## Facts

- Wayne K. Crawford filed a Chapter 13 case owing three groups of nonpriority unsecured debts: about $19,000 to the IRS, about $18,000 to a county on an assigned child-support–related obligation, and about $500 to two trade creditors.
- The county claim was nondischargeable as a domestic support–related debt.
- Crawford proposed a plan that placed the county claim in one unsecured class and the IRS and trade creditors in another.
- After losing a dispute with the IRS, Crawford amended the plan to pay about two-thirds of the county debt and pay nothing to the other unsecured creditors.
- The plan did not increase total payments to unsecured creditors; it reallocated payments to heavily favor the county.
- If the plan treated unsecured creditors equally, each would have received roughly 32% of its claim.
- The bankruptcy court denied confirmation for unfair discrimination under 11 U.S.C. § 1322(b)(1), and the district court affirmed.

## Issues

1. Whether a Chapter 13 plan “discriminates unfairly” under 11 U.S.C. § 1322(b)(1) when it pays a nondischargeable, nonpriority unsecured support-related claim substantially while paying other unsecured creditors nothing, despite the ability to pay all unsecured creditors a meaningful dividend.

## Decision

- The Seventh Circuit affirmed the denial of confirmation.
- The court held that the amended plan’s allocation was unfairly discriminatory under § 1322(b)(1).
- Nondischargeability of the favored unsecured debt did not, by itself, justify cutting other unsecured creditors out of any recovery where a substantial pro rata distribution was feasible.

## Legal Principles

- Chapter 13 permits classification of unsecured claims, but a plan may not “discriminate unfairly” among unsecured classes. 11 U.S.C. § 1322(b)(1).
- Favoring a nondischargeable unsecured debt can be a legitimate reason for some disparate treatment, but it does not automatically authorize extreme disparity.
- “Unfair discrimination” is assessed by degree and justification; a plan that diverts nearly all distributable value to one unsecured creditor and leaves similarly situated unsecured creditors with zero payment is impermissible when meaningful pro rata payment is otherwise possible.
- A debtor may not use classification to shift most of the burden of a nondischargeable unsecured debt onto other unsecured creditors through near-total exclusion of their distributions.

## Conclusion

The court refused confirmation because the plan’s near-total preference for a nondischargeable support-related unsecured claim—at the expense of all recovery for other unsecured creditors who could have received a substantial pro rata payment—constituted unfair discrimination prohibited by § 1322(b)(1).


In re Crawford, 324 F.3d 539 (7th Cir. 2003)