Matson v. Bracher

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
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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,
Circuit Judges.
PER CURIAM:**
Travis Matson appeals the denial and
dismissal of his chapter 13 reorganization plan.
Concluding that his proposal to pay all
cosigned consumer debt before any general
unsecured debt is without justification, we
affirm.
I.
Matson filed a petition for relief under
chapter 13. Under the proposed
reorganization plan, an unsecured, cosigned
consumer debt was scheduled to be paid up-
front, in full, with interest, before payment of
other general unsecured debts; the trustee
objected. The bankruptcy court, after a
hearing, denied confirmation because the plan
proposed to pay the cosigned debt ahead of
the general unsecured claims and, as a result,
“discriminated unfairly” against the other
unsecured creditors in violation of 11 U.S.C.
§ 1322(b)(1). Accordingly, the case was
dismissed for failure to obtain confirmation of
the plan.
Matson appealed to the district court,
arguing that the requirement that any
classification of unsecured debts not unfairly
discriminate against general unsecured debts
was not applicable to the special category of
cosigned consumer debt. The district court
affirmed.
II.
At the time of briefing, this case presented
an issue of first impression in the courts of
* Circuit Judge of the Ninth Circuit, sitting by
designation.
** 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determined that this opinion should not be
published and is not precedent except under the
limited circumstances set forth in 5TH CIR. R.
47.5.4.

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appeals: whether the prohibition on unfair
discrimination in § 1322(b)(1) applies to
cosigned debt. Section 1322(b)(1) provides
that a reorganization plan may
designate a class or classes of unsecured
claims, as provided in section 1122 of
this title, but may not discriminate
unfairly 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
[sic] other unsecured claims.
11 U.S.C. § 1322(b)(1) (emphasis added).
The ambiguously-worded “however” clause
led to a split among bankruptcy courts over
whether a plan that gives priority to a cosigned
consumer debt is invalid if it unfairly
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.
Thus, we opined that the exception carved
out for cosigned consumer debt set up a
presumption that such classification was not
unfairly discriminatory. Nevertheless, we
affirmed the dismissal, opining that where the
plan proposed to pay the cosigned debt in full,
with 12% interest, there was no justification
for the “high and preferential interest rate.”
Id.
Here, the bankruptcy court rejected
Matson’s plan for the same reasons it rejected
Chacon’s: Both proposed to pay the cosigned
debt in full, with 12% interest, before any
unsecured debts were paid. Accordingly, the
bankruptcy court’s conclusion remains correct
under the test articulated in Chacon, and the
judgment of the district court, affirming the
bankruptcy court and denying confirmation, is
AFFIRMED.
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).

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