In the Chapter 13 bankruptcy case of Caccamise, Joseph and Cynthia; In re, the bankruptcy court ruled that it was okay for a debtor to pay one credit card in full while only paying others partially because the debtor needed access to the credit card for her business.
The details of the bankruptcy case:
The below-median income Chapter 13 debtors had $5,195 in take-home pay and $5,088 in expenses. They proposed to pay $7,645 to the trustee over 36 months. They scheduled $23,895 in unsecured debt, to which they planned to add $93,093 owed on a second mortgage that they intended to strip off. The trustee objected to confirmation of the plan asserting that it unfairly discriminated in favor of Alliant Credit Union, which held an unsecured claim in the amount of $4,838 owed on two credit cards issued to the debtors. The debtors proposed to repay Alliant outside the plan in order to be able to keep their credit cards and rebuild their credit. The discrimination was clear. Alliant would be repaid 100 percent of its claim while other unsecured creditors would receive 3 percent of their claims. The court allowed the discriminatory treatment of the credit card account in the wife’s name, but not the one in the husband’s name. “With regard to the credit card account in the wife’s name, the court concludes that there is a rational basis for the classification, and that the classification – while it may or may not be ‘necessary’ in the strict sense – is nevertheless likely to promote the debtors’ rehabilitation under Chapter 13.
The bankruptcy court justified its decision saying that the discrimination made sense because the wife-debtor was a real estate agent and only received income when a real estate sale was finalized. However, in the mean time she needed access to credit so that she could pay for business-related expenses such as advertising which would impact her ability to sell a home. The bankruptcy court also pointed out the fact that it could take several months for a real estate sale to occur which justified her need for a credit card. However, the bankruptcy court saw no justification for the husband-debtor to discriminate against creditors by paying one credit card in full while paying others only partially. Consequently, the debtors’ Chapter 13 bankruptcy repayment plan was not confirmed by the bankruptcy court.