UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
__________________
No. 99-50597
__________________
In The Matter Of: SALOMON RAMIREZ; MARIA A. RAMIREZ,
Debtors
SALOMON RAMIREZ; MARIA A. RAMIREZ,
Appellants,
versus
PHYLLIS BRACHER, Chapter 13 TRUSTEE,
Appellee.
______________________________________________
Appeal from the United States District Court
for the Western District of Texas
______________________________________________
February 18, 2000
Before BARKSDALE, BENAVIDES and STEWART, Circuit Judges.
PER CURIAM:
This appeal is from a bankruptcy court’s order denying
confirmation of a proposed Chapter 13 plan of reorganization. We
affirm.
I. FACTUAL AND PROCEDURAL HISTORY
The facts of this appeal are not in dispute. The debtors,
Salomon and Maria A. Ramirez, filed a petition for relief under
Chapter 13 of Title 11 of the United States Code. Pursuant to 11
U.S.C. section 1321, the debtors filed a proposed bankruptcy plan.
After subtracting monthly expenses from their net income, the
debtors were left with $185 in disposable income each month. The
plan proposed that the debtors would pay the trustee $125 each
month for a period of sixty months.
More specifically, the plan separated all unsecured debts into
classes and proposed a different level of repayment for each class.
“Class One” was comprised entirely of a debt in the amount of $844
to Mervyns Credit that had been co-signed by Maria Ramirez’s
sister. The plan proposed to pay the entire amount of this co-
signed consumer debt plus twelve percent interest. After paying
off the entire debt to Mervyns, the plan proposed that the trustee
would begin to distribute payments to the debts in “Class Three,”
which consisted of general, unsecured debts. It was estimated that
it would take thirty-three months before funds would be available
for distribution to the class of general, unsecured claims.
The overall estimated payout under the proposed plan to the
general, unsecured claims was twenty percent. However, if the
money designated to pay the Mervyns debt was diverted instead to
the class of general, unsecured claims, the percentage of repayment
to the class of general, unsecured claims would rise from twenty
percent to twenty-five percent. The trustee objected to the plan
on the basis that the proposed payments to the class of co-signed
2
debt unfairly discriminated against the class of general, unsecured
claims.
The bankruptcy judge held a hearing on the confirmation of the
plan. At that hearing, the debtors failed to offer any evidence
that the proposed discrimination favoring the co-signed debt over
other classes of unsecured debt was in fact fair.1 In a memorandum
opinion, the bankruptcy judge, holding that the debtors had failed
to meet their burden of showing that the separate classification of
co-signed debt did not unfairly discriminate against other
unsecured creditors, denied confirmation of the proposed plan. In
re Chacon, 223 B.R. 917 (Bankr.W.D.Tx. 1998). On appeal, the
district court affirmed. The debtors now appeal to this Court.
II. ANALYSIS
The debtors’ sole argument on appeal is that the bankruptcy
court erred in holding that 11 U.S.C. § 1322(b)(1)2 requires a
1
As the district court stated, such a showing might take the
form of evidence that failure to give the proposed preferential
treatment to the co-signed debt would either cause financial
hardship on the co-debtor/sister or detrimentally impact the
debtors’ ability to perform on the plan.
2
The text of § 1322(b)(1), as amended by Congress in 1984
and applicable to this appeal, provides as follows:
Subject to subsections (a) and (c) of this
section, the plan may--
designate a class or classes of unsecured
claims, . . . 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
3
debtor to demonstrate that a proposed payment plan that prefers co-
signed, unsecured debt does not unfairly discriminate against other
unsecured debt. In a recently published opinion, we rejected this
contention and applied the unfair discrimination test to co-signed
consumer debt. In re Chacon, __ F.3d __, 1999 WL 1416496
(September 24, 1999). We explained that “[d]ifferences 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 co-signed
debt.” In re Chacon, 1999 WL 1416496, at *1.
Like the instant case, that case involved a bankruptcy plan
that proposed to pay a co-signed debt in full, with twelve percent
interest, prior to any distributions to the general unsecured class
of debt. There, we stated that no justification appeared for such
a high and preferential interest rate. We therefore affirmed the
judgment of the bankruptcy court denying confirmation of the plan.
Because the relevant facts in that case are identical to the
case at bar, In re Chacon is controlling. Accordingly, applying
the holding of In re Chacon to the case at bar, we AFFIRM the
judgment of the bankruptcy court denying confirmation of the
bankruptcy plan.
is liable on such consumer debt with the
debtor differently than other unsecured
claims[.]
4
5
BENAVIDES, Circuit Judge, specially concurring:
I join the per curiam opinion because it is apparent that it
is controlled by our disposition in In re Chacon, __ F.3d __, 1999
WL 1416496 (5th Cir. Sept. 24, 1999), a published summary calendar
opinion.3 I write only to express my concern with the reasoning
set forth therein.
As articulated in the instant per curiam opinion, the debtors’
sole argument on appeal is that the bankruptcy court erred in
holding that 11 U.S.C. § 1322(b)(1) requires a debtor to
demonstrate that a proposed payment plan that prefers co-signed,
unsecured debt does not unfairly discriminate against other
unsecured debt. The instant question, therefore, is one of
statutory construction.
The original version of § 1322(b)(1) provided, in pertinent
part, that a bankruptcy plan may “designate a class or classes of
unsecured claims, . . . but may not discriminate unfairly against
any class so designated.” In 1984, Congress amended the statute by
adding the following phrase: “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 other unsecured
claims.” Bankruptcy Amendments and Federal Judgeship Act of 1984,
Pub.L. No. 98-353, 98 Stat. 333 (1984) (BAFJA).
3
As in the instant case, in In re Chacon, 1999 WL 1416496,
there was no appellee’s brief filed. Therefore, we had no
assistance from the trustee in either case.
In In re Chacon, after recognizing the split among bankruptcy
courts regarding whether the amended clause should be interpreted
to exempt co-signed consumer debt from the unfair discrimination
test, this Court opined, in part, as follows:
The argument for applying the unfair
discrimination test even to a cosigned
consumer debt is that the word “differently”
must be given a meaning different from unfair
discrimination, and reading the however clause
as an exception would not do so. See, e.g.,
[In re Easley, 72 B.R. 948, 956
(Bankr.M.D.Tenn. 1987)]. This rationale is
wholly unconvincing. In its desire not to
give any two distinct words or phrases the
same meaning, it reads out the however clause.
If a cosigned debt could be prioritized only
if it does not discriminate, then the however
clause serves no purpose whatsoever.
In re Chacon, 1999 WL 1416496, at *1 (quotation marks added).
I fully agree with the analysis of In re Chacon up to this
point. It is at this juncture, however, I part ways with our prior
reasoning. As explained in more detail below, only one result
follows once one accepts the premise that the “however clause”
serves no purpose if the statute is interpreted to allow co-signed
debt to be prioritized only if it does not discriminate: co-signed
debt is not subject to the unfair discrimination test.
In other words, treatment that is “unfair discrimination” and
being treated “differently” cannot constitute the same type of
treatment. Because all unfairly discriminatory treatments, by any
definition, are different, the set of treatments that comprise
unfair discrimination is subsumed within the larger set of
7
different treatments. Therefore, the set of different treatments
consists of both fair and unfair discrimination. Different
treatments, which the statute expressly authorizes for co-signed
debts, sometimes result in unfair discrimination.
Contrary to my preceding analysis, the previous panel next
opined as follows:
Moreover, the however clause can be read
without creating any unnecessary use of
synonyms simply by interpreting it to clarify
that such 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.
In re Chacon, 1999 WL 1416496, at *1.
The first excerpt from the previous panel’s opinion recognizes
that retaining the unfair discrimination test for co-signed debt
would leave the “however clause” bereft of meaning in violation of
established principles of statutory construction. Notwithstanding
that realization, the second excerpt from the previous panel’s
opinion apparently resurrects the unfair discrimination test.
Although I am not necessarily questioning the proposition in In re
Chacon that “such treatment of cosigned consumer debt is usually
not unfairly discriminatory,” I do not see how that proposition
8
supports the resuscitation of the unfair discrimination test.4
That said, I now attempt to glean Congress’s intent in amending §
1322(b)(1).
As set forth previously, the debtors contend that the added
clause carves out an exception allowing co-signed debts to be
treated differently from other unsecured debts, regardless of
whether it results in unfair discrimination against another class
of unsecured debts. The plain language of section 1322(b)(1), the
debtors argue, expressly allows this special treatment of co-signed
debts. I disagree with the debtors’ argument to the extent that
they are asserting that the language of this provision is clear.
Although the bankruptcy courts have split on the question of
“whether the `however’ clause is a carve-out from the unfair
4
The Bankruptcy Code does not define “unfair
discrimination.” Bankruptcy courts generally use the following
four-part test to determine whether the plan unfairly
discriminates:
(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.
In re Leser, 939 F.2d 669, 671-72 (8th Cir. 1991); accord In re
Thompson, 191 B.R. 967, 971 (Bankr.S.D.Ga. 1996).
9
discrimination test,”5 courts generally agree that the amended
statute is awkwardly worded. In re Easley, 72 B.R. 948, 956
(Bankr.M.D.Tenn. 1987); accord In re Applegarth, 221 B.R. 914, 915
(Bankr.M.D.Fla. 1998); In re Strausser, 206 B.R. 58, 60
(Bankr.W.D.N.Y. 1997); In re Martin, 189 B.R. 619, 627
(Bankr.E.D.Va. 1995); In re Gonzales, 172 B.R. 320, 328 (E.D.Wash.
1994); In re Cheak, 171 B.R. 55, 57 (Bankr.S.D.Ill. 1994);6 but see
In re Dornon, 103 B.R. 61, 64 (Bankr.N.D.N.Y. 1989) (opining that
the “plain statutory language of the amendment . . . constitutes a
`carve out’ to the `unfair discrimination’ standard”). Because the
language of the provision is somewhat awkward and, thus,
susceptible to varying interpretations, I apply the appropriate
canons of statutory interpretation and look to its legislative
history to determine Congress’s intent.
The debtors contend that Congress’s choice of the word
“however” to begin the clause that was added to section 1322(b)(1)
evidences its intent to “carve out” an exception to the unfair
discrimination test for co-signed debt. The debtors’ position is
the one chosen by a minority of bankruptcy courts. See In re
Riggel, 142 B.R. at 204, In re Dornon, 103 B.R. at 64-65. The
5
In re Battista, 180 B.R. 355, 357 (Bankr.D.N.H. 1995).
6
See also In re Battista, 180 B.R. at 357 (citing In re
Easley); In re Whitelock, 122 B.R. 582, 591 n. 19 (Bankr.D.Utah
1990) (quoting In re Easley).
10
court below and a majority of bankruptcy courts have interpreted
the “however clause” as serving to specifically allow debtors to
designate a class of co-signed debt, separate from other classes of
unsecured debt, with no consequence to the requirement that
discrimination among the separate classes must be fair. See e.g.,
In re McKown, 227 B.R. 487, 491-92 (Bankr.N.D.Ohio 1998); In re
Applegarth, 221 B.R. 914, 915-16 (Bankr.M.D.Fla. 1998); In re
Battista, 180 B.R. at 357; In re Easley, 72 B.R. at 956.7
In matters of statutory construction, we begin by looking to
the literal meaning of the words chosen by Congress. Flora v.
United States, 357 U.S. 63, 65, 78 S.Ct. 1079, 1081 (1958).
“However” is defined as “in spite of that; on the other hand; BUT.”
Webster’s Third International Dictionary 1097 (1981)
(capitalization indicates synonymous cross-reference). It is well
established “that a statute must, if possible, be construed in such
fashion that every word has some operative effect.” United States
v. Village, Inc., 503 U.S. 30, 112 S.Ct. 1011, 1015 (1992).
Accordingly, if Congress’s only intention in amending the provision
was to expressly allow co-signed debt to constitute a separate
class, it seems inappropriate to have begun the clause with the
word “however.” To give the word “however” operative effect, we
must interpret it as indicating that the second clause is somehow
7
Our research indicates that no other Circuit has decided
this issue.
11
in contrast to the first clause.
Further, there was no need for Congress to separately address
the manner in which co-signed debts are treated (“differently”) if
it intended such debts to receive the same treatment as other
unsecured debts, i.e., subject to the unfair discrimination test.8
It appears to me that this Court’s reading of the statute (co-
signed debts are subject to the unfair discrimination test)
interprets the word “differently” to mean the same as the phrase
“unfair discrimination.” Such an interpretation violates a “well
settled rule of statutory construction that where different
language is used in the same connection in different parts of a
statute it is presumed that the Legislature intended a different
meaning and effect.” Quarles v. St. Clair, 711 F.2d 691, 701 n.31
(5th Cir. 1983) (internal quotations marks and citations omitted).
Several courts have relied on the following analysis to hold
that co-signed debts are not exempt from the discrimination test:9
The 1984 amendment is awkwardly worded. To
give meaning to all words in the amended
section, it must be true that a debtor’s power
to treat co-signed consumer debts
“differently” has content separate from the
8
If co-signed debts were subject to the unfair
discrimination test, the amended version simply could have provided
in relevant part that a bankruptcy plan may “designate a class or
classes of unsecured claims, including co-signed unsecured debt, .
. . but may not discriminate unfairly against any class so
designated.”
9
In re Strausser, 206 B.R. at 60; In re Battista, 180 B.R.
at 357; In re Whitelock, 122 B.R. at 591 n. 19.
12
proscription against unfair discrimination.
The awkward language is resolved by holding
that all different treatments are not
necessarily fair discrimination.
In re Easley, 72 B.R. at 956. I, like certain bankruptcy courts,
find the above-quoted analysis quite persuasive; however, it leads
me to draw the opposite conclusion. If all different treatments
are not necessarily fair discrimination, then implicit in that
statement (or the corollary to it) is that different treatments
sometime result in unfair discrimination.10
Additionally, prior to the 1984 amendment, several courts
prohibited debtors from classifying co-signed consumer debt as a
separate class under section 1322(b)(1). See e.g., In re Montano,
4 B.R. 535 (Bankr.D.D.C. 1980); In re Utter, 3 B.R. 369
(Bankr.W.D.N.Y. 1980).11 In response to these decisions, Congress
amended the statute by expressly allowing plans to treat such
claims “differently than other unsecured claims.” § 1322(b)(1).
The following excerpt from a Senate Report illustrates at
10
It has been opined that if Congress wanted to delete the
unfair discrimination test in regard to co-signed consumer debt, it
could have plainly stated that it was doing so. In re Strausser,
206 B.R. at 59; In re Battista, 180 B.R. at 357. I find that
statement offers little assistance in interpreting the statute.
While it is of course true that Congress could have drafted the
amendment such that it was perfectly clear, as previously set
forth, the language of the provision is awkward. We must interpret
the provision as drafted.
11
This Court, however, construed the earlier version of
section 1322(b)(1) to allow co-signed debts to be classified
separately from other unsecured debts. Public Finance Corporation
v. Freeman, 712 F.2d 219, 222 (5th Cir. 1983).
13
least some of the impetus behind Congress’s amendment of section
1322(b)(1) to allow co-signed, unsecured debt to be classified
separately from other unsecured debt:
A number of cases have considered whether
claims involving co-debtors may be classified
separately from other claims. Thus far, the
majority of cases have refused to permit such
classification on the ground that codebtor
claims are not different than other claims.
[citations omitted].
Although there may be no theoretical
differences between codebtor claims and
others, there are important practical
differences. Often, the codebtor will be a
relative or friend, and the debtor feels
compelled to pay the claim. If the debtor is
going to pay the debt anyway, it is important
that this fact be considered in determining
the feasibility of the plan. Sometimes, the
codebtor will have posted collateral, and the
debtor will feel obligated to make the payment
to avoid repossession of the collateral. In
still other cases, the codebtor cannot make
the payment, and the effect of nonpayment will
be to trigger a chapter 7 or chapter 13
petition by the codebtor, which may have a
ripple effect on other parties as well. For
these reasons, separate classification is
often practically necessary.
S.Rep. No. 65, 98th Cong., 1st Sess., 17-18 (1983)[S.445].12
12
The Senate and House reports for BAFJA do not contain any
reference to section 1322(b)(1). In re McKown, 227 B.R. at 491.
However, there was an earlier bill containing language that was
partially incorporated into BAFJA. Id. Therefore, the only
relevant legislative history is found in the above-quoted Senate
report for the earlier bill, the Omnibus Bankruptcy Improvements
Act of 1983, S.445, 98th Cong., 1st Sess. (1983) (OBIA). Id.
Although these statements were not made contemporaneously with the
enactment of BAFJA and, thus, are entitled to less weight, it would
be remiss not to consider them. See Resolution Trust Corp. v.
Miramon, 22 F.3d 1357, 1363 (5th Cir. 1994); see also Paula Aiello
14
Congress recognized that, as a practical matter, many debtors
will attempt to pay a co-signed debt regardless of whether the plan
that is confirmed allows for such a preferred distribution. After
acknowledging that many debtors are “going to pay the [co-signed]
debt anyway,” it would be a meaningless exercise to continue to
impose a burden of demonstrating that the classification did not
unfairly discriminate. By expressly accepting this reality, it
appears that Congress effectively relieved debtors of the burden of
proving that such classifications did not result in unfair
discrimination against other unsecured creditors. Congress
expressed no intent to better police the debtors’ behavior but
instead indicated an intent to allow for explicit acknowledgment of
such practical considerations within the context of the plan.
Indeed, Congress made clear that the overriding priority was to
determine that the proposed plan was feasible so it could be
successfully completed.
I am mindful that some courts have expressed a concern that
exempting co-signed debt from the unfair discrimination test would
be an invitation to abuse. See e.g., In re Martin, 189 B.R. 619,
628 (Bankr.E.D.Va. 1995). Nevertheless, I believe that the good
& Eric K. Behrens, Student Loans, Chapter 13 of the Bankruptcy
Code, and the 1984 Amendments, 13 J.C. & U.L. 1 (1986) (explaining
that the authors rely on the relevant legislative history of the
OBIA to interpret the BAFJA).
15
faith requirement mandated under section 1325(a)(3)13 remains a
safeguard against abuse. See In the Matter of Chaffin, 816 F.2d
1070, 1073 (5th Cir. 1987) (explaining that good faith is viewed in
light of the "totality of the circumstances" test under which we
consider factors such as the reasonableness of the proposed
repayment plan and whether the plan indicates an attempt to abuse
the spirit of the Bankruptcy Code), modified on other grounds, 836
F.2d 215 (5th Cir. 1988).14
As previously stated, I recognize that the language of section
1322(b)(1) is not clear, hence the split in authority among the
bankruptcy courts. I also acknowledge my natural inclination to
follow the majority of bankruptcy courts that have held the unfair
discrimination test is applicable to co-signed debt. It is not,
13
Section 1325(a)(3) provides in pertinent part that “the
court shall confirm a plan if . . . the plan has been proposed in
good faith and not by any means forbidden by law.”
14
One bankruptcy court has found the controversy regarding
whether co-signed, unsecured debts were subject to the unfair
discrimination test to be “largely a matter of semantics.” In re
Thompson, 191 B.R. 967, 971 (Bankr.S.D.Ga. 1996). The Thompson
court expounded that:
“Unfair discrimination” as defined does not
have any application independent of existing
confirmation requirements. Courts which hold
that unfair discrimination applies to codebtor
classifications often find unfair
discrimination by reference to a failure to
satisfy the other confirmation requirements of
section 1325.”
Id. (other citations omitted).
16
however, our task to determine what we believe Congress should have
enacted. I am persuaded that my interpretation of this provision
is the best implementation of Congress’s intent.
In sum, I concur in the judgment of the per curiam opinion
because it is controlled by our prior precedent. Nonetheless, I
write to set forth my concerns regarding the analysis contained in
that prior precedent. But for the existence of our prior opinion
in In re Chacon, 1999 WL 1416496, I would vacate the judgment of
the bankruptcy court and remand for further consideration of the
debtors’ plan.
17