Chapter 13 Debtors Can Pay Student Loans Outside of Plan

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By Daniel Gill

Chapter 13 debtors can make student loan payments as they normally would to the servicer and “outside” of the restructuring plan without discriminating against other unsecured creditors, a South Carolina bankruptcy judge held.

The payments were approved even though the student loan creditor would get more money, Judge David R. Duncan, Chief U.S. Bankruptcy Judge for the District of South Carolina, concluded Nov. 1 ( In re Kindle , 2017 BL 392657, Bankr. D.S.C., 17-01245-DD, 11/1/17 ).

Duncan stressed there were good reasons for the different treatment. Student loans can’t be discharged, or wiped out, by the bankruptcy. These student loans were accruing interest of about $200 a month, and if payments weren’t kept current there would be significant default charges added to the loan.

“All of this will likely result in Debtors owing more on their student loans at the end of their bankruptcy case than they did when the bankruptcy began,” the court said. “This result is not consistent with the Bankruptcy Code’s purpose of providing debtors with a fresh start,” the court said.

Jeffrey and Aislinn Kindle filed for Chapter 13 on March 14. Chapter 13 allows individuals receiving regular income to obtain debt relief while retaining their property. To do so, the debtor must propose a plan that uses future income to repay all or a portion of his debts over a three- to five-year period.

Besides owing about $90,000 to unsecured creditors, the Kindles had student loans with a balance of about $64,000. At the time they filed for bankruptcy, they had been making regular payments of about $476 per month to their student loan creditor.

The Kindles proposed to keep making those payments after the bankruptcy filing. They would also pay $900 for five months, then $975 for the next 55 months, to the Chapter 13 trustee for disbursement to their other creditors.

This amount was more than their disposable income as reflected in their schedules of assets and liabilities filed with the court.

Section 1322(b) of the bankruptcy code provides that a debtor can designate a special class of unsecured claims so long as the plan doesn’t unfairly discriminate against any class, the court explained.

This statute implicitly authorizes discrimination between the classes; it just means that the discrimination can’t be “unfair,” the court said.

The court examined the totality of the circumstances to conclude that the discrimination was not unfair in this case.

The general unsecured creditors would receive only about $2,800 more if the student loans weren’t paid separately, the court said.

Lex Rogerson Jr., Lexington, S.C., represented the Kindles. The Chapter 13 trustee, Pamela Simmons-Beasley, Columbia, S.C., represented herself.

To contact the reporter on this story: Daniel Gill in Washington at

To contact the editor responsible for this story: Jay Horowitz at

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