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By Ryan C. Wood<\/a><\/p>\n\n\n\n The following discusses\nlisting and treating student loan claims in chapter 13 bankruptcy cases as a\nseparate class and separate claim all by itself in a chapter 13 plan. By creating a separate class the treatment of\nthe student loan claims will be different than NOT substantially similar general\nunsecured claims like credit cards or medical debts. The advantage of this is designating more of\nthe plan payment to a not dischargeable debt, student loans, than debt that is\ndischargeable credit cards, medical debt or personal loans for the benefit of\nthe bankruptcy filer. Arguably the plain,\nunambiguous language of the Bankruptcy Code allows this. \u201cIf the language has a plain meaning or is unambiguous, the\nstatutory interpretation inquiry ends there.\u201d \nCVS Health Corp. v. Vividus, LLC, 878 F.3d 703, 706 (9th Cir. 2017)\n(citation omitted).<\/p>\n\n\n\n First\nLet Us Talk Bankruptcy – Broadly Speaking That Is<\/strong><\/p>\n\n\n\n The filing of bankruptcy is for\ndebtors; the bankruptcy filers. Not\ncreditors or other parties-in-interest. \nBankruptcy proceedings are intended to give debtors a \u201cfresh start.\u201d Goudelock\nv. Sixty-01 Ass’n of Apartment Owners, 895 F.3d 633, 637 (9th Cir. 2018)\n(citing Grogan v. Garner, 498 U.S. 279, 286 (1991)); Dept. of Health\nServs. v. Jensen (In re Jensen), 995 F.2d 925, 928 (9th Cir. 1993). Bankruptcy proceedings are intended to grant\ndebtors a \u201cfresh start,\u201d Grogan v. Garner<\/em>, 498 U.S. 279, 286\n(1991), and, as a result, the Bankruptcy Code \u201cis to be construed liberally in\nfavor of debtors,\u201d In re Devers<\/em>, 759 F.2d 751, 754 (9th Cir.\n1985).<\/p>\n\n\n\n It is less and less likely the\nBankruptcy Code will be construed liberally in favor of debtors. This is a generalization and of course there\nare plenty of examples of liberal interpretation for the benefit of\ndebtors. Just like in the real world in\nwhich corporations that do not live, breath or die dominate the argument for\nthe almighty buck. A profit before\npeople is the name of the game and it is pervasive. How can bankruptcy be immune from this when\nthe largest financial institutions are the main creditor players? It cannot be. \nInterpretations are more and more in favor of large multi-billion\nconglomerates.<\/p>\n\n\n\n Model\nChapter 13 Plans<\/strong> <\/p>\n\n\n\n Model chapter 13 plans\nwere created and are universally used from jurisdiction to jurisdiction. Some vary widely while others mirror the\nnational model chapter 13 plan. Unfortunately\nmost model chapter 13 plans do not provide for a separate class listing for\nstudent loans. Some plans do include a\nsection that provides language such as: Class 6 includes designated nonpriority unsecured claims<\/strong>, such as co-signed unsecured debts,\nthat will be treated differently than the other nonpriority unsecured claims\nprovided for in Class 7. The claim holder of each Class 6 claim and the\ntreatment of each claim shall be specified in section 7, the Nonstandard\nProvisions. The low hanging fruit is a\nstudent loan that is co-signed. This\narticle does not address this circumstance given there should be no argument\nthat co-signed student loans may be listed in a separate class with different\ntreatment then general unsecured creditors.<\/p>\n\n\n\n As\nalways the time and money to make the argument student loans may be listed in a\nseparate class and treated different than general unsecured creditors could be\nsubstantial. I cannot work for free and\nalmost no client can afford to pay me to make this argument on their behalf. If it goes bad then the only option is to\nappeal requiring even more time and money. \nSo what client of mine has the money to do that? Try none. \nThere are always bigger fish to fry for bankruptcy filers and there are\nabsolutely no moral victories. There is\neither food on the table or there is not food on the table. <\/p>\n\n\n\n Additional\nProvisions of a Model Plan<\/strong><\/p>\n\n\n\n The additional provisions section of chapter 13 plans is where the terms of the chapter 13 plan can be varied based upon the bankruptcy filers circumstances.\u00a0 This section was created to bankruptcy attorneys<\/a> could not sneak in provisions or treatment of claims that are not supported by the Bankruptcy Code.\u00a0 It is good and bad.\u00a0 The result is if there are any nonstandard or provisions you need to add to actually present your client well the language is front and center for scrutiny.<\/p>\n\n\n\n If\nyou include language in the \u201cAdditional Provisions\u201d section of your model\nchapter 13 plan the chapter 13 trustee\u2019s office will most likely object to the\nlanguage and not recommend confirmation of the chapter 13 plan. Sometimes judges will preapprove certain\nadditional provision additions for issues that come up over and over again to\nstreamline the process and allow chapter 13 trustee\u2019s to recommend confirmation\nof a chapter 13 plan without a formal hearing. \nOtherwise, the trustee\u2019s office will force there to be a confirmation\nhearing and the bankruptcy judge assigned to the case will make a decision as\nto whether the language in the additional provision can be confirmed as part of\nthe plan. This will probably happen even\nthough every creditor was served with the chapter 13 plan and no creditor objected\nto their treatment in the plan. What you\nsay!? If a creditor does not accept\ntheir treatment they have to object right? \nYou would think creditors should have to object to chapter 13 plans and\nnot accept their treatment in a chapter 13 plan. No, no. \nWhy hire and pay an attorney to file an objection to confirmation when\nthe trustee and court will do it for you? \nAt the same time chapter 13 trustees\u2019 and the Court have a duty to\nuphold the law. Also, some creditor\nattorneys do things to just earn a buck that are not necessary and only\nincrease costs of administration of bankruptcy cases. So I am torn on whether I want creditor\nparticipation in a chapter 13 case or not. I do believe creditors should have to object\nto their treatment in chapter 13 plans though. \n <\/p>\n\n\n\n The Bankruptcy Code<\/strong><\/p>\n\n\n\n So\nthis is all about interpreting the Bankruptcy Code as it exists. Arguably the plain language of the Bankruptcy\nCode provides student loans should be listed as a separate class with their own\ntreatment. Let me explain.<\/p>\n\n\n\n Section\n1322(b)(1) provides:<\/p>\n\n\n\n (b)<\/strong> Subject to subsections (a) and\n(c) of this section, the plan may\u2014 (1)<\/strong> designate a\nclass or classes of unsecured claims, as provided in <\/strong>section 1122 of this title<\/strong><\/a>, but may not discriminate\nunfairly 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;<\/p>\n\n\n\n The\nplain language provides designation of a class or classes of unsecured\nclaims. So more than one class of\nunsecured claims can be part of a chapter 13 plan. Then it says as provided in section 1122<\/strong>.<\/p>\n\n\n\n Section\n1122 Classification of Claims or Interests provides:<\/p>\n\n\n\n (a)<\/strong> Except as provided in subsection\n(b) of this section, a plan may place a <\/strong>claim<\/strong>\nor an interest in a particular class only if such <\/strong>claim<\/strong>\nor interest is substantially similar to the other <\/strong>claims<\/strong>\nor interests of such class.<\/strong><\/p>\n\n\n\n (b)<\/strong> A plan may designate a separate\nclass of claims consisting only of every\nunsecured claim that is less than or reduced to\nan amount that the court approves as reasonable and necessary for\nadministrative convenience.<\/p>\n\n\n\n Section\n1122 as referenced in 1322(b)(1) only allows classes of claims of the same\nnature or character, substantially similar to the other claims or interests of\nsuch class. This is language is plain,\ntaking the ordinary meaning of the words and is unambiguous right? Okay wonderful; moving on now to defining the\nkey term in the language above. What is\nthe definition of substantially similar? \nMight we have case law on the definition of \u201csubstantially\nsimilar?\u201d Yup. <\/p>\n\n\n\n Various\nCourts have defined \u201csubstantial similarity\u201d to mean the legal nature of the\nrespective claims. See In re McKenzie,\n4 B.R. 88 (Bkrtcy.W.D.N.Y., 1980, Creahan, B. J.); In re Iacovoni, 2\nB.R. 256 (Bkrtcy.D.Utah, 1980, Mabey, B. J.); In re Montano, 4 B.R. 535\n(Bkrtcy.D.D.C. 1980, Whelan, B. J.); In re Barnes, 7 B.C.D. 961 (D.D.C.\n1981). <\/p>\n\n\n\n So\nfor claims to be listed in the same class they must have the same legal nature\nof the respective claims. Student loans\nare not substantially similar to credit card, personal loans or medical debts\nin anyway and therefore should not be listed in the same class. <\/p>\n\n\n\n Student\nloans are really non-consumer debt given student loans are incurred to further\nones education and seek higher income. \nStudent loans are therefore incurred for income purposes or business\npurposes rather than consumer goods and services. <\/p>\n\n\n\n Student\nloans are by law are NOT dischargeable. <\/p>\n\n\n\n How can student loans possibly be in the same class\nas dischargeable general unsecured claims like credit card, personal loan or\nmedical debts? There is nothing\nsubstantially similar as to the legal nature of the claims. So student loans must be listed in a separate\nclass with their own treatment.<\/p>\n\n\n\n (a)<\/strong> Except as provided in subsection\n(b) of this section, a plan may place a <\/strong>claim<\/strong>\nor an interest in a particular class only if such <\/strong>claim<\/strong>\nor interest is substantially similar to the other <\/strong>claims<\/strong>\nor interests of such class.<\/strong><\/p>\n\n\n\n