IN RE:  MICHELLE LORRAINE DAVIS CASE NO. 94-50748

UNITED STATES BANKRUPTCY COURT 

FOR THE EASTERN DISTRICT OF KENTUCKY

LEXINGTON DIVISION

IN RE:

MICHELLE LORRAINE DAVIS CASE NO. 94-50748

DEBTOR

ORDER

This case is pending on the objection of Liberty National Bank to confirmation of the debtor's chapter 13 plan.

The debtor owes the Kentucky Higher Education Student Loan Corporation a debt in the amount of $2,445.85, which is excepted from discharge in a chapter 7 case by 11 U.S.C. 523(a)(8) and in a chapter 13 case by 11 U.S.C. 1328(a)(2).

The debtor's plan proposes to pay the unsecured educational loan in full whil paying other unsecured creditors only to the extent of 12 cents on the dollar.

The objecting creditor holds a claim against the debtor secured by a security interest in a 1989 Chevrolet Beretta automobile. An agreed order was entered June 29, 1994 allowing the claim of Liberty as a secured claim to the extent of $6,400, based on the value of the automobile, and as an unsecured claim in the amount of $3,629.09. Under the debtor's amended plan Liberty would be paid approximately $435.49 on the unsecured portion of its claim.

The debtor's original plan proposed to pay from her future income to the trustee $242.00 per month for a period of 41 months, or total payments of $9,922. This plan was obviously not feasible because from this amount the debtor proposed to pay administrative expenses, a priority claim of $22.00, the allowed secured claim of Liberty plus interest, the $2,445.85 claim of Kentucky Higher Education Student Loan Corporation in ful, and unsecured claims totaling $15,239.91, including the unsecured portion of the claim of Liberty, to the extent of 70 cents on the dollar. The amount the debtor would have had to pay to the trustee to accomplish this result approximates $20,000, or $10,000 more than the debtor proposed to pay under the plan.

The amended plan of the debtor does not increase the amount of the payment under the plan nor does it extend the life of the plan. The total amount to be paid under the plan remains at $9,022.

The United States of America Internal Revenue Service has filed a priority claim for taxes in the amount of $7.91, which must be paid in full.

The allowed secured claim of Liberty National Bank and Trust Company in the amount of $6,400 must be paid in full, with interest.

The educational loan claim of Kentucky Higher Education Student Loan Corporation in the amount of $2,445.85 is to be paid in full.

The attorney for the debtor has requested compensation from the estate in the amount of $650.

 

These items exceed the amount the debtor proposes to pay the trustee under the plan, leaving no provision for the commission and expenses of the chapter 13 trustee and zero amount for payment on the claims of creditors holding unsecured claims. The unsecured claims which have been timely filed and allowed aggregate $11,261.77, 12% of which is $1,351.41.

The issue of whether a debt for an educational loan may be separately classified and paid in full while creditors holding general unsecured claims are paid a lesser amount is an important issue in the administration of chapter 13 cases. It is not an issue that should be decided in the context of a case where the plan is not feasible.

The court hereby denies confirmation of the plan on the sole ground the plan is not feasible.

There are several other cases in which the court on its own motion raised the issue of whether separate classification of student loan debts is permissible in a chapter 13 case. The court will confirm the plans in those cases, subject to reconsideration when this issue is properly presented to the court by objection to confirmation of a chapter 13 plan.

Dated: March 3, 1995.

 

By the court -

 

 

 

Joe Lee, Chief Judge

 

 

Copies to:

Kenneth Smee

Dean Langdon

Sidney N. White

James Hayden

Ronald Butler

David Kaplan