§ 110.1     Good-Faith Filing Requirement after BAPCPA
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 110.1, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

BAPCPA added a new requirement for confirmation in § 1325(a)(7) that “the action of the debtor in filing the petition was in good faith.”1 This new confirmation requirement supplements the old good-faith test in § 1325(a)(3) that “the plan has been proposed in good faith and not by any means forbidden by law.”2

[2]

Good faith is not defined in either old § 1325(a)(3) or new § 1325(a)(7). The focus of the good-faith requirement in § 1325(a)(3) has always been that “the plan” has been proposed in good faith. This did not stop pre-BAPCPA cases from more broadly interpreting § 1325(a)(3) to examine the debtor’s conduct at all stages of the Chapter 13 case, including the motivation of the debtor in filing the petition in the first instance.3 New § 1325(a)(7) is differently focused on the action of the debtor “in filing the petition.” If history is a guide, the new section will not change the expansive interpretation of good faith in the pre-BAPCPA case law.

[3]

BAPCPA uses the concept of good faith somewhat indiscriminately in other new sections of the Bankruptcy Code. For example, under new § 362(c)(3)(C), there is a presumption that a bankruptcy case is not filed in good faith for purposes of terminating the automatic stay if a prior case for an individual debtor was dismissed within a year based on the debtor’s failure to file required documents, failure to pay adequate protection or failure to perform a confirmed plan or there has been no substantial change in the financial circumstances of the debtor since the dismissal of the prior case.4 There is a similar presumption that filing is not in good faith when an individual debtor files a third case within a year of two prior filings.5

[4]

These new presumptions of a lack of good faith relate to the automatic stay but use the same “good faith” words as new § 1325(a)(7). Are similar concepts intended by Congress? There is no legislative history to provide guidance to the meaning of good faith in new § 1325(a)(7).

[5]

There is also a “bad faith” consideration in new § 707(b)(3). To determine whether the filing of a Chapter 7 petition is an abuse under § 707(b), if the presumption in § 707(b)(2)(A)(i) does not arise or is rebutted, the court is instructed to consider “whether the debtor filed the petition in bad faith.”6 Will new § 1325(a)(7) preclude confirmation of a plan when a Chapter 13 case is converted from Chapter 7 to Chapter 13 after a finding of bad faith under § 707(b)(3)(A)?

[6]

The problem is that good faith has become a worn-out phrase in Chapter 13 cases, completely overworked by use in too many places in the Code. One of the advertised goals of BAPCPA was to reduce the discretion of bankruptcy judges.7 The addition of a new good-faith filing requirement to the conditions for confirmation in § 1325(a)(7) will not reduce the exercise of discretion by bankruptcy judges. Good faith is an undefined concept that has taken more than 25 years to flesh out as it is used in § 1325(a)(3). Multiplying the uses of this undefined phrase is only going to lead to more confusing case law and more litigation in Chapter 13 cases.

[7]

Prior to BAPCPA, the debtor’s good faith or bad faith in filing the Chapter 13 petition was often challenged by motion to dismiss.8 The appellate courts had no trouble finding a “bad faith” ground for dismissal of a Chapter 13 case that measured the motivations of the debtor in filing the petition. It is not obvious that § 1325(a)(7) adds anything new.


 

1  11 U.S.C. § 1325(a)(7).

 

2  11 U.S.C. § 1325(a)(3), discussed beginning at § 103.1  In General.

 

3  See discussion beginning at § 103.1  In General.

 

4  11 U.S.C. § 362(c)(3)(C), discussed in § 432.1 [ When Does § 362(c)(3) Apply? ] § 60.1  When Does § 362(c)(3) Apply?.

 

5  See 11 U.S.C. § 362(c)(4)(D), discussed in § 432.1 [ When Does § 362(c)(3) Apply? ] § 60.1  When Does § 362(c)(3) Apply?.

 

6  11 U.S.C. § 707(b)(3)(A).

 

7  See § 363.4 [ Three: Don’t Trust Judges ] § 3.4  Three: Don’t Trust Judges.

 

8  See §§ 65.3 [ Conversion or Dismissal ] § 55.3  Conversion or Dismissal and 334.1 [ Cause for Dismissal, Including Bad-Faith, Multiple and Abusive Filings ] § 152.4  Cause for Dismissal, Including Bad-Faith, Multiple and Abusive Filings.