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Chapter 13 plans
Unfair discrimination
In bankruptcy, unfair discrimination is a limit on Chapter 13 plans. A plan may sort unsecured claims into classes, but it may not discriminate unfairly against any class it creates. 1
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Chapter 13 sorts claims into three types: priority, secured and unsecured. Unsecured claims are generally those for which the creditor has no special right to collect against particular property of the debtor. 2
A plan does not have to treat every unsecured claim identically, because it may designate classes of unsecured claims. The limit is that the difference in treatment may not be unfair to a class. 1
The law names one difference that is allowed. A plan may treat a consumer debt that another individual owes together with the debtor, such as a cosigned debt, differently from other unsecured claims. 1
The provision does not list which other differences are unfair. The question comes up at confirmation, where the bankruptcy judge decides whether the plan meets the Bankruptcy Code's standards. Creditors receive notice of the hearing and may object. Because the answer depends on the plan, the debts involved and the court, a proposal to pay one kind of unsecured debt more than the rest is something to review with a bankruptcy lawyer. 1 2
Common questions
Can a Chapter 13 plan pay a cosigned debt differently?
Yes. A plan may treat a consumer debt on which another individual is liable with the debtor differently from other unsecured claims. 1
Who decides whether a plan discriminates unfairly?
The bankruptcy judge, at the confirmation hearing. Creditors receive notice of the hearing and may object to confirmation. 2
Is this about discrimination against people who filed bankruptcy?
No. That is a separate rule: employers, public or private, may not discriminate against a person only because that person was a bankruptcy debtor or did not pay a discharged debt. 3
Sources
Want your plan to treat one debt differently?
A bankruptcy lawyer in your state can tell you how your court approaches separate classes.
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