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In re: Robert Smith, Jr.

21 B 12101
Debtor filed a chapter 13 plan that proposed to separately classify a nondischargeable claim and pay it in full while other unsecured creditors receive a 10% distribution.  The Chapter 13 Trustee objected to confirmation on the grounds that the plan unfairly discriminated under 11 U.S.C. § 1322(b).  HELD: The Bankruptcy Code allows separate classification of unsecured claims and does not prohibit discrimination in a plan.  Any discrimination, however, must be fair.  Although the Code does not define what is fair, the Seventh Circuit allows bankruptcy judges to seek a result that is reasonable in light of the purpose of the applicable chapter of the Code.  The separately classified claim in this case is not of the type that would enable a plan to be viable.  It is a nondischargeable debt that resulted from overpayment of disaster assistance funds.  Therefore, it is not reasonable to separately classify this claim, and by doing so the plan unfairly discriminates.

Thursday, February 17, 2022