Cite as: Keith M. Lundin, Lundin On Chapter 13, § 105.1, at ¶ ____, LundinOnChapter13.com (last visited __________).
A substantial number of courts hold that good faith includes consideration of the debtor’s prepetition conduct for evidence of motive and sincerity in filing the Chapter 13 plan.1 Rarely do the cases distinguish prepetition misconduct from misbehavior by the debtor during the Chapter 13 case. Few decisions distinguish between prepetition misconduct in connection with the bankruptcy case and conduct that was distant in time and outside contemplation of the Chapter 13 case.
There is some oblique support in the legislative history to the Bankruptcy Reform Act of 1994 for the view that good faith includes consideration of a Chapter 13 debtor’s prepetition (mis)conduct. The 1994 Act increased the dollar limitations on eligibility for Chapter 13.2 Commenting on the increase, Congressman Brooks noted that “creditors generally benefit when a debtor elects Chapter 13.”3 But Congressman Brooks also voiced this caution about the increase in debt limitations: “[I]t is not contemplated that an individual who committed [a] heinous crime would be able in good faith to use Chapter 13 solely as a means of discharging a civil obligation owing to a harmed party.”4
The debt limitations in 11 U.S.C. § 109(e) are far removed from the good-faith requirement for confirmation in § 1325(a)(3). The 1994 Act made no changes to § 1325(a)(3). Congressman Brooks’s comments with respect to § 109(e) are of uncertain import for the meaning of good faith in § 1325(a)(3). Creditors holding claims arising from a debtor’s prepetition misconduct will cite the 1994 legislative history in support of bad-faith objections to confirmation. Debtors will cite the same comments as evidence that if any prepetition misconduct is relevant to the use of Chapter 13, it is only the commission of a “heinous crime.”
Section 1325(a)(3) tests whether “the plan has been proposed in good faith.” Conduct in connection with the bankruptcy case will sometimes be evidence of the debtor’s frame of mind, intent and sincerity in proposing a plan. It is more difficult to explain that distant debtor conduct—for example, at the time of incurring a debt months or years before bankruptcy—illuminates the debtor’s good faith in proposing the plan. The courts persist in finding relevance to good faith in prepetition debtor conduct without finer distinctions. The reported decisions bucking this (illogical) trend can be counted on a few fingers.5 Some decisions acknowledge that § 1325(a)(3) focuses on the plan, not on debts, then go right ahead and consider conduct at the time of incurring debts in the good-faith calculus.6
The pages of reported decisions that follow7 document that consideration of prepetition (mis)conduct in good faith analysis will never produce bright-line rules. Perhaps the most that can be hoped for is some balance over time of the powerful policies in collision at confirmation of a Chapter 13 plan that deals with the victims of prepetition debtor misconduct. The Tenth Circuit described this landscape in an opinion confirming a Chapter 13 plan that compromised a large judgment for civil rights violations by the debtor:
“[A] Chapter 13 plan may be confirmed despite even the most egregious pre-filing conduct where other factors suggest that the plan nevertheless represents a good faith effort by the debtor to satisfy his creditors’ claims.” . . . The policy of allowing a fresh start does not license debtors to lightly rid themselves of the burden of their indebtedness without an honest attempt at repayment. Yet neither does that policy compel debtors, in Dickensian fashion, to labor for the rest of their lives under the crushing weight of gigantic debt; under our law, the world is not to be made a debtor’s prison by a lifelong sentence of penury.8
1 See In re Smith, 286 F.3d 461, 467–68 (7th Cir. 2002) (Debt for prepetition fraud weighs against finding good faith but cannot alone defeat confirmation. “‘[N]ondischargeability under Chapter 7 arising from a debtor’s prefiling conduct is relevant to the debtor’s good faith.’ . . . What is required is ‘that the plan must be “proposed in good faith,” not that the debt was incurred in good faith.’ . . . Although the nature of the underlying debt, not dischargeable in Chapter 7, weighs against a finding of good faith, this factor alone cannot defeat confirmation.”); Ed Schory & Sons, Inc. v. Francis (In re Francis), 273 B.R. 87, 94–95 (B.A.P. 6th Cir. 2002) (Nature of nondischargeable debt is relevant to good faith at confirmation, but because debtor’s conduct was less egregious than in many reported decisions finding a lack of good faith, confirmation is approved. Cases finding a lack of good faith “generally include more egregious conduct by the debtors after the debt was incurred. . . . Francis did not immediately file bankruptcy . . . . Francis made significant voluntary payments on the judgment. . . . The length of Francis’s plan is the maximum permitted . . . . All of Francis’s disposable income is committed . . . Francis will never be able to pay off the full amount of the debt owed to Schory.”), aff’d, No. 02-3288, 2003 WL 21782600 (6th Cir. July 31, 2003) (unpublished); In re Day, No. 98-3182, 1999 WL 96117, at *4 (7th Cir. Feb. 17, 1999) (Table decision at 172 F.3d 52) (Plan that compromises $100,000 prepetition judgment for aggravated battery is proposed in good faith based on findings that plan was a “sincere effort at repayment given [the debtor’s] meager income.”); 550 W. Ina Rd. Trust v. Tucker (In re Tucker), 989 F.2d 328, 330 (9th Cir. 1993) (Confirmation order fails to address the creditor’s assertion that the debtor acted in bad faith by lying to a sheriff who sought to execute upon the debtor’s assets before the filing. “The BAP should have remanded the case to the bankruptcy court for sufficient findings on whether the [debtors] acted in good faith.”); Robinson v. Tenantry (In re Robinson), 987 F.2d 665 (10th Cir. 1993) (Applying Flygare v. Boulden, 709 F.2d 1344 (10th Cir. 1983), it was inappropriate for district court to reverse bankruptcy court’s finding that Chapter 13 plan was filed in good faith notwithstanding allegation that debtor, a pastoral counselor, was guilty of sexual misconduct. Bankruptcy judge’s findings of legitimate motivation for the filing, including the breakup of the debtor’s marriage, the debtor’s assumption of a tax debt, and a long period of unemployment supported finding of good faith.); Gier v. Farmers State Bank (In re Gier), 986 F.2d 1326 (10th Cir. 1993) (Court denies confirmation on good faith grounds of 4% plan filed solely to discharge claim that was declared nondischargeable in the Chapter 7 case.); Noreen v. Slattengren (In re Noreen), 974 F.2d 75, 77 (8th Cir. 1992) (Bankruptcy court did not abuse its discretion in denying confirmation on good-faith grounds when bankruptcy court “found” without taking evidence that the debtor’s plan was filed only 11 days before trial of a civil action claiming damages for the debtor’s sexual abuse of a minor, the debtor’s Chapter 13 case was filed “not because of debts that became due in the ordinary course, but in anticipation of the likely damage award resulting from [the] civil suit,” and the original plan filed by the debtor offered a meager repayment that was only increased in response to an objection to confirmation.); Society Nat’l Bank v. Barrett (In re Barrett), 964 F.2d 588 (6th Cir. 1992) (Court affirms confirmation of debtor’s third Chapter 13 case over good-faith objection notwithstanding evidence of substantial misconduct by the debtor during prior bankruptcy cases.); Handeen v. LeMaire (In re LeMaire), 898 F.2d 1346 (8th Cir. 1990) (en banc) (Court reverses as clearly erroneous confirmation of a 60-month plan paying 42% of a judgment for intentional shooting where the debtor served 27 months in prison, returned to graduate school after prison and received his Ph.D. Bankruptcy court failed to accord sufficient weight to the nondischargeability of the principal debt. Court of appeals disagrees with the bankruptcy court’s conclusion that the debtor was sincere.); Hardin v. Caldwell (In re Caldwell), 895 F.2d 1123 (6th Cir. 1990) (Applying the 12-factor test from Metro Employees Credit Union v. Okoreeh-Baah (In re Okoreeh-Baah), 895 F.2d 1123 (6th Cir. 1990), court finds bad faith in 36-month proposal to pay 37% of a judgment for false arrest, malicious prosecution and false imprisonment that was declared nondischargeable in the debtor’s preconversion Chapter 7 case. The nondischargeable judgment was not conclusive evidence of bad faith; however, “an unbroken pattern of deceit and delay” by the debtor, including efforts to reduce the assets available to creditors, the proposal of minimal payments over the shortest possible time and the absence of any genuine effort to pay the nondischargeable judgment before filing bankruptcy, are conclusive of bad faith.); Pioneer Bank of Longmont v. Rasmussen (In re Rasmussen), 888 F.2d 703 (10th Cir. 1989) (Fraud claim that survived discharge in a prior Chapter 7 case is not dischargeable under totality-of-the-circumstances test. It is appropriate to consider prepetition conduct and prior bankruptcy filing. Debtor appears to have used the prior Chapter 7 case to reduce debt to fit the jurisdictional limits for Chapter 13. Plan proposing to pay less than 1.5% of unsecured debt is “tantamount to a discharge” and is not in good faith.); Neufeld v. Freeman, 794 F.2d 149 (4th Cir. 1986) (Good faith includes consideration of debtor’s prepetition conduct.); Chinichian v. Campolongo (In re Chinichian), 784 F.2d 1440 (9th Cir. 1986) (Chapter 13 was filed solely to defeat state court specific performance litigation.); Kitchens v. Georgia R.R. Bank & Trust Co. (In re Kitchens), 702 F.2d 885, 889 (11th Cir. 1983) (“A bankruptcy court must consider . . . the circumstances under which the debtor has contracted his debts.”); Memphis Bank & Trust Co. v. Whitman, 692 F.2d 427 (6th Cir. 1982) (Bankruptcy court should consider the debtor’s preplan conduct and the circumstances under which the debts were contracted in assessing good faith.); Banks v. Vandiver (In re Banks), 248 B.R. 799, 804–05 (B.A.P. 8th Cir. 2000) (“[T]he nature of the debt at issue is closely tied to the Debtor’s pre-filing conduct, and these factors bode against a finding of good faith. The debt in controversy arose out of eight years of bitter litigation in the state courts. Although ownership of a portion of his military pension was in dispute, the debtor nevertheless spent the entire pension monies he received in complete disregard of the potential consequences of doing so. A possible inference to be drawn from such conduct is that the Debtor never intended to pay Vandiver her share of the pension, even if she prevailed in the state court litigation. Indeed, it seems apparent from the record that the Debtor funded his legal battle against Vandiver, at least in part, with pension monies that were ultimately adjudicated to be Vandiver’s marital community property. . . . [T]he Debtor’s motivation and sincerity in seeking chapter 13 relief bode against a finding of good faith. In this case, the Debtor admitted that his sole motivation for filing bankruptcy was to avoid paying Vandiver on the debt at issue. . . . [H]is modified plan was proposed not with the intention of satisfying Vandiver’s claim to the greatest extent possible, but with the intention of avoiding payment of that claim to the greatest extent possible . . . the antithesis of good faith.”), aff’d, 267 F.3d 875 (8th Cir. 2001); Davis v. Mather (In re Davis), 239 B.R. 573 (B.A.P. 10th Cir. 1999) (.4% plan that would compromise a $170,000 claim declared nondischargeable in still pending Chapter 7 case is indicative of manipulation of the system by a dishonest debtor.); Mason v. Young (In re Young), 237 B.R. 791 (B.A.P. 10th Cir. 1999) (4% plan that compromises large judgment for punitive damages for violation of civil rights and wrongful discharge was filed in good faith. That nondischargeable claim is the only unsecured creditor treated in the plan is a factor, but not alone sufficient to reverse the bankruptcy court’s finding of good faith. That the debtor originally filed a Chapter 7 case and converted to Chapter 13 while adversary proceeding under § 523(a)(6) was pending was explained by the debtor’s getting a job during the Chapter 7 case that permitted funding the plan.); Smyrnos v. Padilla (In re Padilla), 213 B.R. 349, 354 (B.A.P. 9th Cir. 1997) (Rejects good-faith objection to 4% plan that manages judgment declared nondischargeable in prior Chapter 7 case. Prepetition misconduct involved faulty workmanship in a concrete driveway constructed by the debtor without a contractor’s license. Debts incurred after the Chapter 7 discharge and before the filing of the Chapter 13 case were “for the most part incurred involuntarily” and the debtor’s circumstances “did change between the two filing dates.”); Bayer v. Hill (In re Bayer), 210 B.R. 794, 795–96 (B.A.P. 8th Cir. 1997) (Bankruptcy court inappropriately decided good faith against the debtor based on allegations of assault and sexual battery that were the subject of state court litigation interrupted by the Chapter 13 filing. “Although we agree that the bankruptcy court properly considered Debtor’s pre-petition conduct in the good faith analysis, the evidence in the record does not support a finding that the plan was not proposed in good faith. The bankruptcy court considered only the unanswered allegations of Ms. Hill’s state court lawsuit. There has never been any hearing or presentation of evidence with respect to her charges. . . . [A]bsent an adjudication of culpability by the state court of competent jurisdiction, the bankruptcy court must hold an evidentiary hearing to determine if Ms. Hill’s allegations against the Debtor have a basis in fact.”); In re McGovern, 297 B.R. 650, 658–60 (S.D. Fla. 2003) (Bankruptcy court failed to give adequate weight to prepetition misconduct embodied in a judgment for defamation when the debtor accused opposing candidate for the student presidency at the University of Florida of being a child molester as part of a political smear campaign. “Following the prevailing post-1984 ‘totality of the circumstances’ approach fashioned by the Eighth Circuit in [Educational Assistance Corp. v. Zellner, 827 F.2d 1222 (8th Cir. 1987),] and [Handeen v. LeMaire (In re LeMaire), 898 F.2d 1346 (8th Cir. 1990) (en banc)], this court agrees with the current majority view that ‘good faith’ analysis in Chapter 13 context requires consideration of both pre-petition and post-petition behavior, and specifically rejects the [In re Lilley, 91 F.3d 491 (3d Cir. 1996),] and [In re Keach, 243 B.R. 851 (B.A.P. 1st Cir. 2000),] premise that the 1984 amendments to the Code eliminate consideration of the nondischargeability of a particular debt under Chapter 7, or other pre-petition behavior of the debtor bearing on his intent in proceeding under Chapter 13. . . . [T]he debtor’s degree of honest sorrow over his past behavior is largely beside the point. The pertinent question is not whether he is now sorry for what he did to Grapski, but whether he is intent on repaying Grapski as much as possible in a genuine effort at rehabilitation, or as little as possible in an effort to thwart and avoid a legitimate debt.”); New Jersey Lawyers’ Fund for Client Protection v. Goddard (In re Goddard), 212 B.R. 233, 241 (D.N.J. 1997) (Bankruptcy court erred in refusing to consider disbarred attorney’s prepetition misconduct in its good faith analysis. “While we do not suggest that, for purposes of Section 1325(a), pre-filing conduct is determinative of the good faith issue, it is nevertheless relevant and should have been considered.”); In re Stewart, 109 B.R. 998 (D. Kan. 1990) (Court reverses and remands to bankruptcy court to make specific factual findings on good faith when 80% of unsecured debt is student loans, debtor proposes to pay 2 to 4%, and the bankruptcy court made no specific finding whether the debtor’s primary purpose in filing the Chapter 13 case was to obtain a discharge of student loan debt.); In re Nittler, 67 B.R. 217 (D. Kan. 1986) (Bankruptcy court failed to adequately consider prepetition conduct when debtor defrauded a bank and gave a mortgage to a family member on the eve of bankruptcy in order to be eligible for Chapter 13 relief.); In re Sellers, 285 B.R. 769, 776 (Bankr. S.D. Ga. 2001) (“Debtor has never dealt fairly with Bank. . . . Debtor converted Bank’s collateral. . . . [A]fter the conversion was discovered and Debtor consented to a judgment, there is no evidence that he made any attempt to satisfy that judgment. . . . Debtor sought refuge . . . in this Court and sought to confirm a plan which proposes to pay a minuscule portion of the debt. The totality of Debtor’s actions and omissions demonstrate his lack of good faith in his dealing with the Bank and a lack of his overall sincere effort to satisfy the nondischargeable claim.”); In re York, 282 B.R. 519, 526 (Bankr. M.D. Ga. 2002) (Prepetition misconduct toward creditors is evidence of lack of good faith. “Debtor sold collateral out of trust and failed to submit the proceeds to SunTrust, he repeatedly directed SunTrust to erroneous locations of collateral, and he gave convoluted, nonsensical explanations for the disappearance of collateral.”); In re Fretwell, 281 B.R. 745, 752 (Bankr. M.D. Fla. 2002) (Debtors’ “profligate spending” including $100,000 in credit card charges in two years before the petition demonstrate lack of good faith; that debtors had health problems, knew their jobs were shaky and spent $4,000 cash advance on vacations demonstrated that “Debtors filed Chapter 13 not in a sincere effort to repay their creditors” but to deal with credit card debt that might produce dischargeability problems in a Chapter 7 case.); In re Reese, 281 B.R. 735, 741 (Bankr. M.D. Fla. 2002) (“Debtor’s conduct and the circumstances under which he contracted the debt owed to Triple Check evidence a pattern of complete disregard for the Agreement and a failure to abide by court orders. Debtor decided to leave Triple Check sometime between October of 1997 when he requested legal advice on the enforceability of the non-compete and non-solicitation portions of the Agreement and March of 1998 when he formed Tax Advantage. Debtor took computer software and client lists which belonged to Triple Check. He personally invoiced clients and failed to turn over Triple Check’s portion of the fees. He willfully violated the Consent Order. Taken together, these facts do not bespeak good faith.”); In re White, 273 B.R. 279 (Bankr. M.D. Fla. 2001) (That large debt was the result of undue influence and improper use of probate estate funds is relevant to good faith at confirmation but not outcome determinative.); In re Johnson, 262 B.R. 831, 842 (Bankr. D. Idaho 2001) (Although it was “curious, even a little bit disturbing,” that on the eve of the Chapter 13 case the debtors “would embark upon a lengthy vacation, consuming nearly all the money received from the sale of their home,” bankruptcy court found good faith based in large part that “Mr. Johnson’s physical condition has significantly deteriorated over the past several years and he is now disabled. Any questions concerning his motivation appear to be overridden by his physical limitations.”); In re Ussery, 261 B.R. 227, 229 (Bankr. E.D. Ark. 2001) (That car insurance was unexpectedly canceled and two days later debtor wrecked the car does not demonstrate lack of good faith in Chapter 13 plan filed a year later that would surrender the car and treat car lender as unsecured. Distinguishing Chrysler Financial Corp. v. Nolan (In re Nolan), 232 F.3d 528 (6th Cir. 2000), “[t]he only fact which may be argued indicating any bad faith is that the debtor felt compelled to drive her vehicle after unexpectedly receiving notice of insurance cancellation and before she had an opportunity to obtain replacement insurance. The Court does not believe that this fact, standing alone, is sufficient to make a finding of bad faith which would preclude confirmation of the original plan.”); In re Allen, 241 B.R. 710 (Bankr. D. Mont. 1999) (Rejects good-faith objection to confirmation of 0% plan that would compromise claim for prepetition assault and battery.); In re Mattson, 241 B.R. 629, 637–38 (Bankr. D. Minn. 1999) (“During the pendency of their [prior two bankruptcies], the Debtors manipulated the bankruptcy code and the automatic stay. . . . The sum of the activities prior to the filing of the present bankruptcy causes me to seriously doubt the Debtors’ motivation and sincerity in seeking bankruptcy relief.”); In re Kurtz, 238 B.R. 826 (Bankr. D.N.D. 1999) (Transfers of assets to family members and friends prior to Chapter 13 petition demonstrated lack of sincerity.); In re Baird, 234 B.R. 546 (Bankr. M.D. Fla. 1999) (Lack of good faith in 36-month .72% plan that would compromise a claim for fraud, conversion and civil theft.); In re Letsche, 234 B.R. 208 (Bankr. D. Mass. 1999) (Court finds bad faith based in part on surreptitious payments to children and credit card companies.); In re Ross, 231 B.R. 635 (Bankr. S.D. Ohio 1999) (Plan is proposed in good faith notwithstanding misguided prepetition conduct, including breach of trust and false tax returns.); In re Sexton, 230 B.R. 346 (Bankr. E.D. Tenn. 1999) (That the debtor continued to draw upon a line of credit after borrowing money to pay off and close the credit is one factor bearing on good faith.); In re Petersen, 228 B.R. 19 (Bankr. M.D. Fla. 1998) (Debtor’s prepetition luxurious lifestyle, large salary and questionable disposition of assets are indicative of a lack of good faith in a plan that would discharge large judgment for prepetition misconduct.); In re Maras, 226 B.R. 696 (Bankr. N.D. Okla. 1998) (Chapter 13 plan not proposed in good faith when sole purpose was to manage support obligations and Chapter 13 was part of a “contentious and bitter” prepetition domestic relations battle.); In re Keach, 225 B.R. 264 (Bankr. D.R.I. 1998) (Bad faith where debtor files Chapter 13 while Chapter 7 case is still pending to deal with large fraud debt that survived discharge and debtor has not shown any change in circumstances. That debtor made no payments on the nondischargeable claim before filing the Chapter 13 case is indicative of bad faith.), rev’d, 243 B.R. 851 (B.A.P. 1st Cir. 2000); In re Nipper, 224 B.R. 756 (Bankr. E.D. Mo. 1998) (Rejects good-faith objection to plan that compromises embezzlement judgment.); In re Mathenia, 220 B.R. 427 (Bankr. W.D. Okla. 1998) (Prepetition purchase of a $19,000 car coupled with a pattern of successive Chapter 7 and Chapter 13 filings by the debtor and the debtor’s spouse demonstrate a lack of good faith.); In re Brigance, 219 B.R. 486 (Bankr. W.D. Tenn. 1998) (Plans that treat deferred presentment service providers as ordinary unsecured claim holders were proposed in good faith notwithstanding that debtors incurred some of the obligations within a few weeks of filing and had “rolled over” others to the eve of the Chapter 13 petitions.), aff’d on other grounds, 234 B.R. 401 (W.D. Tenn. 1999); In re Turpen, 218 B.R. 908, 915 (Bankr. N.D. Iowa 1998) (Plan fails good faith test when large claim of United States rose from prepetition filing of a false claim and would be nondischargeable in a Chapter 7 case.); In re Georgeff, 218 B.R. 403 (Bankr. S.D. Ohio 1998) (Bad faith where debtor proposes 30% plan that compromises claim for prepetition professional malpractice and conversion, including active efforts by the debtor before the petition to avoid paying the judgment.); In re Davis, 218 B.R. 177 (Bankr. E.D. Okla. 1998) (Bad faith to file Chapter 13 case while Chapter 7 case is still pending where purpose of Chapter 13 case is to deal with nondischargeable judgments from prepetition misconduct.); In re Segura, 218 B.R. 166 (Bankr. N.D. Okla. 1998) (Creditor failed to prove a lack of good faith in Chapter 13 filing seven months after buying a car. Evidence demonstrated that debtor made all contract payments prior to the petition, and there was no evidence that debtor intended to file bankruptcy at the time of buying the car and no evidence that debtor filed solely to modify the car lender’s rights.); In re McLaughlin, 217 B.R. 772 (Bankr. W.D. Tex. 1998) (Prepetition conduct leading to large judgment for breach of fiduciary duty and timing of Chapter 13 petition to interrupt collection of that judgment are strong evidence of bad faith in minimal repayment Chapter 13 plan.); In re Gilmore, 217 B.R. 228, 229–31 (Bankr. S.D. Ohio 1998) (Not bad faith that debtor stopped payment on checks given to check-cashing services prepetition. Stopping payment on checks if part of a “scheme to defraud creditors” could be indicative of bad faith. “In the case at bar, no evidence was presented that such a scheme existed. . . . [T]he Debtor only considered bankruptcy after having borrowed the funds in question. . . . [T]he Debtor sought advice from a local consumer credit counseling service. . . . [T]he Debtor’s prior actions . . . were consistent with a personal struggling to make ends meet.”); In re Kelly, 217 B.R. 273 (Bankr. D. Neb. 1997) (8.5% plan fails good faith test when plan will compromise large nondischargeable claim for misappropriation of funds from a bank.); In re Zaleski, 216 B.R. 425 (Bankr. D.N.D. 1997) (Lack of good faith where three-year, 11.5% plan would compromise claims that might be nondischargeable under § 523(a)(2).); In re Games, 213 B.R. 773, 778–80 (Bankr. E.D. Wash. 1997) (Management of prepetition traffic fines, reinstatement of the debtor’s driving privileges and repayment of nondischargeable and priority debts are “extraordinary” benefits of a Chapter 13 case that require “extraordinary sacrifice” from the debtor. Zero percent 49-month plan was not proposed in good faith.); In re Britt, 211 B.R. 74, 78 (Bankr. M.D. Fla. 1997) (Rejects good-faith objection to plan that compromises large claim for embezzlement that was declared nondischargeable in a prior Chapter 7 case. “A Chapter 13 plan may be confirmed despite the most egregious pre-filing conduct where other factors suggest that the filing of the plan nevertheless represents a good faith effort by the debtor to satisfy his creditors’ claims.”); In re Ruggles, 210 B.R. 57 (Bankr. D. Vt. 1997) (Court finds bad faith in debtor’s postpetition claim of homestead exemption in both sides of a duplex notwithstanding that exemption was allowed for lack of an objection.); In re Burris, 208 B.R. 171 (Bankr. W.D. Mo. 1997) (Court finds good faith in plan that compromises prepetition judgments for selling and concealing assets of the debtor’s deceased husband’s estate after detailed consideration of debtor’s prepetition conduct involving the sale of a boat and the concealing or disposing of a gun collection.); In re Jahnke, 146 B.R. 830, 832–33 (Bankr. E.D. Cal. 1992) (Court denies confirmation on good-faith ground when Chapter 13 case was filed less than a month after judgment of nondischargeability in prior Chapter 7 case, the debtor intentionally failed to pay taxes during prior case in order to include the taxes with the nondischargeable debt in a future Chapter 13 case, there has been no “legitimate turn of events” to justify a second bankruptcy case, the debtor proposes zero payment of the nondischargeable claim and the statement of affairs failed to reveal the adversary proceeding declaring the debtor’s primary debt nondischargeable. “The use of Chapter 13 in order to discharge a debt which would not be dischargeable under Chapter 7 is insufficient alone to prove a lack of good faith. . . . Saddled with such a nondischargeable judgment, a debtor has a greater burden of proving good faith when that debtor turns around, files a new bankruptcy case, and seeks to rid himself of the debt via the superdischarge of Chapter 13. . . . In short, the actions of such a debtor will be subject to a higher level of judicial scrutiny.”); In re Ristic, 142 B.R. 856 (Bankr. E.D. Wis. 1992) ($15-per-month payment toward claim in excess of $124,000 resulting from debtor’s burglary of and setting fire to a business is not good faith. Debtor is serving a seven-year sentence for arson and has almost no income. Debtor’s motivation is to satisfy the obligations arising from his criminal misconduct while he is incarcerated. The only dischargeable debt in Chapter 13 case would be nondischargeable in a Chapter 7 case. Creditor injured by debtor’s prepetition misconduct will receive only a fraction of 1% spread out over five years without interest.); In re Rogers, 140 B.R. 254 (Bankr. W.D. Mo. 1992) (Debtor converted to a Chapter 13 immediately after a stipulation of nondischargeability in a Chapter 7 case, and debtor seems to be using Chapter 13 to avoid paying prepetition child support.); In re Whipple, 138 B.R. 137 (Bankr. S.D. Ga. 1991) (It is bad faith to propose no payment of tort claim that would be nondischargeable in a Chapter 7 case under § 523(a)(6).); In re Edwards, 132 B.R. 400 (Bankr. E.D. Ark. 1991) (Debtor’s prepetition criminal misconduct, giving rise to both fines and criminal restitution, was properly considered in the good-faith calculus. That debtor’s primary reason for filing the Chapter 13 case is to discharge the victim’s restitution claim supports finding of bad faith.); In re Henricksen, 131 B.R. 467 (Bankr. N.D. Okla. 1991) (Debtor’s prepetition lifestyle demonstrates a pattern of living beyond ordinary means and resorting to bankruptcy to eliminate debt rather than repaying debt.); In re Dillon-Bader, 131 B.R. 463 (Bankr. D. Kan. 1991) (Debtor’s accumulation of large student loan debts and the presence of few other unsecured claim holders are relevant factors in assessing debtor’s good faith in proposing to pay 100% of a portion of the student loans and 10% of other student loans.); In re Farrington, 129 B.R. 271 (Bankr. M.D. Fla. 1991) (Debtor used a prior Chapter 7 discharge to create eligibility for Chapter 13. No change of circumstances occurred between the Chapter 7 and the Chapter 13 case other than the discharge of unsecured debt in the Chapter 7 case. Scheme to create eligibility for Chapter 13 is indicative of bad faith.); In re Santa Maria, 128 B.R. 32 (Bankr. N.D.N.Y. 1991) (Debtor came into Chapter 13 case with a disputed child support claim. Debtor’s failure to include any provision for resolution of the disputed child support obligation indicated that the plan was designed to frustrate collection rather than resolve the dispute.); In re Dotson, 124 B.R. 836 (Bankr. N.D. Okla. 1991) (That debtor filed bankruptcy to discharge student loans before the first installment was due and took an expensive Caribbean cruise on the eve of bankruptcy is evidence of a lack of good faith.); In re Sieg, 120 B.R. 533 (Bankr. D.N.D. 1990) (Debtor reopened Chapter 7 case after discharge and converted to Chapter 13 apparently to deal with student loans claims that would survive discharge in the Chapter 7 case. It is relevant to good-faith analysis that unsecured creditors other than student loan creditors were discharged in the Chapter 7 case and had no opportunity to object to or share in a Chapter 13 distribution.); In re Bush, 120 B.R. 403 (Bankr. E.D. Tex. 1990) (Debtor pleaded guilty to embezzlement and consented to determination of nondischargeability prior to conversion from Chapter 7 to Chapter 13. Debtor’s attempt to discharge obligations arising from conduct that would be nondischargeable in a Chapter 7 case is a legitimate area of inquiry with respect to good faith in the Chapter 13 case.); In re Jones, 119 B.R. 996 (Bankr. N.D. Ind. 1990) (It is bad faith for debtor to propose 36-month plan that pays for $21,800 Cadillac and little else when there is doubt whether the debt secured by the Cadillac would be dischargeable and it is the car loan that drove the debtor to file Chapter 13.); In re Castonguay, 119 B.R. 256, 258–59 (Bankr. D. Kan. 1990) (Court denies confirmation on good-faith grounds of 10%, 36-month plan when 94% of the debt is student loans that would be nondischargeable in a Chapter 7 case. The debtor quit school six hours short of a degree in finance, the debtor’s “sole motivation” in filing was to discharge her student loans, and “the student loan creditor is entitled to at least as much, if not more, protection than any other unsecured creditor because [the student loan creditor], and ultimately the taxpayer, cannot protect itself in this situation.”); In re Parker, 118 B.R. 539 (Bankr. S.D. Ohio 1990) (Bad faith is indicated where debtor proposes no payment to ex-spouse with judgment for malicious prosecution for attempts by the debtor to evict ex-wife from the former marital home. Debtor’s “egregious” misconduct during divorce is major element of bad faith when plan fails to make the ex-spouse whole.); In re Thomas, 118 B.R. 421 (Bankr. D.S.C. 1990) (It is bad faith warranting denial of confirmation and dismissal when sole purpose of Chapter 13 was to deal with complaint by two women that the debtor secretly videotaped them in sexual acts and played the tapes at a bachelor party.); In re Carver, 110 B.R. 305 (Bankr. S.D. Ohio 1990) (Good-faith inquiry led to denial of confirmation of a plan that would pay 10% of a claim that resulted from debtor’s prepetition embezzlement.); In re Belt, 106 B.R. 553 (Bankr. N.D. Ind. 1989) (Compromise of claim arising from driving while intoxicated is not bad faith. Amount of plan payments is no longer part of good-faith analysis. The debtor’s failure to propose a plan that extends beyond 36 months is not automatically bad faith. Debtor’s prepetition misconduct was negligent or reckless, but did not involve intentional or consensual misconduct.); In re Baez, 106 B.R. 16 (Bankr. D.P.R. 1989) (When totality of circumstances indicates that plan meets good-faith requirement, but the debtor incurred a substantial prepetition debt in bad faith, plan can be confirmed only if the debtor proposes to pay the bad-faith claim in full.); In re Rose, 101 B.R. 934 (Bankr. S.D. Ohio 1989) (After Metro Employees Credit Union v. Okoreeh-Baah (In re Okoreeh-Baah), 895 F.2d 1123 (6th Cir. 1990), a debtor’s prepetition criminal misconduct is but one element in the totality of circumstances. Debtor’s proposal to pay less than 100% of restitution judgment resulting from prepetition dishonesty is violation of good-faith requirement.); In re Carr, 95 B.R. 71, 72 (Bankr. S.D. Ohio 1989) (Applying Metro Employees Credit Union v. Okoreeh-Baah (In re Okoreeh-Baah), 895 F.2d 1123 (6th Cir. 1990), on court’s own motion, confirmation of 30% plan is denied “where the incurring of the debt was not for an acceptable purpose, but rather was for the maintaining of an artificial standard of living, given the circumstances of the debtors.”); In re Weber, 114 B.R. 194 (Bankr. D. Neb. 1988) (When purpose of the Chapter 13 case is to deal with failed reaffirmation agreements after a prior Chapter 7 case, it is appropriate for the bankruptcy court to consider debtor’s conduct with respect to the reaffirmed claims during the period between the Chapter 7 case and the filing of the Chapter 13 case.); In re Breon, 94 B.R. 576 (Bankr. D. Minn. 1988) (It is bad faith to file a Chapter 13 case soon after a Chapter 7 case for the sole purpose of avoiding immediate payment of former spouse.); In re Hawes, 73 B.R. 584 (Bankr. E.D. Wis. 1987) (Chapter 13 petition is a mere litigation tactic intended to upset former employer’s state court injunctive action to enforce a restrictive covenant.); In re Cregut, 69 B.R. 21 (Bankr. D. Ariz. 1986) (It is bad faith when debtor filed petition to avoid potential liquidation of a tort claim.); In re Hazel, 68 B.R. 287, 290 (Bankr. E.D. Mich. 1986), aff’d, 95 B.R. 481 (E.D. Mich. 1988) (It is bad faith for self-styled “tax protester” to seek confirmation of a 1% plan that would discharge tax claims “arising from the debtor’s unlawful refusal to pay those taxes. . . . [T]o file a petition in bankruptcy in order to discharge a debt arising from illegal activity is clearly bad faith.” Court applies United States v. Estus (In re Estus), 695 F.2d 311 (8th Cir. 1982), but notes that the amount of a debtor’s payment “is no longer a significant consideration of good faith” after the 1984 amendments to the Bankruptcy Code.); In re Wall, 52 B.R. 613 (Bankr. M.D. Fla. 1985) (It is bad faith to use Chapter 13 to avoid claim for prepetition fraud.); In re Myers, 52 B.R. 248 (Bankr. M.D. Fla. 1985) (Bad faith is indicated where debtor filed Chapter 13 immediately after borrowing $2,200.); In re San Miguel, 40 B.R. 481 (Bankr. D. Colo. 1984) (It is bad faith where real purpose of proposed plan is to defer attorneys’ fees, not repay creditors.); In re Gates, 42 B.R. 4 (Bankr. N.D. Ga. 1983) (Sole purpose of third Chapter 13 case was to thwart a foreclosure sale.); In re Stein, 36 B.R. 521 (Bankr. M.D. Fla. 1983) (It is bad faith when sole purpose of plan is to deal with a mortgage holder.).
2 11 U.S.C. § 109(e), as amended by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 108, 108 Stat. 4106 (1994). See § 11.1 [ Dollar Amounts ] § 14.1 Dollar Amounts.
3 140 Cong. Rec. H10,765 (section-by-section analysis by Congressman Brooks).
4 140 Cong. Rec. H10,765 (section-by-section analysis by Congressman Brooks). See also 140 Cong. Rec. S14,739 (remarks by Sen. Domenici) (“The bill’s report also cautions bankruptcy judges, lawyers, and debtors that the bankruptcy laws should not be used as an artifice to avoid civil liability for intentional misconduct. I commend the authors of the report for including this language.”).
5 See, e.g., Keach v. Boyajian (In re Keach), 243 B.R. 851, 868 (B.A.P. 1st Cir. 2000) (“The meaning of good faith is simple honesty of purpose. . . . In applying the same good faith requirement under the prior Act, courts looked only to the honesty of the debtor’s postfiling conduct. They did not concern themselves with the debtor’s prefiling conduct or the ‘purpose or spirit’ of bankruptcy law. If Congress intended to change this pre-Code approach, we must presume Congress would have expressed that intent. The contrary view of good faith, so prevalent in the case law, is blatantly inconsistent with a debtor’s clear statutory rights.”); In re Lapin, 302 B.R. 184, 191 (Bankr. S.D. Tex. 2003) (Applying In re Chaffin, 815 F.2d 1070 (5th Cir. 1987), modified by In re Chaffin, 836 F.2d 215 (5th Cir. 1988), plan that compromises multimillion-dollar claims for securities fraud and a Ponzi scheme is proposed in good faith: debtor was “forthcoming with exhaustive discovery,” the debtor committed to liquidate substantial exempt assets and plan provides that trustee may seek modification if debtor’s income increases. “In Chaffin 2, the Fifth Circuit indicated that the Debtor’s pre-bankruptcy mindset is only relevant if the debtor intended to seek a chapter 13 discharge at the time of the fraud. Otherwise, it is only post-petition intent and purpose that is considered. A more expansive explanation is in Keach v. Boyajian (In re Keach), 243 B.R. 851 (1st Cir. BAP 2000).”); In re Gathright, 67 B.R. 384 (Bankr. E.D. Pa. 1986), aff’d, 71 B.R. 343 (E.D. Pa. 1987) (Debtor’s conduct in incurring debt is irrelevant to good faith.).
6 See, e.g., In re Smith, 286 F.3d 461, 467–68 (7th Cir. 2002) (“What is required is ‘that the plan must be “proposed in good faith,” not that the debt was incurred in good faith.’ . . . Although the nature of the underlying debt, not dischargeable in Chapter 7, weighs against a finding of good faith, this factor alone cannot defeat confirmation.”).
7 See cases cited in this section and beginning at § 105.2 Prepetition Transfers and Transactions. See also App. F.
8 Mason v. Young (In re Young), 237 F.3d 1168, 1177–78 (10th Cir. 2001).