A Chapter 13 bankruptcy debtor attempted to confirm a plan that provided for 40% repayment on unsecured student loans and only 8% repayment on all other unsecured loans.

The debtor created two classes of unsecured loans and provided unequal repayment between the student loans and all other general unsecured creditors.

Often, if the debtor can justify disproportionate repayment to unsecured creditors, such as where a comaker exits on the loan, the court will confirm the Chapter 13 plan since there is a rational basis for the two classes of unsecured creditors.

Here, however, the court held that the treatment of an unsecured student loan should be no different than the percentage repaid on all other unsecured loans.

This court denied confirmation of the Chapter 13 plan as it discriminated against general unsecured creditors in favor of the unsecured student loans. In re:  Thomas Cronk, 131 B.R. 710.

EDIOR’S COMMENT

In a Chapter 13 bankruptcy, unsecured creditors normally are repaid at the same rate. However, if there is a valid distinction to repay those unsecured creditors at different rates, the court may approve the plan as proposed. Student loans do not justify a distinction though, as to the percentage of repayment in relation to the other unsecured creditors.

Author: Charles R. Harroun, Attorney at Law