Matson v. Bracher ( 2000 )

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________
m 99-50500
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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determined that this opinion should not be
published and is not precedent except under the II.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