## Facts

- William and Kara Bentley filed a joint Chapter 13 case in the District of Rhode Island.
- Their proposed plan separately classified nonpriority unsecured claims into two classes.
- The student-loan class totaled about $57,727.95 and was to be paid 100% over the plan term; those debts would remain nondischargeable under 11 U.S.C. §§ 1328(a)(2) and 523(a)(8).
- The general unsecured class totaled about $55,000 and was to receive $2,000 pro rata (about 3–3.6%).
- The plan was funded by monthly payments from future earnings over 60 months and, after amendment, committed only the minimum “projected disposable income” required by 11 U.S.C. § 1325(b)(1)(B).
- The Chapter 13 trustee objected that the plan unfairly discriminated against general unsecured creditors under 11 U.S.C. § 1322(b)(1).
- The bankruptcy court denied confirmation on the unfair-discrimination ground; the case was dismissed to permit appeal, and the debtors appealed to the First Circuit Bankruptcy Appellate Panel.

## Issues

1. Whether a Chapter 13 plan funded only at the projected-disposable-income minimum may pay nondischargeable student loans 100% while paying other nonpriority unsecured creditors about 3% without “unfairly” discriminating under 11 U.S.C. § 1322(b)(1).

## Decision

- The Bankruptcy Appellate Panel affirmed the denial of confirmation.
- The court held the plan unfairly discriminated against general unsecured creditors.
- The court concluded that nondischargeability of student loans, without more, did not justify the magnitude of the payment disparity within a minimum-funded plan.

## Legal Principles

- A Chapter 13 plan may separately classify unsecured claims, but it may not “discriminate unfairly” against any class. 11 U.S.C. § 1322(b)(1).
- Unfair-discrimination review is fact-specific; relevant considerations include whether the discrimination has a reasonable basis, whether the plan can be performed without it, whether it is proposed in good faith, and the relative treatment of the disadvantaged class in light of the debtor’s circumstances.
- Nondischargeability of student-loan debt does not, by itself, supply a sufficient basis to shift a minimum required pool of plan payments heavily toward student-loan creditors and away from other unsecured creditors.
- The degree of disparity matters; a 100% payment to one unsecured class versus a nominal dividend to another requires a strong justification tied to bankruptcy purposes, not merely the debtor’s preference to exit bankruptcy owing nothing.

## Conclusion

The court upheld denial of confirmation because the debtors’ minimum-funded Chapter 13 plan redistributed payments to favor nondischargeable student-loan creditors at the substantial expense of other unsecured creditors, and that preference—resting mainly on nondischargeability—constituted unfair discrimination under § 1322(b)(1).


Bentley v. Boyajian (In re Bentley), 266 B.R. 229 (B.A.P. 1st Cir. 2001)