Debtor’s Treatment of Student Loan Outside Plan Not Confirmable

Posted by NCBRC - January 15, 2018

The court could not confirm the debtor’s plan proposing to pay all claims in full except her student loan debt for which she proposed payments on interest only outside the plan. In re Ryan, 17-1507 (Bankr. M.D. Fla. Nov. 7, 2017).

Jenna Ryan’s chapter 13 petition schedules listed total debts in the amount of approximately $173,000, including a student loan debt from the Department of Education of almost $80,000. Her disposable income was $4,417.72. Her plan proposed to pay $1,403.09 per month for sixty months to pay off all debts in full except for the student loan debt. As to that claim, the plan proposed that Ms. Ryan would maintain payments outside the plan. She took the “position that there are no payments due under the terms of the student loan, given the filing of the bankruptcy, so her payments are voluntary and enough to cover the accruing interest payments.”

The court did not get to the question of whether the proposed plan unfairly discriminated under section 1322(b)(1) because the plan did not overcome the initial hurdle of satisfying section 1325(b)(1)(A) or (B) for plan confirmation. Section 1325(b)(1)(A) provides that a court may not confirm a plan over objection if it does not propose to pay off a claim in its entirety. Here, Ms. Ryan planned to pay only the interest on the student loan outside the bankruptcy. Section (b)(1)(B) provides that a court may not confirm a plan if it does not commit all of the debtor’s projected disposable income to the plan. Ms. Ryan offered no evidence that her projected disposable income was any different from her disposable income calculation. Because the entirety of that amount was not committed to the plan, it failed the test in paragraph (b)(1)(B) as well.

Ryan Bankr MD Fla opinion Nov 2017

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