James Robert Zeigafuse and Debra Anne Zeigafuse

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF WYOMING
In re
JAMES ROBERT ZEIGAFUSE and
DEBRA ANNE ZEIGAFUSE,
Debtor.
)
)
)
)
)
)
Case No. 	11-20854
Chapter 13
OPINION ON DENYING CONFIRMATION OF THE DEBTORS' CHAPTER 13
PLAN DATED AUGUST 15, 2011
On December 21, 2011, this matter came before the court for an evidentiary
hearing on the confirmation of the Chapter 13 Plan dated August 15, 2011 ("Plan") and
the Trustee's objection. The matter was continued several times and reconvened on
March 21, 2012. The parties were represented as stated on the record. The court having
reviewed the record, testimony and evidence finds that confirmation of the Plan is
denied.
Jurisdiction
This court has jurisdiction of this matter under 28 U.S.C. §§1334(a) and 157(a).
This is a core proceeding under 28 U.S.C. §157(L). This plan is before the court for
confirmation under 11 U.S.C. §1301 et seq.1
Facts
James and Debra Zeigafuse ("Debtors") filed their chapter 13 bankruptcy petition
on August 1, 2011. The Debtors filed their Plan, Chapter 13 Statement of Current
1 Unless otherwise indicated, all future statutory reference are to the Bankruptcy Code, Title 11 of the
United States Code.
Case 11-20854 Doc 62 Filed 04/05/12 Entered 04/05/12 15:37:14 Desc Main
Document Page 1 of 14

Monthly and Disposable Income ("Form 22C") and other required schedules and
documents on August 15,2011. The Debtors calculate their income on Form 22C to
reflect that they are below-median income debtors. Therefore, they assert that their net
disposable income to be paid into the plan is calculated from their Schedules I and J.
The Trustee filed his objection on September 26, 2011.
Mr. Zeigafuse is employed by Transam Trucking as a long-haul truck driver. Mrs.
Zeigafuse is a licensed practical nurse. The Debtors live in a mobile home located in the
Riverside Mobile Home Park in Casper, Wyoming. The Debtors are purchasing the
mobile home by a contract for deed with the last payment due in April, 2012. The space
in which the mobile home is located is rented on a month-to-month basis. Mrs.
Zeigafuse testified that she does not like the [trailer] park where they currently live as she
does not "feel safe there."
Additionally, the Debtors, their son and daughter-in-law, entered into an
agreement to purchase 50 acres of undeveloped property near Casper in May, 2009,
again by a contract for deed. The total monthly payment is $653.02, which is split
between the Debtors and their son and daughter-in-law. Mrs. Zeigafuse testified that
their portion of the land payment is $425.00 a month. In addition, the Debtors paid
$160.00 a year in homeowners' fees. 	These fees have risen to $225.00 to $250.00 a year
for 2012. Mrs. Zeigafuse's testimony was conflicting on whether the Debtors pay all or
part of the homeowners' fees. 	On December 21, 2011, she testified that the Debtors paid
Page2
Case 11-20854 Doc 62 Filed 04/05/12 Entered 04/05/12 15:37:14 Desc Main
Document Page 2 of 14

all the homeowners' fees. 	However, on March 21, 2011, she testified that the Debtors
pay one-half of the fees.
The Debtors purchased the 50 acres with the hopes of developing the property by
having electricity, water and sewer installed, purchasing a mobile home and moving onto
the property to live. Mrs. Zeigafuse testified that the estimated costs to improve the
property would include: extending electrical service: $3,000.00; drilling a well at a cost
between $22,500.00 and $37,500.00 [although she testified that the Debtors would
potentially haul water at first]; and, sewer installation that would be for "costs only" as
their son would do the work. These expenses do not include the costs of purchasing a
mobile home. The Debtors expect that the expenses for installation of the services would
be split with their son and daughter-in-law.
The Debtors also claim out-of-pocket medical expenses in the amount of$575.00
per month, which includes their insurance deductibles, Debtors' uninsured medical
expenses, including equipment, prescriptions, other medications, and vision expenses.
Both Debtors have chronic medical conditions.
Mrs. Zeigafuse testified that she has a student loan in the amount of $56,570.00
on which she pays $320.00 a month that the Debtors claim as a monthly expense and
deduct from their net income on Schedule J for the purpose of calculating their
disposable income.
Page3
Case 11-20854 Doc 62 Filed 04/05/12 Entered 04/05/12 15:37:14 Desc Main
Document Page 3 of 14

Discussion
The Trustee objects to confirmation of the plan, alleging that the Debtors do not
propose to apply all of their projected monthly disposable income to pay their non-
priority unsecured creditors. 2 Specifically, the Trustee asserts that: (1) Debtors are in fact
above-median income debtors as Mr. Zeigafuse's income is understated; (2) Debtors
claim the following expenses that are not reasonable and necessary for the support and
maintenance of the Debtors, who have no dependents: (A) the monthly payment for the
purchase of the 50 acres and the annual homeowners' fees; and (B) the monthly
expenses for uninsured medical expenses in the amount of$575.00; and, (3) Debtors'
Plan unfairly discriminates against their non-priority, unsecured creditors as Debtors
propose to pay Mrs. Zeigafuse's student loan its full monthly payment while providing a
1.2 percent distribution from a total fund of$1,620.00 to the balance of their unsecured
creditors' claims.
If the trustee objects to confirmation of the plan, the court may not approve the
plan unless, as of the effective date of the plan, the plan provides that all the debtor's
projected disposable income to be received during the term of the plan will be applied to
make payments to unsecured creditors under the plan. 3 The debtors have the burden of
establishing that their plan is confirmable and that the proposed classification does not
discriminate unfairly. 4
Page4
2 11 U.S.C. 1325 (b)(l)(B).
3 11 u.s.c. §1325(b)(1).
4In re Janssen, 220 B.R. 639, 643 (Bankr. N.D. Iowa 1998).
Case 11-20854 Doc 62 Filed 04/05/12 Entered 04/05/12 15:37:14 Desc Main
Document Page 4 of 14

(1) 	Income
The Debtors assert that Mr. Zeigafuse's monthly income is $74.28 per month from
the operation of his business of driving truck. 5 Mr. Zeigafuse testified to the numerous
expenses that are deducted from his weekly settlement sheets, including: truck lease
payments, advances, insurance, fuel, etc. The Debtors' income tax return reflects that
Mr. Zeigafuse earned $4,446.00 "net profit" for the 2010 tax year based upon a total
gross receipt of$160,770.00. The tax return included the expenses that Mr. Zeigafuse
testified about and were reflected on the settlement sheets but also included the
additional deductions for meals, travel, and depreciation. Mr. Zeigafuse's total gross
receipts for 2011, as indicated on his 1099 tax form, show that his receipts increased in
2011 to the amount of$166,574.15. It appears to the court, that Mr. Zeigafuse's receipts
increased nearly $6,000.00. However, Mr. Zeigafuse alleges that he expects to realize
less net income in 2011, based upon higher fuel costs.
The court finds that Mr. Zeigafuse's income is difficult to determine but the
assertion of$74.28 a month is an undervaluation. Based upon an average of his net
profit for 2010, his income is closer to $370.50 a month. 6 Based upon that
determination, the court's calculation indicates that using the correct income for Mr.
Zeigafuse, the Debtors are not below median income debtors and must complete Form
22C to determine their projected disposable income.
5 Pursuant to Debtors' Form 22C.
6 The court divided Mr. Zeigafuse's net income from the 2010 tax return by 12 months to arrive at this
amount. The court does not find that the pay advices reflect an accurate income as the debtor had advances, paid
back advances and other factors on the pay advices that skew his average monthly income.
Page 5
Case 11-20854 Doc 62 Filed 04/05/12 Entered 04/05/12 15:37:14 Desc Main
Document Page 5 of 14

(2) 	Expenses
(A) 	50 Acres and Homeowners' Fees. Under their proposed plan, the Debtors
will emerge from the chapter 13 case having continued the payments on the undeveloped
land and payment of the homeowners' fees. 	They would still have no equity in the
property; not developed it; nor moved onto the property. As much as the court
appreciates the Debtors' dreams of developing and eventually moving onto the property,
these are not reasonable or necessary expenses for the maintenance of this family and
effectively reduce the Debtors' disposable income that should be contributed to their
unsecured creditors through their plan. The expenses are not a permissible basic living
expenses.
(B) 	Uninsured medical expenses. Mrs. Zeigafuse testified to the costs of the
Debtors' uninsured medical expenses. Both Debtors have chronic medical issues.
Based upon the testimony and evidence, the court finds that the expenses are reasonable
and necessary basic living expenses for these Debtors.
(C) 	Unsecured student loan payment. Debtors argue that under §1322(b)(5)
long term debt can be treated differently than short term debt and that the discrimination
is allowable. The Trustee asserts that payment of the student loan "outside the plan"
unfairly discriminates under § 1322(b )(1 ).
The courts are divided upon this issue. This court's review of the numerous cases
regarding that the applicable statutory sections which are referenced under § 1322, state:
Page 6
Case 11-20854 Doc 62 Filed 04/05/12 Entered 04/05/12 15:37:14 Desc Main
Document Page 6 of 14

"Subject to subsections (a) and (c) ... the plan may,
(1) 	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 ... ;
(5) 	provide for ... maintenance of payments while the case is
pending on any unsecured claim ... on which the last payment is due after the
date on which the final payment under the plan is due;
(10) 	provide for the payment of interest accruing after the date of
filing of the petition on unsecured claims that are nondischargeable under
1328(a), except that such interest may be paid only to the extent that the
debtor has disposable income available to pay such interest after making
provisions for full payment of all allowed claims ... "
The courts holding the minority view find that § 1322(b)(5) is specific and clear in
its language and that the statutory construction principle that dictates that the specific
language trumps the general terms supports the contention that (b)( 5) trumps the more
general terms of (b )(1 ).
The minority view courts also have adopted numerous tests for the determination
of whether the discrimination is unfair. One test is the four part Leser test in which
courts consider: (1) whether the discrimination has a reasonable basis; (2) whether the
debtor can carry out a 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. 7 Other minority courts have adopted a five-
part test known as the Husted test. This is the Leser test, but includes the additional fifth
7 In re Leser, 939 F.2d 669,672 (8 1h Cir. 1991), cited in In re Birts, Case No. 11-15918,2012 Bankr.
LEXIS 727, (E.D. VA, Feb. 27, 2012).
Page 7
Case 11-20854 Doc 62 Filed 04/05/12 Entered 04/05/12 15:37:14 Desc Main
Document Page 7 of 14

factor: "whether the difference between what the creditors discriminated against will
receive as the plan is proposed, and the amount they would receive if there were no
separate classification." 8 The Bankruptcy Court for the Easter District of Virginia
adopted a variation of the Husted and Leser tests by using the Leser first three factors
and substituting the Husted's fifth element in place of Leser's number four. 9
The courts holding a majority view find that the statutory sections of the
Bankruptcy Code,§§ 1322 (b)(l) and (5) are to be read in conjunction with each other;
and that unfair discrimination must be analyzed on a case by case basis.
The Bankruptcy Court for the District of Kansas ("Kansas Bankruptcy Court")
analyzed the matter, in depth. 10 The Kansas Bankruptcy Court described the different
tests that have emerged from the case law for determining whether a separate
classification and treatment of student loans unfairly discriminates against the class of
general unsecured claims. First, the court lists the "four step test" applied by Leser,
above. Secondly, the court describes the "balancing test" which involves balancing the
relative benefits and detriments allocated to the debtor and creditors from the proposed
discrimination. 11 According to the test, the comparisons of the benefits and detriments
must be made in light of the legitimate interests and expectations of the parties-in-interest
Page 8
8 In re Husted, 142 B.R. 72,74 (Bankr. W.D.N.Y. 1992).
9 Birtz at 8.
10 In re Mason, 300 B.R. 379 (Bankr. D. Kan. 2003).
11 In re Colfer, 159 B.R. 602 (Bankr. D. Me. 1993).
Case 11-20854 Doc 62 Filed 04/05/12 Entered 04/05/12 15:37:14 Desc Main
Document Page 8 of 14

in the Chapter 13 proceeding. Third, the Kansas Bankruptcy Court discussed the
"baseline test" described by the First Circuit Bankruptcy Appellate Panel. 12 In the
"baseline test," the court reviews the four guiding principles of chapter 13 for what is the
norm, or the "baseline" from which departures can be evaluated for fairness, including:
(i) equality of distribution; (ii) nonpriority of student loans; (iii) mandatory vs. optional
contributions; and, (iv) the debtor's fresh start. Lastly, the Kansas Bankruptcy Court lists
the "Debtor's Interest test" which focuses on whether the discrimination furthered a
legitimate interest of the debtor.
Application of the tests to the facts before this court.
In the case before this court, the unsecured student loan obligation consists of the
claim ofNelnet in the amount of$55,784.21Y The amount of general unsecured claims,
exclusive of the student loan claim, totals $14,004.76. 14 Ifthe Debtors make all the
payments proposed in the Plan and the student loan payment during the term of the plan,
the total distribution to Nelnet will be $11,520.00, or 21 percent of the total amount of
the student loan claim. The Debtors' plan proposes to pay the balance of their non-
priority, unsecured claims pro rata from the total sum of$1,620.00 or a distribution of
approximately 1.2 percent. If the student loan claim is paid pro rata with the other
12 In re Bentley, 266 B.R. 229 (1st Cir. BAP 2001).
13 Claim No.2- Debtors' claims register.
14 The court calculated this number by subtracting Nelnet's claim from the total amount of general
unsecured claims pursuant to the Claims Register Summary. Debtors listed a total amount of unsecured nonpriority
claims on their Schedule Fin the amount of$134,184.97.
Page 9
Case 11-20854 Doc 62 Filed 04/05/12 Entered 04/05/12 15:37:14 Desc Main
Document Page 9 of 14

general unsecured claims, all the unsecured creditors would receive a dividend of
approximately 19 percent. 15 Under either situation, the student loan claim would not be
paid in full at the completion of the Plan.
a. 	Statutory application argument. The Debtors urge the court to adopt the
minority view that the more specific and clear language of the statute trumps the general
language. 16 The Debtors argue that the language in § 1322(b)( 5) that provides "for the
maintenance of payments while the case is pending on any unsecured claim on which the
last payment is due after the date on which the final payments under the plan is due," is
more specific than the language of§ 1322(b)(1 ), and allows the unsecured student loan
debt to be paid "outside the plan." This court is not persuaded by the Debtors' argument
and joins the majority view holding that § § 1322(b)(1) and 1322(b)( 5) must be read in
conjunction with one another. 17
b. 	Four-part test. The court finds that the Debtors did not provide any
testimony or evidence to show a reasonable basis for the discrimination between their
unsecured creditors, other than argue that the court should consider the "human element"
and what was best for the Debtors. Debtors did not present evidence whether they could
15 This does not take into account that the student loan is also being paid interest during the term of the
Plan.
16 In re Truss, 404 B.R. 329 (Bankr. E.D. Wis. 2009), In re Hanson, 310 B.R. 131 (Bankr. W.D. Wis
2004), In re Cox, 186 B.R. 744 (Bankr. N.D. Fla. 1995), and In re Benner, 156 B.R. 631 (Bankr. D. Minn. 1993).
17 In re Coonce, 213 B.R. 344 (Bankr. S.C. Ill. 1997), In re Harding, 423 B.R. 568 (Bankr. S.D. Fla.
2010), In re Chandler, 210 B.R. 898 (Bankr. D. N.H. 1997); In re Thibodeau, 248 B.R. 669 (Bankr. D. Mass. 2000)
and In re Caruso, 272 B.R. 254 (Bankr. C.D. Ill. 2001).
Page 10
Case 11-20854 Doc 62 Filed 04/05/12 Entered 04/05/12 15:37:14 Desc Main
Document Page 10 of 14

carry out their plan without the discrimination; if the plan was proposed in good faith; or
the degree of discrimination as it related to the rationale for the discrimination. The
Debtors failed to meet their burden of proving that the separate classification does not
unfairly discriminate against the class of other unsecured creditors under the four-part
test. .
c. 	Balancing test. The facts of the case before this court are similar to the
facts in In re Mason. 	In that case, the Kansas Bankruptcy Court found that the proposed
discrimination provided the student loan creditor priority over other unsecured creditors
that is not provided in the Bankruptcy Code while the student loan creditor also retained
the right to collect the balance of its obligations after the debtors' discharge was entered.
The debtors' other unsecured creditors were not provided any distribution until the end
of the plan and the balance of their claims were discharged after the plan payments were
completed. In the case before this court, the student loan creditor, Nelnet, is provided a
priority over the other unsecured creditors as it receives its full monthly payment and the
Debtors other unsecured creditors receive a distribution equal to 1.2 percent of their
claims. As in Mason, it is clear that the Debtors' burden for the nondischargeable
student loan debt has been shifted to the unsecured creditors, unfairly discriminating
against them under the balancing test.
d. 	Baseline test. The "baseline test" was adopted by the First Circuit BAP in
Page 11
Case 11-20854 Doc 62 Filed 04/05/12 Entered 04/05/12 15:37:14 Desc Main
Document Page 11 of 14

In re Bentley. 18 Subsequently the Kansas Bankruptcy Court described the test as the
"most loyal to the objective goals and motivations of Chapter 13 and the Bankruptcy
Code," stating the test is:
" ... essentially objective and measurable in that it would require
courts to determine (1) whether the preferred debt is accorded statutory
priority; (2) whether the unsecured creditors would receive at least as much
as they would receive without the debt being preferred; (3) whether the
unsecured creditors would receive a fair pro rata share of the debtor's
mandatory contribution of disposable income (and if not, whether the
debtor has agreed to make an additional contribution to "square up" the
unsecured creditors' distribution); and whether the preferential treatment of
one creditor somehow furthers the debtor's fresh start."19
This court agrees with the Kansas Court's determination that the baseline test is
objective, fairly easy to implement and prevents courts from legislating priorities.
Analyzing the facts ofthe case before the court, (1) it is undisputed that Congress
has not provided student loans a statutory priority in the Bankruptcy Code; (2) the
calculations reflect that the unsecured creditors under the proposed plan would receive a
1.2 percent distribution, whereas if there was no discrimination, they may receive a 19
percent distribution; (3) Debtors have not proposed any voluntary contribution to
"square-up" the disproportionate distribution and (4) there was no evidence presented
that the proposed preferential treatment will further the Debtors fresh start as nearly 80
percent of the student loan debt survives the bankruptcy case. The Debtors have failed to
18 In re Bently, 266 B.R. 229 (1 ' 1 Cir. BAP 2001).
19 Mason at 387.
Page 12
Case 11-20854 Doc 62 Filed 04/05/12 Entered 04/05/12 15:37:14 Desc Main
Document Page 12 of 14

meet their burden that the proposed payment to their unsecured student loan claim does
not unfairly discriminate under the baseline test.
Conclusion
The court concludes that in applying all the tests, the Debtors failed to meet their
burden showing that their Plan does not unfairly discriminate against the class of general
unsecured creditors. As stated above, the majority of Debtors' unsecured creditors are
unduly burdened for the benefit the holder of the nondischargeable student loan debt,
Nelnet. Debtors did not provide testimony or evidence in support of the discrimination,
only argued that the court should adopt the statutory construction argument and take into
consideration the "human" element of the Debtors' circumstances. This court refuses to
adopt the statutory argument and Debtors have failed to meet their burden with any of the
other tests. The court finds that the proposed treatment of the student loan claim and
unsecured creditors unfairly discriminates. Therefore, the Trustee's objection is
sustained.
Based upon the court's analysis, the court finds that this Plan cannot be confirmed
and the Trustee's objections to confirmation are sustained on the following issues: (1) the
Debtors have understated Mr. Zeigafuse's income, (2) the expenses for the purchase of
the 50 acres and homeowner's fees are not reasonable and necessary for the Debtors'
maintenance; and, (3) the Plan unfairly discriminates in favor of the student loan creditor,
Nelnet, and against the other unsecured creditors in this case. The court would allow the
Page 13
Case 11-20854 Doc 62 Filed 04/05/12 Entered 04/05/12 15:37:14 Desc Main
Document Page 13 of 14

Debtors the uninsured medical expenses as they carried the burden of proof.
This decision constitutes the court's findings of facts and conclusions of law
pursuant to Bankruptcy Rule 7052. The court shall enter a separate order.
DATED this~ 	day of April, 2012
Service to:
Page 14
Stephen Winship
Mark Stewart
By the Court
Case 11-20854 Doc 62 Filed 04/05/12 Entered 04/05/12 15:37:14 Desc Main
Document Page 14 of 14