In this case, the debtor filed a Chapter 13 Bankruptcy proposing to repay his student loans in full, but also proposing to repay zero percent to other unsecured creditors.

The debtor owed about $5,250.00 on unsecured student loans. He also had $19,415.00 in other unsecured loans. In this case, debtor’s student loans would not have been able to be discharged even in a Chapter 7 case, and he knew that the student loans would need to be repaid in full. Hence, the debtor created a special class for the unsecured student loans; and proposed to repay nothing to the other unsecured creditors. Moreover, it appeared from the debtor’s bankruptcy schedules that if the case had been filed as a Chapter 7, there would have been about $4,450.00 available for distribution to the unsecured creditors.

The Court held that a plan of this nature was not in the best interest of the creditors in general, and there was no valid justification to treat the unsecured student loans any differently than the other unsecured creditors. Hence, the Court denied confirmation of the Chapter 13 Plan. In the Matter of Charles Tucker, 130 B.R. 71.

Author: Charles R. Harroun, Attorney at Law