William Lee Ackerman and Meggan Michell Ackerman

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WILSON DIVISION
IN RE:
WILLIAM LEE ACKERMAN and
MEGGAN MICHELL ACKERMAN,
Debtors. Case No. 05-05963-8-JRL
Chapter 13
_____________________________________________________________________________
ORDER
This matter is before the court on the debtors’ clarification of their proposed Chapter 13 plan.
The clarification was filed in compliance with an order entered by this court on January 26, 2006.
On October 12, 2005, the Chapter 13 trustee filed a motion to dismiss based on the debtors’
failure to file a confirmable plan. The trustee objected to the debtors’ proposed plan as it provided for
payment of a student loan outside of the plan. The debtors asserted that the student loan should receive
separate classification from other unsecured debts as it is nondischargeable. The trustee argued that the
student loan must be paid through the plan to avoid unfair discrimination against other unsecured
creditors, pursuant to 11 U.S.C. § 1322(b)(1), and to meet the disposable income requirement under §
SO ORDERED.
SIGNED this 30 day of March, 2006.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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1325(b)(1).
After the hearing on this matter, the court reviewed the debtors’ amended petition. Schedule I
indicated that one of the debtors was no longer receiving income and Schedule J showed that the debtors
were no longer making monthly direct payments on the student loan. Based on the change in the
schedules, the court was unsure what treatment of the student loan the debtors were proposing. The court
requested a clarification, which was provided by the debtors on February 17, 2006.
The debtors are seeking to separately classify their student loan so that it may be paid outside the
plan. Although the female debtor is not working, child care costs have decreased and the debtors
contend that they can still make payments on the student loan directly. The debtors believe that separate
classification of these loans is good public policy as tax dollars are used to pay defaulted loans and
education is an important goal in our society.
Under § 1322(b)(1), a plan may “designate a class or classes of unsecured claims...but may not
discriminate unfairly against any class so designated.” However, if the last payment is due on any secured
or unsecured claim “after the date on which the final payment under the plan is due,” a debtor may
“provide for the curing of any default within a reasonable time and maintenance of payments while the
case is pending.” See 11 U.S.C. § 1322(b)(5). Some courts have cited § 1322(b)(5) as allowing “long-
term” debts, such as student loans, to be paid outside of the plan. See In re Cox, 186 B.R. 744, 746-47
(Bankr. N.D. Fla. 1995); In re Benner, 156 B.R. 631, 633-35 (Bankr. D. Minn. 1993). A majority of
courts, however, require debts that qualify for treatment under § 1322(b)(5) to also pass the unfair
discrimination test under § 1322(b)(1). See In re Colley, 260 B.R. 532, 538 (Bankr. M.D. Fla. 2000); In
re Thibodeau, 248 B.R. 699,704-07 n.9 (Bankr. D. Mass. 2000); In re Coonce, 213 B.R. 344, 346-49
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(Bankr. S.D. Ill. 1997).
The issue of whether student loans can be paid outside of a Chapter 13 plan has been addressed
in this jurisdiction. See In re Wood, No. 03-01363-5-ATS (Bankr. E.D.N.C. October 30, 2003). The
facts of In re Wood are analogous to the case at hand. The trustee filed a motion to dismiss because the
debtors proposed to pay their student loan outside of the plan. The court adopted the majority view and
analyzed the proposed treatment under both § 1322(b)(1) and (b)(5). As the debt was “long term” under
§ 1322(b)(5), the court had to make a determination of whether the separate classification “discriminated
unfairly” against the remaining unsecured creditors.
Judge Small found that such a determination “must be made on a case-by-case basis, and the
court will look to the totality of the circumstances much like it would in determining good faith in chapter
13 ... and substantial abuse in chapter 7.” In re Wood, No. 03-01363 at 4. After examining the benefits
to the debtor and to the disfavored creditors, the court held that the proposed treatment complied with §
1322(b)(1). As the monthly payments on the student loan were allowed under § 1322(b)(5), the student
loan payments “must be deducted from disposable income.” Id. at 5.
This court will follow Judge Small’s decision in In re Wood and examine the proposed
treatment of the student loan under both subsections of § 1322. The student loan in question will not be
paid off during the course of the debtors’ Chapter 13 plan. As such, it qualifies under § 1322(b)(5). The
debtors will benefit from paying the loan directly because no interest or late charges will accrue, assuming
they remain current with their payments. The remaining unsecured creditors will receive a ten percent
payout. If the student loan is paid through the plan, all of the unsecured creditors will receive
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1 These percentages were provided to the court by the Chapter 13 trustee.
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approximately twenty percent.1 Although the unsecured creditors would receive slightly more if the
student loan is paid inside the plan, the alternative is a Chapter 7 liquidation where the unsecured
creditors receive no dividend. The ten percent payout is a benefit to the unsecured creditors given that the
debtors could have filed for Chapter 7 relief.
Based on the foregoing, the court finds that the proposed plan does not discriminate unfairly
among unsecured creditors and complies with § 1322(b)(1) and (b)(5). Additionally, the disposable
income requirement is met under § 1325(b)(1) as the payments on the student loan are necessarily
deducted from disposable income. Accordingly, the trustee’s motion to dismiss is denied.
“End of Document”
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