Court Opinion

ID: 20322
Source: CourtListenerOpinion
Date Created: 2010-04-25 07:33:09+00
Date Added: 2024-06-11T15:04:38.422799
License: Public Domain

UNITED STATES COURT OF APPEALS
                                  FOR THE FIFTH CIRCUIT
                                      _______________

                                              m 99-50500
                                            _______________

                                       IN THE MATTER OF:
                                    TRAVIS J. MATSON, DEBTOR.
                                          TRAVIS J. MATSON,
                                                              Appellant,
                                                 VERSUS

                                   PHYLLIS BRACHER, TRUSTEE,
                                                              Appellee.
                                     _________________________

                             Appeal from the United States District Court
                                  for the Western District of Texas
                                         (EP-99-CV-127-H)
                                   _________________________
                                           March 2, 2000

Before DAVIS, HALL*, and SMITH,                       reorganization plan, an unsecured, cosigned
  Circuit Judges.                                     consumer debt was scheduled to be paid up-
                                                      front, in full, with interest, before payment of
PER CURIAM:**                                         other general unsecured debts; the trustee
                                                      objected. The bankruptcy court, after a
    Travis Matson appeals the denial and              hearing, denied confirmation because the plan
dismissal of his chapter 13 reorganization plan.      proposed to pay the cosigned debt ahead of
Concluding that his proposal to pay all               the general unsecured claims and, as a result,
cosigned consumer debt before any general             “discriminated unfairly” against the other
unsecured debt is without justification, we           unsecured creditors in violation of 11 U.S.C.
affirm.                                               § 1322(b)(1). Accordingly, the case was
                                                      dismissed for failure to obtain confirmation of
                   I.                                 the plan.
  Matson filed a petition for relief under
chapter 13.      Under the proposed                       Matson appealed to the district court,
                                                      arguing that the requirement that any
                                                      classification of unsecured debts not unfairly
   *
                                                      discriminate against general unsecured debts
     Circuit Judge of the Ninth Circuit, sitting by   was not applicable to the special category of
designation.                                          cosigned consumer debt. The district court
   **                                                 affirmed.
      Pursuant to 5TH CIR. R. 47.5, the court has
determined that this opinion should not be
published and is not precedent except under the                             II.
limited circumstances set forth in 5TH CIR. R.           At the time of briefing, this case presented
47.5.4.                                               an issue of first impression in the courts of
appeals: whether the prohibition on unfair                   Thus, we opined that the exception carved
discrimination in § 1322(b)(1) applies to                out for cosigned consumer debt set up a
cosigned debt. Section 1322(b)(1) provides               presumption that such classification was not
that a reorganization plan may                           unfairly discriminatory. Nevertheless, we
                                                         affirmed the dismissal, opining that where the
   designate a class or classes of unsecured             plan proposed to pay the cosigned debt in full,
   claims, as provided in section 1122 of                with 12% interest, there was no justification
   this title, but may not discriminate                  for the “high and preferential interest rate.”
   unfairly against any class so designated;             Id.
   however, such plan may treat claims for
   a consumer debt of the debtor if an                      Here, the bankruptcy court rejected
   individual is liable on such consumer                 Matson’s plan for the same reasons it rejected
   debt with the debtor differently than                 Chacon’s: Both proposed to pay the cosigned
   [sic] other unsecured claims.                         debt in full, with 12% interest, before any
                                                         unsecured debts were paid. Accordingly, the
11 U.S.C. § 1322(b)(1) (emphasis added).                 bankruptcy court’s conclusion remains correct
The ambiguously-worded “however” clause                  under the test articulated in Chacon, and the
led to a split among bankruptcy courts over              judgment of the district court, affirming the
whether a plan that gives priority to a cosigned         bankruptcy court and denying confirmation, is
consumer debt is invalid if it unfairly                  AFFIRMED.
discriminates against other unsecured debt.1
   That split recently was resolved in this
circuit by Chacon v. Bracher (In re Chacon),
No. 99-50163, 1999 U.S. App. LEXIS 35624
(5th Cir. Sept. 24, 1999), which originated
from the same bankruptcy proceeding as the
instant case. In Chacon, we interpreted
§ 1322(b)(1)’s “however” clause as

   clarify[ing] that [differential] treatment
   of cosigned consumer debt is usually not
   unfairly discriminatory. Differences in
   treatment are not discriminatory if they
   rationally further a legitimate interest of
   the debtor and do not disproportionately
   benefit the cosigner, e.g. by reimbursing
   interest where none is due or
   reimbursing more than the actual
   amount of the cosigned debt.

Id. at *2-*3.

     1
       Compare, e.g., Nelson v. Easley (In re
Easley), 72 B.R. 948, 955-56 (Bankr. M.D.Tenn.
1987) (holding that consumer debts are subject to
the proscription on unfair discrimination) with In
re Dornon, 103 B.R. 61, 64 (Bankr. N.D.N.Y.
1989) (holding that a cosigned consumer debt is an
exception to the general unfair discrimination
rule).

                                                     2