Good Faith and Chapter 13

To confirm a Chapter 13 plan, the Bankruptcy Code requires, among other things, that a proposed plan can be confirmed if it “has been proposed in good faith.” The term “good faith” is ambiguous and has never been conclusively defined. Consequently, the good faith requirement is the most heavily litigated provision of a Chapter 13 bankruptcy.

As a result of the good faith requirement, bankruptcy courts have an independent duty to evaluate whether a proposed chapter 13 satisfies the good faith requirement. The debtor must demonstrate to the Court that the proposed chapter 13 plan is in good faith, which is a question of fact for the bankruptcy court.

Totality of the Circumstances

Courts have overwhelmingly chosen to use some variation of a “totality of the circumstances” test to evaluate the good faith Chapter 13 standard. Such an analysis should be conducted regarding the particular debtor in question and the facts of the case. Many courts use a combination of distinct factors as a starting point for their analysis, while acknowledging that the factors cited are not an exhaustive list. No single factor is dispositive of the good faith issue; however, under certain circumstances, a single factor pointing to good faith could be sufficient to satisfy the good faith requirement. When considering each factor in the “totality of the circumstances” test, each will depend on the credibility of the debtor and the relevant facts. These factors are weighed in view of the overarching purpose of the good faith inquiry.

List of Factors

As noted above, most courts use a list of factors when considering whether the debtor has proposed the plan in good faith. Many courts employ these factors in their good faith evaluation:

1. the amount of the proposed payments and the amount of the debtor’s surplus;
2. the debtor’s employment history, ability to earn, and likelihood of future increases in income;
3. the probable or expected duration of the plan;
4. the accuracy of the plan’s statements of the debts, expenses, and percentage repayment of unsecured debt, and whether any inaccuracies are an attempt to mislead the court;
5. the extent of preferential treatment between classes of creditors;
6. the extent to which secured claims are modified;
7. the type of debt sought to be discharged and whether any such debt is non-dischargeable in chapter 7;
8. the existence of special circumstances such as inordinate medical expenses;
9. the frequency with which the debtor has sought relief under the Bankruptcy Reform Act;
10. the motivation and sincerity of the debtor in seeking chapter 13 relief; and
11. the burden which the plan’s administration would place upon the trustee.

Upon completion of the evaluation, a court then decides whether the proposed plan satisfies the good faith requirement. If the plan is otherwise proper and in good faith, the debtor starts payment obligations under the plan and is on the way to a fresh start.
If you are in a financial bind and are earning a wage, you may qualify for Chapter 13 bankruptcy. Contact the bankruptcy law firm of Melanie Tavare, Esq., who can help you get the fresh start you need.