Joseph E. A. Johnson

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
at Greenbelt
In Re: 	*
Joseph E. A. Johnson, III, 	* 	Case No. 	05-38580PM
* 	Chapter 	13
*
*
Debtor(s) 	*
MEMORANDUM OF DECISION
Before the court is the Chapter 13 Trustee's objection to debtor's amended plan dated December
14, 2005, that is to be amended to provide for the payment of a $57,954.00 claim held by Navy Federal
Credit Union in full with interest. 	The funds necessary to pay the interest are to be added to the
amended plan so as to provide for full payment of the Credit Union. There are two issues involved. One
involving whether it is appropriate to classify a debt where there is a co-debtor, here debtor's spouse,
and next whether the payment of interest to a joint creditor amounts to unfair discrimination and,
therefore, is barred by § 1322(b)(1) of the Bankruptcy Code.
As noted in 8 COLLIER ON BANKRUPTCY , ¶ 1322.105[1] (15th ed. rev'd 2005), it is now generally
accepted that there can be a classification of claims involving co-debtors. While it is obvious that this
plan discriminates in favor of the Credit Union, the issue is whether this discrimination is unfair. A
number of cases use the four factor test of: (1) whether the discrimination has a reasonable basis; (2)
whether the debtor can carry out the plan without the discrimination; (3) whether the discrimination is
proposed in good faith; and (4) whether the degree of discrimination is directly related to the basis or
rationale for the discrimination. In re Leser, 939 F.2d 669, 672 (CA 8 1991). A more recent case, In
re Crawford, 324 F.3d 539, 542 (CA 7 2003), the court discussed the tests involved for finding unfair
discrimination and concluded:
that this is one of those areas of the law in which it is not possible to do better than to
instruct the first-line decision maker, the bankruptcy judge, to seek a result that is
reasonable in light of the purposes of the relevant law, which in this case is Chapter 13
of the Bankruptcy Code; and to uphold his determination unless it is unreasonable (an
abuse of discretion).
Date signed February 10, 2006
Entered: February 10, 2006 Case 05-38580 Doc 32 Filed 02/10/06 Page 1 of 2

In the case before the court, no one opposes confirmation of the plan based on the debtor's failure
to devote his projected disposable income to the plan or that the value of the property to be distributed
under the plan to each allowed unsecured claim is less than would have been paid on the claim if the
estate were liquidated under chapter 7. While the debtor and his wife have substantial equity in their
residence, the Credit Union is the only joint unsecured creditor. As such, it is entitled to payment of its
claim in full. But should interest be paid at the expense of the creditors of the debtor only?
The court notes a division of authority on this point. In the case of In re Monroe, 281 B.R. 398
(BC N.D. GA), the court entered an order confirming a chapter 13 plan that provided for payment of
12% interest on a debt subject to an unsecured security interest in debtor's vehicle that was co-signed.
In the case of In re Ramirez, 204 F.3d 595 (CA 5 2000), the Fifth Circuit affirmed the decision of the
Bankruptcy Court in denying confirmation of a plan proposing to pay a co-signed debt in full with 12%
interest prior to any distributions to other creditors. Were the co-debtor spouse to join her husband in
chapter 13, then the claim of the credit union would be barred from accruing interest by virtue of
§ 502(b)(2) of the Bankruptcy Code. This leaves the court with the decision as to whether it is unfair
discrimination to allow the debtor and his spouse, earning over $168,000.00 annually between them, to
pay his unsecured creditors a dividend of 10% in order to spare his spouse from filing a bankruptcy case.
The court was told that an amended plan would be filed to increase funding. Inasmuch as the
amended plan is not now before the court, the court will set a hearing on March 30, 2006, at 3:15 p.m.,
to consider the plan that is then before it.
cc: 	Timothy P. Branigan: cmecf@chapter13maryland.com
James Leonardo Neher: jimneher@hotmail.com, lneherlaw@yahoo.com
David N. Prensky (Navy Federal Credit Union): d.prensky@chasenandchasen.com
Roderick H. Angus: rangus@halawfirm.com
End of Memorandum Decision
Case 05-38580 Doc 32 Filed 02/10/06 Page 2 of 2