possesses a statutory preference over an unfettered
fresh start." Id. at 575. The bankruptcy court was not
persuaded that the plans were necessary to insulate the debtors
from "the same governmental collection methods that originally
caused them to file for bankruptcy." Id. In the bankruptcy
[i]t is likely that other plans can be developed to
pay the other unsecured creditors a higher percentage
than what has been proposed by both debtor[s].
Alternatively, debtors have not shown that a
repayment default on the student loans could not be
cured through the plan. 11 U.S.C. § 1322(b)(5).
In Coonce, a case more factually similar to this one, the
debtors' plan proposed that they pay student loan creditors 33.1%
of their claims and pay other unsecured creditors 10.56% of their
claims. 213 B.R. at 345 n. 1. Like the Cox court, the Coonce
court believed that the student loans were not dischargeable was
insufficient to justify granting them preferential treatment:
"Chapter 13 debtors['] . . . strong interest in reducing
obligations in their plans . . . should not be advanced at the
expense of their other unsecured creditors." Id. at 346. That
the student loans constituted long-term debt under § 1322(b)(5)
similarly did not alone justify a conclusion that the
classification was "fair" discrimination.
Taken to its logical conclusion, such an
interpretation would require that any designation or
plan provision made pursuant to a subsection of §
1322(b) would be per se exempt from the "fair
discrimination" requirement of § 1322(b)(1).
Obviously, this was not Congress' intent when it
drafted § 1322(b).
Id. at 347. The bankruptcy court found it significant that Congress chose
not to make student loans an exception to § 1322(b)(1) when it
amended § 1328(a)(2) of the Bankruptcy Code to make educational
loan obligations nondischargeable in Chapter 13 cases.
Under the doctrine of inclusio unius exclusio
alterius (the inclusion of one is the exclusion of
another), § 1322, by specifically providing for
co-signed consumer debts to be treated separately
from other unsecured claims without regard to unfair
discrimination, does not allow any other kinds of
unsecured claims, including student loans, to be so
treated unless such discrimination is fair.
Id. at 348. The bankruptcy court also stated that separate
classification of student loans based solely on their duration
could produce "anomalous results."
For example, a student loan with thirty-six monthly
payments remaining could not qualify under §
1322(b)(5) and, therefore, would have to be classed
with all of the other unsecured creditors. However,
an identical obligation with thirty-seven monthly
payments remaining would be entitled to full payment
under the plan without any inquiry as to whether the
proposed treatment was fair.
Id. Applying these theories to the facts of the case, the
bankruptcy court held that "§ 1322(b)(1) prohibits unfair
discrimination even when it appears in the guise of treatment of
long-term debt under § 1322(b)(5)." Id. But see McCullough,
162 B.R. at 510 ("debtors could almost always design plans that do
not discriminate" by "simply . . . treat[ing] student loans as
long term debt under Section 1322(b)(5)"). The Coonce noted
that a debtor's fresh start must be balanced against the
creditors' right to fair treatment, and found that the debtors in
that case could formulate a nondiscriminatory plan that paid the
student loan creditors on a pro rata basis with other unsecured
creditors during the life of the plan and as a continuing
obligation thereafter. Id. at 349. See also In re Caruso, No.
00-84200, 2001 WL 34076052 (Bankr. C.D. Ill. July 16, 2001)
(following Coonce to reject as unfairly discriminatory a plan
that proposed to pay student loan creditor 50% of its claim while
paying other unsecured creditors 2% of their claims).
A New Hampshire bankruptcy court took a contrary view in In re
Chandler, 210 B.R. 898 (Bankr. D.N.H. 1997). The debtors in
Chandler proposed that they continue to pay the required
monthly contractual obligations on student loans outside the
Chapter 13 plan, and pay other unsecured creditors some lesser percentage of their claims. Id.
at 900. The bankruptcy court determined that the proposal did not
violate § 1322(b)(1):
The Court holds that placing unsecured creditors,
like those holding student loans, into a separate
class and permitting debtors to maintain their
payments to them at the full contract rate, as
expressly permitted by section 1322(b)(5), is not
"unfair" discrimination. This must be the result
intended by Congress; otherwise, how could a debtor's
plan provide for the "maintenance of payments" on
"unsecured" claims under section 1322(b)(5) if it
were considered "unfair discrimination" under section
1322(b)(1). In order to give meaning to both
subsections, the Court finds that the discrimination
proposed by the debtors in this case is not unfair.
Id. at 904. The bankruptcy court stated that debtors may not
"accelerate payments or make any payment other than those
necessary to cure defaults and keep current on the loan in
accordance with the statute." Id.
More recently in In re Colley, 260 B.R. 532 (Bankr. M.D. Fla.
2000), the bankruptcy court considered a plan that would pay a
student loan creditor (Intuition, Inc.) 36% of its claim over the
36-month plan term, and pay other unsecured creditors 2% of their
claims. Id. at 534. The bankruptcy court noted that a minority
of courts (e.g., Benner, Cox) exempted § 1322(b)(5) student
loans from the limitations of § 1322(b)(1). Id. at 535-36.
Following what it characterized as the "majority" view
articulated in Coonce, however, the bankruptcy court held that
student loans qualifying as long-term debt under § 1322(b)(5)
must not discriminate unfairly against other unsecured creditors.
Id. at 536-38. Colley went so far as to say that even a 1%
difference between the amount of debt recovered by a student loan
creditor and the amount recovered by unsecured creditors is
improper, as "[t]here is no de minimis exception to §
1322(b)(1). Id. at 540-41.
Finally, in In re Labib-Kiyarash, 271 B.R. 189 (B.A.P. 9th
Cir. 2001), the debtor proposed to continue making direct
contractual payments to four student loan creditors as long-term
debts under § 1322(b)(5). Over the life of the plan, those four
creditors were to divide payments totaling $11,400 (a 42% to 100%
dividend) while the other unsecured creditors were to divide
payments totaling only $3,000 (a 3% dividend). Id. at 190-91.
The bankruptcy court sustained the trustee's objection to the plan on the grounds of unfair discrimination.
The Bankruptcy Appellate Panel agreed that § 1322(b)(1) applied
to the long-term student loans, but reversed the bankruptcy
court's ruling for failure to first apply the Ninth Circuit's
test for determining whether a special classification is unfair
discrimination. Id. at 191 (referring to In re Wolff,
22 B.R. 510 (B.A.P. 9th Cir. 1982)). The court held that "a debtor may
use § 1322(b)(5) to maintain long-term student loan payments at
the contract rate while curing any arrearage through the plan,
provided that the debtor's plan satisfies the Wolff test for
unfair discrimination under § 1322(b)(1)."*fn7 Id. at 195.
Although the matter is not free from doubt, this court finds
the reasoning set forth in Coonce and Colley persuasive and
concludes that student loans constituting long-term debt under §
1322(b)(5) must comply with § 1322(b)(1)'s prohibition against
unfair discrimination. As for the proper test for determining
"fairness," the Seventh Circuit has instructed that "at least
provisionally, . . . this is one of those areas of the law in
which it is not possible to do better than to instruct the
first-line decision maker, the bankruptcy judge, to seek a result
that is reasonable in light of the purposes of the relevant law,
which in this case is Chapter 13 of the Bankruptcy Code; and to
uphold his determination unless it is unreasonable (an abuse of
discretion)." Crawford, 324 F.3d at 542. Thus, the court must
consider whether the bankruptcy court's decision to uphold
Belda's proposed plan was unreasonable.
III. Belda's Plan
Belda's plan is similar to the ones proposed in Coonce,
Colley, and Labib-Kiyarash in that it involves paying a 62%
dividend on his student loans but paying other unsecured
creditors only 10% of their claims. Belda is not seeking to
accelerate his student loan and will not pay it off in full
during the term of the plan. Cf. Chapman, 146 B.R. at 412;
Groves, 39 F.3d at 214. Nevertheless, the plan clearly discriminates in favor of the DOE. The
bankruptcy court determined that the discrimination was not
unfair because "[i]f Debtor does not maintain his current monthly
payments owed to the Department of Education he will be liable
upon completion of his Chapter 13 plan for a substantial lump sum
of past due payments. The lender would be free to initiate
collection proceedings, thereby eliminating in large part the
fresh start to which the debtor is entitled in bankruptcy." (Tr.
at 10.)*fn8 In support of this conclusion, the bankruptcy
court cited Crawford, in which the Seventh Circuit suggested
that it would "presumably" affirm a plan to "carve-down" the
debtor's nondischargeable debt upon a showing that it was
necessary to avoid "a crushing load of undischarged debt [that
would] make it inevitable or nearly so that he would soon be back
in the bankruptcy court, this time under Chapter 7."
324 F.3d at 543. The bankruptcy court also noted, without elaboration, that
the unsecured creditors "will receive the same return as they
would in a Chapter 7 case." (Tr. at 11.)
The court respectfully disagrees that Belda has shown the
requisite "crushing load of undischarged debt" in this case.
Belda owes a total of $6,661.09 to the DOE. If he makes full
contractual payments during the term of the plan, he will reduce
his debt by $4,110.00 and owe the DOE $2,551.09 at the end of the
plan. If, on the other hand, he pays the DOE a pro rata share of
his monthly payments, he will reduce his debt by $2,331.38 and
owe the DOE $4,329.71 at the end of the plan. Belda has not
provided any basis for concluding that the difference between the
two results ($1,778.62) is so great as to render the $4,329.71
Though the Bankruptcy Code seeks to provide debtors with a
fresh start, that must be balanced against the rights of
creditors, which are paramount under § 1322(b)(1). See
Crawford, 324 F.3d at 542 ("Chapter 13 is designed for the
protection of creditors as well as debtors"); Coonce, 213 B.R. at 349 ("§ 1322(b)(1) is essentially a
creditor protection device [and] any proposed classification
should be viewed from the perspective of the creditors being
discriminated against"). The mere fact that Belda will not emerge
from bankruptcy debt-free cannot justify the discrimination in
this case; indeed his own plan contemplates that he will still
owe money on his student loan after the plan expires. In
addition, an equitable plan that paid all unsecured creditors 35%
on their claims would still assist Belda in "carving-down" his
nondischargeable debt. The bankruptcy court does not explain how
the unsecured creditors will receive "the same return" under
Belda's plan as they would under Chapter 7. In any event, as the
Groves court noted, Belda's ability to file for Chapter 7
protection may not be a relevant consideration. 39 F.3d at 215
("it is irrelevant whether or not there exists an undesirable
end-run around an otherwise correct ruling"). On these facts, the
court does not find a reasonable basis for confirming Belda's
For the reasons stated above, the bankruptcy court's order
confirming Belda's proposed Chapter 13 plan of reorganization is