The Debtors filed their chapter 13 case on March 14, 2017 and filed their schedules on the same date.
Their Schedule F lists student loans owed to Navient in the total amount of $64,249.05. Navient filed proofs of claim for both Debtors’ student loans, reflecting that wife owes a total of $19,574.01, and husabnd owes a total of $44,622.19, for a total amount owed of $64,196.20. husband’s student loans were consolidated in 2002, and wife’s loans were consolidated in 2013. The proofs of claim filed by Navient reflect that Debtors made payments on both consolidated student loans for at least the six months preceding their bankruptcy filing. Interest totaling approximately $200.00 per month accrues on the student loans. The last payment on the student loans is due after the date of Debtors’ proposed final plan payment.
Husband testified that his student loans are not eligible for deferment, but that wife’s are. However, he testified that Debtors had not attempted to defer her student loan payments because interest would continue to accrue on the loans while they were in deferment. Husband further testified that deferring the student loans would not have an effect on his employment or on Debtors’ lifestyle or financial circumstances.
Debtors enjoy income above the South Carolina median. Debtors’ initial Form 122C, the means test form, filed on March 14, 2017, showed monthly disposable income of $855.09. Debtors filed an amended means test form on August 28, 2017, showing monthly disposable income of $830.09. There is no contention that the form is not correctly completed. There is no liquidation value that must be paid to creditors.
Debtors’ Schedule I and J list combined monthly income of $6,408.08 and monthly expenses of $5,430.92, leaving Debtors with $977.16 per month. Listed as an expense on Schedule J is a student loan payment in the amount of $476.21.
Debtors have three children, ages 13, 16, and 18. Wife does not work outside the home; however, Debtors’ Schedule I indicates that she is considering seeking part-time at-home employment. At the time of the hearing, wife had not located any employment, and husband testified that it did not appear she would be likely to obtain employment in the near future due to ongoing medical issues.
Husband testified that Debtors did not anticipate any significant changes to their income or expenses in the next few years.
Debtors owe general unsecured claims in addition to their student loans in the amount of Debtors’ July 26 plan proposes total trustee payments of $900.00 per month for 5 months, followed by payments of $975.00 per month for 55 months. Debtors’ July 26 plan also proposes that Debtors will continue to directly pay the student loans, making payments of $476.21 per month. Over the course of the 60-month plan, this will result in Debtors’ student loan creditors receiving 44.51% of their claims. Under this proposed plan, other general unsecured creditors will receive 33.30% of their claims.
If Debtors’ student loan creditors were paid through the plan along with the other general unsecured creditors, the unsecured creditors would receive approximately 36.48% over the course of the plan. Because of the standard order in which trustees in South Carolina distribute payments to creditors, according to the parties’ stipulation of facts filed on September 15, 2017, disbursements to general unsecured creditors would not begin until approximately month thirty (30) of the plan.
Interest and fees will continue to accrue on the student loans during the term of the bankruptcy case, including during the time that unsecured creditors are awaiting distribution.
ARGUMENTS OF THE PARTIES Debtors argue that their proposed chapter 13 plan does not unfairly discriminate against non-student loan unsecured creditors, because Debtors propose to pay more than their means test disposable income into the plan for non-student loan unsecured creditors. Therefore, Debtors argue, even though their student loan creditor is receiving a slightly higher percentage than other general unsecured creditors by being paid outside the plan, the classification does not unfairly discriminate because the non-student loan unsecured creditors are receiving all they are entitled to under the means test. Debtors also argue that the separate classification of the student loan has a good faith, reasonable basis because requiring Debtors to pay the student loan with their other general unsecured creditors would result in substantial interest and late fees accruing on the student loans, increasing the amount owed on the loans at the conclusion of the bankruptcy case and interfering with the purpose of Debtors’ bankruptcy case, obtaining a fresh start.
Trustee responds that the separate classification of the student loan creditor does in fact unfairly discriminate against other general unsecured creditors, because the student loan creditor will receive more favorable treatment than other unsecured creditors. Trustee also asserts that Debtors’ means test disposable income is merely a starting point, and that the income listed on Schedules I and J, along with judicial discretion and common sense, should be used to determine a debtor’s projected disposable income. Trustee points out that Debtors have options for lowering wife’s student loan payments, such as deferment, which have not been taken advantage of, and that Debtors also have the option of raising their plan payments even further to pay non-student loan creditors at the same rate as the student loan creditor.
Trustee argues that the purpose of chapter 13 is to ensure that debtors pay their creditors the maximum that they can afford to pay, not whatever figure results from means test calculations. Trustee concedes that all separate classification of student loans should not be disallowed, but proposes a bright line rule that, in situations similar to Debtors’, “where Debtors are above median, employed, and have shown no exceptional circumstances for why the student loan should be paid, that a difference of less than 10 percent between student loan creditor treatment versus the general unsecured creditors is fair.” Because here, the difference is approximately 11%, Trustee argues that unfair discrimination exists.