The Bankruptcy Code further provides that a Chapter 13 repayment plan may not unfairly discriminate against unsecured creditors.

In this case, debtors’ Chapter 13 plan acknowledged that they must repay 100% on their student loan, while proposing to repay the other unsecured creditors less than 100%.

The court held that the Code prohibits debtors from discriminating against other unsecured creditors while repaying 100% of the student loan.

The court refused to confirm debtors’ Chapter 13 bankruptcy. Debtors would, therefore, either need to file an amended Chapter 13 plan proposing 100% repayment to all unsecured creditors, convert the Chapter 13 to a Chapter 7 (and still repay 100% on the student loan), or dismiss the bankruptcy entirely. Groves v. LaBarge, 160 B.R. 121.

EDITOR’S COMMENT

Most courts across the country have ruled that unsecured creditors cannot be discriminated against while repaying student loans 100% while only repaying other unsecured creditors less.

Author: Charles R. Harroun, Attorney at Law