§ 110.2     Good-Faith Plans after BAPCPA
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 110.2, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

The first quarter century of the tortured history of the good-faith test for confirmation in § 1325(a)(3) is detailed elsewhere.1 The projected disposable income test in § 1325(b)—before and after amendment by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)2—consumes volumes.3 Here, the focus is whether BAPCPA changed the content of “good faith” as a measure of the entitlement of unsecured4 creditors in Chapter 13 cases.

[2]

Since the enactment of the Bankruptcy Code in 1978, the issue has festered whether the good-faith test for confirmation in § 1325(a)(3) has “economic” content. Put another way, as the Code has been amended to provide more and more detail to the economic tests for confirmation elsewhere in § 1325, the debate has raged with respect to what the good-faith test adds to the effort that must be made by Chapter 13 debtors to pay unsecured creditors. BAPCPA dramatically increased the extent to which the Code defines the distribution rights of unsecured creditors at confirmation of Chapter 13 plans. Oddly, the reduction in good-faith scrutiny of those same economic metrics that should have resulted has not materialized. Perhaps the explanation lies in the mess BAPCPA made of the projected disposable income test and judicial reactions to that mess.

[3]

BAPCPA definitely changed one aspect of good-faith analysis in Chapter 13 cases: addressed immediately above,5 new § 1325(a)(7) states explicitly what many courts had already concluded—good faith in the filing of the petition is an available challenge in every Chapter 13 case.6 Section 1325(a)(3), of course, addresses whether the plan has been “proposed in good faith.” Many good-faith “factors” generated by the courts over the years in § 1325(a)(3) cases7 addressed the filing of the case as much or more than the filing of the plan. After BAPCPA, the Code squarely places both good faith in filing and good faith in proposing a plan on the table at confirmation.

[4]

It is certainly not obvious that the addition of § 1325(a)(7) expanded the preexisting meaning of good faith in proposing a plan under § 1325(a)(3). More clearly, the content of good faith in § 1325(a)(3) was reduced by BAPCPA in two ways: (1) carving out the separate analysis of good faith in filing the petition under § 1325(a)(7); and (2) dramatically expanding the statutory definition in § 1325(b) of what unsecured creditors are entitled to at confirmation in Chapter 13 cases.

[5]

It is hard to overstate the detail and complication that BAPCPA added to the projected disposable income test in § 1325(b).8 For current purposes, especially with respect to Chapter 13 debtors with current monthly income (CMI) greater than applicable median family income,9 BAPCPA minutely scripted the calculation of income and expenses to determine disposable income that must be committed to unsecured creditors to accomplish confirmation. If the economic content of the good-faith test in § 1325(a)(3) is determined by the extent to which the Code elsewhere defines the required degree of effort, then it has to be said that BAPCPA has comprehensively addressed this field of inquiry in § 1325(b) and ordinary canons of statutory construction urge that good faith in § 1325(a)(3) does not encroach on that economic test.

[6]

But there are complicating factors that impede application of usual interpretive norms. There is fundamental disagreement among the courts about the content and application of the projected disposable income test as amended by BAPCPA in § 1325(b).10 Anarchy in the projected disposable income cases has perversely inspired many bankruptcy courts to rejuvenate the good-faith test in § 1325(a)(3) as a platform for measurement of the economic effort required of Chapter 13 debtors at confirmation. It is sometimes hard to tell from the decisions whether economic components of good faith have become a separate test for confirmation or whether “good faith” has become leavening within the process of interpreting and applying the projected disposable income test in § 1325(b).11 The result is the same: the mathematical formula in § 1325(b) for determining the entitlement of unsecured creditors is overcome or at least supplemented with nonstatutory considerations whether the debtor is trying hard enough to pay unsecured creditors through the proposed plan.

[7]

For example, there is substantial disagreement in the projected disposable income test cases whether the statutory definition of CMI in § 101(10A) and the detailed prescription of allowable expense deductions in § 707(b)(2)(A) definitively calculate disposable income for Chapter 13 debtors with CMI greater than applicable median family income or whether courts should use the statutory formula only as a “starting point” or “presumption.”12 Courts applying the latter, “forward-looking” approach—illustrated by Coop v. Frederickson (In re Frederickson)13—confusingly describe expense items allowed under the statutory formula that will not actually be incurred by the debtor after confirmation as failing both the projected disposable income test in § 1325(b) and the good-faith test in § 1325(a)(3).14 This phenomenon is especially apparent when Chapter 13 debtors appropriately account for debt secured by property that will be surrendered through the plan but the court then finds that reliance on the statutory accounting produces a plan that is not proposed in good faith.15 Good faith has been invoked to defeat confirmation post-BAPCPA when an expense is claimed by a Chapter 13 debtor who will actually incur that expense in a lesser amount than the amount allowed by the statute.16

[8]

Sometimes this trumping of disposable income test allowances by good-faith analysis comes buried in the buzzwords “reasonable” and “necessary.” Detailed elsewhere,17 at least with respect to debtors with CMI greater than applicable median family income, BAPCPA defines “amounts reasonably necessary to be expended—” by reference to the detailed expense allowances and calculations in § 707(b)(2)(A) and (B). Notwithstanding the statute, there is robust debate whether expenses for a debtor with CMI greater than applicable median family income must be “reasonable” and/or “necessary” in addition to satisfying an allowance in § 707(b)(2)(A) or (B).18 Too many courts have further complicated that debate about § 1325(b) by layering a reasonable and/or necessary test of the propriety of expenses at confirmation as an element of good faith under § 1325(a)(3).

[9]

For example, in In re Daniel-Sanders,19 there was no dispute that an unmarried Chapter 13 debtor needed two cars because the debtor provided one car to the father of her children while she used the second car for work. There was no dispute that the debtor was entitled to the Local Standards Ownership Costs and Operating Costs for both cars within the calculation of disposable income under §§ 1325(b) and 707(b)(2)(A).20 There was no dispute that the statutory calculation of disposable income included a deduction for average monthly payments on account of debt secured by both cars.21 The rub came that the bankruptcy court didn’t like the idea that the second car was subject to debt of $27,163. Defaulting to good-faith analysis, the court denied confirmation:

[P]rojected disposable income will not necessarily constitute a payment sufficient to satisfy the mandate of good faith in section 1325(a)(3). . . . [T]his court finds no lack of good faith in the mere retention of a second car. Rather, the issue of concern is whether the cost of satisfying the outstanding car loans will exceed the limits of reasonableness, to the effect of compromising a good faith distribution to unsecured creditors. . . . In satisfying the requirements of good faith, a Chapter 13 plan may not allow luxury expenses that impact adversely upon the rights of unsecured creditors. . . . In the context of current market conditions, the repayment of an auto loan in the amount of $27,163 would clearly represent a luxury expense. . . . Debtors should appropriately expense the reasonable cost of a serviceable automobile, but not costs that substantially exceed the typical expenditures of others in the community. . . . I have looked to statistics issued by the Research and Innovative Technology Administration of the Bureau of Transportation Statistics. . . . [T]he average cost for the acquisition of a vehicle, whether new or used, was $12,907. In my view, a variance from this amount by as much as twenty percent might be reasonable. . . . For ease of application, I will round this value upward to $16,000. Generally, therefore, I will treat any car loan in excess of this sum as a luxury expense.22
[10]

This expansive reading of good faith under § 1325(a)(3) to nullify satisfaction of the projected disposable income test is reminiscent of what happened in the bankruptcy courts between 1979 and 1984 except the driving force is different. Before the disposable income test was added to the Code in 1984,23 some courts used the good-faith requirement in § 1325(a)(3) to fill the vacuum with respect to the entitlement of unsecured creditors when the best-interests-of-creditors test was otherwise satisfied.24 Today, there is anything but a vacuum with respect to the statutory entitlement of unsecured creditors in Chapter 13 cases. Section 1325(b) is one of the most intricate and detailed descriptions of a creditor entitlement in the whole of the Bankruptcy Code. Now, the problem is that some judges don’t like what Congress did in 2005 and the amorphous good-faith requirement in § 1325(a)(3) has been resurrected as a vehicle to impose judge-made rules on top of or instead of the statutory rules with respect to the payment of unsecured creditors.

[11]

Before getting to the details, it has to be said that there is a perverse logic at work in the cases that find bad faith when a Chapter 13 debtor claims an expense that is allowed by the disposable income test. Several courts, including the U.S. Court of Appeals for the Seventh Circuit, have made the point that it is not “bad faith” for a debtor to claim a putative expense deduction for purposes of the projected disposable income calculation even when the court ultimately rejects the allowance. As simply stated by Judge Posner in In re Turner:25

A plan does not violate [§ 1325(a)(3)] merely because it contains, fully disclosed, an arguable claim rejected in the course of the bankruptcy proceeding. . . . It is not bad faith to seek to advance one’s economic interests by making a claim based on a defensible view of one’s legal rights, even if the view ends up being rejected—in this case by an appellate court after the first-line decision maker rules in favor of the claimant.26
[12]

Ironically, when the statutory expense allowance is allowed, the debtor is more likely to get into good-faith trouble.27 This is revealing of what is really going on. The rash of recent good-faith cases are not so much about what the statute allows or doesn’t as an “amount reasonably necessary to be expended—” by a debtor with CMI greater than applicable median family income; these cases are about the preferences of judges with respect to the effort that should be required of Chapter 13 debtors. “Best efforts” rides again but not the form enacted by Congress.

[13]

There are lightning rods in these post-BAPCPA good-faith cases—expense deductions that are allowed by one or another provision of the reconstituted disposable income test but that inspire intense good-faith scrutiny under § 1325(a)(3) even when § 1325(b) is satisfied. For example, if the debtor is both stripping off an avoidable lien and taking an (allowable) deduction for the debt secured by that lien, the debtor can expect enhanced good-faith scrutiny.28 Debtors with no projected disposable income who are not required by § 1325(b) to pay anything to unsecured creditors can count on good-faith difficulties if the plan pays attorney fees without a distribution to unsecured creditors.29 “Luxury” cars, boats, campers and recreational vehicles become good-faith fodder notwithstanding that BAPCPA changed the disposable income calculation to allow expense deductions for debt secured by such things for a debtor with CMI greater than applicable median family income.30

[14]

Short payoff plans—even though allowed by the Code in the absence of disposable income31—are not likely to survive good-faith review.32 Opportunistic timing of filing with respect to the debtor’s income and the calculation of CMI has provoked good-faith difficulties under § 1325(a)(3) notwithstanding the new separate good-faith-filing requirement in § 1325(a)(7).33 Efforts to modify the plan and/or to amend statements and schedules before confirmation based on recalculation of projected disposable income have attracted new good-faith attention after BAPCPA.34

[15]

Accounting for Social Security income has generated good-faith difficulties for Chapter 13 debtors notwithstanding especially clear contrary intent in BAPCPA. Detailed elsewhere,35 § 101(10A)(B) excludes from CMI “benefits received under the Social Security Act.”36 No matter what view a court takes of the details of calculating projected disposable income under § 1325(b),37 the statute says that unsecured creditors have no expectation in a Chapter 13 debtor’s Social Security income. Notwithstanding this clarity, at least one bankruptcy court has reported a post-BAPCPA Chapter 13 case in which the debtor’s failure to commit Social Security benefits to paying unsecured creditors failed good-faith analysis and precluded confirmation.38 More accurately, another court concluded that the failure to commit Social Security benefits to funding a Chapter 13 plan cannot be the foundation for a finding of bad faith under § 1325(a)(3).39 A third court left the good-faith question open when the debtor excluded Social Security income, but the objection to confirmation was based on the disposable income test, not on § 1325(a)(3).40

[16]

In the same vein, retirement accounts are giving courts good-faith fits notwithstanding pervasive treatment by BAPCPA, and similar facts are producing inconsistent outcomes. BAPCPA excludes from the Chapter 13 estate “any amount” withheld by an employer from wages for contribution to an ERISA-qualified employee benefit or deferred compensation plan.41 Any amount so excluded from the Chapter 13 estate “shall not constitute disposable income as defined in section 1325(b)(2).”42 These provisions insulate withheld contributions to qualified retirement plans from any entitlement unsecured creditors might assert in a Chapter 13 case under the projected disposable income test in § 1325(b).

[17]

But depending on when contributions began and how much retirement contributions are in relation to distributions to unsecured creditors, some courts have been unable to resist finding a good-faith requirement in § 1325(a)(3) that trumps the intent of the statute with respect to retirement accounts and contributions. The bankruptcy court in In re Gibson43 concluded that “a debtor may not completely shelter available resources in a retirement plan at the expense of his creditors. . . . Reasonable, measured planning for retirement is responsible and should be encouraged provided the amount of plan contributions are [sic] balanced and proportionate to amounts being paid on debt.”44 The bankruptcy court in In re Shelton45 held that the good-faith test in § 1325(a)(3) may preclude confirmation of a plan that satisfies the disposable income test when unsecured creditors will receive nothing but the debtors will contribute $655 per month to a retirement account.46 The bankruptcy court in In re Mati47 found precisely the contrary: the exclusion of 401(k) contributions from property of the estate and from disposable income by BAPCPA changed good-faith analysis under § 1325(a)(3) by excluding retirement contributions from the expectations of unsecured creditors.48

[18]

BAPCPA did many strange things with respect to the treatment of filing and nonfiling spouses within the projected disposable income calculation.49 Prior to BAPCPA, it was generally agreed that a nonfiling spouse’s income and expenses must be accounted for rationally to determine the disposable income available to the filing spouse.50 Recent cases indicate that the confusing treatment of spouses by BAPCPA has slopped over into good-faith analysis.

[19]

For example, the debtor in In re Louviere51 satisfied good faith by apportioning a nonfiling spouse’s expenses in roughly the same ratio as the filing and nonfiling spouses’ income notwithstanding that § 1325(b) and Official Form B22C require a different calculation to determine projected disposable income.52 In In re Beasley,53 the bankruptcy court concluded it was not bad faith for the debtor and spouse to file separate Chapter 13 cases when separate cases permitted one spouse to cram down a debt secured by a car used solely by the other spouse. The Beasley court noted that it was not bad faith for a Chapter 13 debtor to do what the Code allowed—Congress created the loophole that allowed separate cases to accomplish that which might not be accomplished had the debtors filed jointly.

[20]

There are a substantial number of decisions accurately concluding that BAPCPA reduced the extent to which the good-faith inquiry in § 1325(a)(3) includes assessment of the payment of unsecured creditors that is other or different than the calculation required by § 1325(b). The limiting effect of BAPCPA is well explained by the bankruptcy court in In re Barr:54

Following the adoption of section 1325(b), most of the courts that considered the issue concluded that the adoption of section 1325(b) narrowed the focus for determining good faith under section 1325(a)(3) because the factors related to the debtor’s ability to pay previously considered under the totality of the circumstances test were subsumed by the ability-to-pay test adopted in section 1325(b). . . . While BAPCPA made significant changes to section 1325(b), nothing in those changes or elsewhere in BAPCPA suggests any legislative intent that any section of the Bankruptcy Code other than section 1325(b) should be controlling in dealing with a Chapter 13 debtor’s ability to pay. To the contrary, . . . the 2005 amendments to section 1325(b) indicate even stronger that section 1325(b), rather than section 1325(a)(3), is controlling in determining whether a debtor is committing sufficient income to a Chapter 13 plan. . . . There are new definitions of the income and expenses to be used for determining disposable income that are much different than under the former statute. These definitions are detailed and inflexible, particularly as to expenses and deductions for above-median-income debtors. . . . [T]he language of section 1325(b)(3) is unambiguous in requiring that the expenses and deductions of above-median-income debtors be determined under section 707(b)(2)(A) and (B). . . . [T]his court is not free to ignore revised section 1325(b) or replace it with a standard pulled from section 1325(a)(3). . . . [W]ith an above-median-income Chapter 13 debtor, the debtor’s ability to pay and whether the proposed plan commits all of the debtor’s disposable income must be determined under section 1325(b) rather than as an element of good faith under section 1325(a)(3).55

Other courts disagree and either hold that BAPCPA worked no change to the economic content of the good-faith test or simply continue to include a measure of the debtor’s effort to pay unsecured creditors in good-faith analysis without discussion whether BAPCPA disrupted that logic.56 Then there are a few self-described “intermediate approach” courts that acknowledge BAPCPA changed the content of good-faith analysis under § 1325(a)(3), but these courts cling to bits and pieces of the economic analysis that other courts either reject entirely or embrace in full.57

[21]

There are a fair number of post-BAPCPA good-faith cases that are “mainstream” in the sense that the opinions reveal judges convinced that the debtors are manipulating, abusing or just unworthy of Chapter 13 relief—without specific regard to any reconfiguration of good faith or of projected disposable income by BAPCPA.58 These cases demonstrate that the “smell test” for good faith that evolved in the pre-BAPCPA world59 has continuing vitality in the post-BAPCPA good-faith decisions.

[22]

You might say that the post-BAPCPA good-faith cases are a testament that no matter how tightly Congress constructs the tests for the economic effort that Chapter 13 debtors must make toward unsecured creditors, bankruptcy courts will find in “good faith” an excuse to substitute a different set of metrics.


 

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

 

2  Pub. L. No. 109-8, 119 Stat. 23 (2005).

 

3  See discussion of projected disposable income test beginning at § 91.1  In General.

 

4  Detailed in § 92.1  In General. BAPCPA modified the projected disposable income test in § 1325(b) to clarify that, upon proper objection, all projected disposable income must be committed to the payment of unsecured creditors. Prior to BAPCPA, there was confusion whether the test in § 1325(b) measured the income and expenses of Chapter 13 debtors to determine the degree of effort with respect to all creditors or just unsecured creditors. See discussion beginning at § 91.1  In General.

 

5  See § 496.1 [ Good-Faith Filing Requirement ] § 110.1  Good-Faith Filing Requirement after BAPCPA.

 

6  See discussion of good faith as cause for conversion or dismissal in §§ 312.1 [ Cause for Conversion ] § 141.3  Cause for Conversion, 333.1 [ Cause for Dismissal—In General ] § 152.2  Cause for Dismissal—In General 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.

 

7  See discussion of good faith beginning at § 103.1  In General.

 

8  See discussion of projected disposable income test beginning at § 92.1  In General.

 

9  See § 469.1 [ Comparison of CMI to Applicable Median Family Income: § 1325(b)(3) ] § 92.4  Household Size and Comparison of CMI to Median Family Income: § 1325(b)(3).

 

10  See discussion beginning at § 92.1  In General.

 

11  See below in this section.

 

12  See discussion of current monthly income in § 92.3  Current Monthly Income: The Baseline.

 

13  545 F.3d 652 (8th Cir. Oct. 27, 2008) (Wollman, Beam, Riley). See discussion of current monthly income in § 92.3  Current Monthly Income: The Baseline.

 

14  See, e.g., In re Cordle, No. 08-82332-TLS, 2009 WL 762184, at *2 (Bankr. D. Neb. Mar. 19, 2009) (Saladino) (Paying in full creditors secured by motorboat and travel trailer and little to unsecured creditors violates good-faith test in § 1325(a)(3) as interpreted in Handeen v. LeMaire (In re LeMaire), 898 F.2d 1346 (8th Cir. Mar. 26, 1990) (Lay, McMillian, Arnold, Gibson, Fagg, Bowman, Wollman, Magill, Beam), and violates “starting point” disposable income calculation adopted in Coop v. Frederickson (In re Frederickson), 545 F.3d 652 (8th Cir. Oct. 27, 2008) (Wollman, Beam, Riley).).

 

15  See, e.g., In re Varner, 08-20806-TLM, 2009 WL 1468707 (Bankr. D. Idaho May 22, 2009) (Myers) (Further hearing necessary to determine good faith when plan satisfies disposable income test but because of surrendered collateral, there is income available to pay unsecured creditors.); In re Kenney, 399 B.R. 516 (Bankr. N.D. Okla. Dec. 22, 2008) (Michael) (When debtors modify plan before confirmation to surrender home and reduce plan payment, higher amounts paid to trustee consistent with original plan are disposable income that must be paid to unsecured creditors to satisfy good-faith test in § 1325(a)(3).). But see In re Hoskings, No. 07-13785-RGM, 2008 WL 2235350, at *6 (Bankr. E.D. Va. May 29, 2008) (unpublished) (Mayer) (Not bad faith that debtor deducted payments on surrendered property to calculate projected disposable income. “‘If the sole objection to the debtor’s good faith is that the debtor proposes to pay the amount Congress requires by the mathematical formula, the debtor has complied with the good faith requirement.’” In re Winokur, 364 B.R. 204, 206 (Bankr. E.D. Va. Jan. 18, 2007) (Mayer).); In re Burmeister, 378 B.R. 227, 232 (Bankr. N.D. Ill. Nov. 16, 2007) (Goldgar) (Good-faith objection is not appropriate challenge to calculation of disposable income when debtors take secured debt deduction for mortgage on real property surrendered through plan. “Because the [good-faith] argument is premised on the notion that the Burmeisters have miscalculated their disposable income and there is no miscalculation, there is nothing to the argument. . . . Lack of good faith is not a proper basis for objecting to a miscalculation of disposable income. ‘Disposable income is “determined under section 1325(b) rather than as an element of good faith under section 1325(a)(3).”’”).

 

16  See, e.g., In re Baughman, No. 07-63208, 2008 WL 4487879, at *5–*7 (Bankr. N.D. Ohio Sept. 30, 2008) (unpublished) (Kendig) (Plan satisfies disposable income test that allows Local Standards Transportation Ownership deduction for unencumbered car and for car with payment less than amount allowed by IRS; however, plan fails good-faith test because transportation expenses not immediately committed must be saved or otherwise accounted for “in good faith.” “[M]ore than merely permitting the deduction is necessary . . . to reflect the reality that a car without payments is likely to be an aging vehicle that will need replacement within five years. . . . The purpose, not just the dollar value, is part of the statutory prescription. . . . Debtors’ plan is not proposed in good faith; when Congress allowed debtors to shelter money from creditors for the costs of owning a motor vehicle, they meant that money to be used for the costs of owning a motor vehicle, or for debtors to specifically justify the good faith of their actions. Debtors may propose a plan that provides for saving the money above their actual currently [sic] monthly ownership expense but below the level of the allowable deduction, earmarked for the future payment of vehicle ownership expenses . . . . There are other uses, such as specific unique problems, not accounted for in rigid tests, that could also qualify. The use of these unappropriated funds must meet a searching and particularized good faith examination. . . . This plan does not spend for the allowed purpose, nor does it save, nor does it explain where the difference will go, however, and it therefore cannot be confirmed.”); In re Briscoe, 374 B.R. 1, 20–23 (Bankr. D.D.C. Sept. 4, 2007) (Teel) (Plan that satisfies disposable income test can still fail good-faith test in § 1325(a)(3) when use of allowable expenses demonstrates a lack of good faith. “The means test now incorporated into the ‘projected disposable income’ requirement accomplishes Congress’ goal of removing discretion from the judiciary . . . . Unfortunately, it also introduces a new means for abuse of the system, as opportunistic debtors may be able to claim expenses under the Local or National Standards that they do not actually have. . . . The § 1325(b)(3) calculation of disposable income is but a mechanical test for determining that the debtor is proceeding reasonably, but it does not purport to cover all instances of bad faith that may arise from the debtor’s actual financial circumstances. . . . [T]here may be times when a debtor commits so little income to creditors, relative to his true ability (for example, as a result of a windfall) to make payment to them based on his actual expenses, that his proffered plan suggests a subjective intent not to make a good faith effort at repayment at all. . . . It would require . . . a serious discrepancy between the debtor’s actual monthly disposable income and the disposable income to be committed to unsecured creditors pursuant to § 1325(b).” Difference between Local Standards housing allowance of $1,012 and actual monthly rent of $446 does not indicate lack of good faith when plan commits $260 per month to unsecured creditors and debtor actually receives only $264 of monthly disposable income.). But see In re Owsley, 384 B.R. 739, 750 (Bankr. N.D. Tex. Mar. 31, 2008) (Nelms) (Local Standards deduction for ownership of two cars is not bad faith notwithstanding that allowance is greater than actual ownership expense. “[B]ecause this court reads section 707(b)(2)(A)(ii)(I) to authorize debtors to take the standard deduction even if they exceed the ‘amount actually paid,’ it can only conclude that Congress intended that result.”); In re Farrar-Johnson, 353 B.R. 224, 231–32 (Bankr. N.D. Ill. Sept. 15, 2006) (Goldgar) (Good-faith test in § 1325(a)(3) is not an economic measure that substitutes for disposable income test when debtor claims housing deduction under Local Standards but does not actually pay for housing. “This kind of good faith objection to a debtors’ disposable income has had little or no potency since the 1984 amendments to the Code. . . . If the reasonable necessity of a debtor’s expenses is no longer relevant, then plainly the debtor’s ‘good faith’ in claiming them cannot be relevant. Disposable income is ‘determined under section 1325(b) rather than as an element of good faith under section 1325(a)(3).’ . . . The disposable income a debtor decides to commit to his plan is not the measure of his good faith in proposing the plan.”).

 

17  See § 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues.

 

18  See § 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues.

 

19  420 B.R. 102 (Bankr. W.D.N.Y. Dec. 30, 2009) (Bucki).

 

20  See § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation.

 

21  See 11 U.S.C. § 707(b)(2)(A)(iii), discussed in § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1  Average Monthly Payments on Account of Secured Debts.

 

22  420 B.R. at 105. Accord In re Lilienthal, No. 09-80928-TLS, 2009 WL 3103735 (Bankr. D. Neb. Sept. 23, 2009) (Saladino) (Citing Coop v. Frederickson (In re Frederickson), 545 F.3d 652 (8th Cir. Oct. 27, 2008) (Wollman, Beam, Riley), for “reality-based determination” of how much Chapter 13 debtor can pay, further hearing necessary to determine whether it is good faith to retain camper and boat that reduce distributions to unsecureds by $15,000.); In re Gibson, No. 09-01196-JDP, 2009 WL 2868445, at *3 (Bankr. D. Idaho Aug. 31, 2009) (Pappas) (Contributions to 401(k) plan that began just prior to Chapter 13 filing are excluded from disposable income but may evidence bad faith if disproportionate to payments to unsecured creditors. “[A] debtor may not completely shelter available resources in a retirement plan at the expense of his creditors. . . . Reasonable, measured planning for retirement is responsible and should be encouraged provided the amount of plan contributions are [sic] balanced and proportionate to amounts being paid on debt.”); In re Cordle, No. 08-82332-TLS, 2009 WL 762184 (Bankr. D. Neb. Mar. 19, 2009) (Saladino) (Expense amounts allowable for a boat and travel trailer used for recreation are not reasonably necessary and violate good-faith test in § 1325(a)(3).); In re Styles, 397 B.R. 771, 774–75 (Bankr. W.D. Va. Nov. 21, 2008) (Krumm) (Although unmarried debtor with no dependents and CMI greater than applicable median family income is entitled to ownership and operating expenses for two cars for purposes of disposable income test, good-faith review based on totality of circumstances applies to “nonessential assets” and requires debtor to demonstrate that unsecured creditors are not injured by allowed expense deductions. “Debtor’s plan may include nonessential assets and as such is subject to review for good faith. . . . ‘[N]onessential assets’ [include] a recreational boat or ‘an extra nonessential vehicle.’ . . . ‘Notwithstanding the fact that the Debtors are entitled to account for [the nonessential assets] when calculating their disposable income under the means test[,] confirmation of a plan proposing to retain [the nonessential asset] is subject to the good faith test under 11 U.S.C. § 1325(a)(3).’ . . . [T]o achieve confirmation of the plan with the [nonessential] assets in it the debtor would have to ‘demonstrate that unsecured creditors are better off than they would be if the asset is excluded and the monthly payments on the secured debt are added into a monthly plan payment.’”). But see In re Wick, 421 B.R. 206, 215–16 (Bankr. D. Md. Jan. 5, 2010) (Keir) (Not bad faith that projected disposable income calculation allows debtor to deduct an objectively unreasonable mortgage payment when no other facts suggest fault by debtor. Debtor with monthly net income of $8,756 deducted first mortgage of $4,857 to arrive at projected disposable income. Plan proposed to pay 15% of unsecured claims. Applying Deans v. O’Donnell, 692 F.2d 968 (4th Cir. Sept. 23, 1982) (Winter, Phillips, Murnaghan), and Neufeld v. Freeman, 794 F.2d 149 (4th Cir. June 18, 1986) (Phillips, Sneeden, Sentelle): “The percentage of proposed repayment is not minimal. . . . The duration of the plan is for the maximum permitted by the statute. . . . The real focus is on the Debtor’s prepetition conduct in entering into the mortgage debt which put such a heavy burden upon the disposable income. . . . Debtor did not intentionally create the financial situation now presented. At a time when the real estate market was extremely strong Debtor decided to relocate her family’s residence and apparently ‘trade up’ by some amount the size and value of the residence. . . . After incurring the new mortgage . . . the market literally crashed before Debtor could sell the Former Home. This saddled Debtor with two mortgages which Debtor ultimately could not sustain. . . . It therefore appears unsupportable that where no other facts support a lack of good faith, the seeming disproportionate result of the calculation of disposable income by itself would provide a basis to find that the Chapter 13 plan is not proposed in good faith. . . . It is true that some courts nonetheless have imposed a further test of ‘reasonably necessary’ upon expenses of an above median income debtor even though those expenses are expressly allowed as part of the determination of disposable income under Section 1325(b) referring to Section 707(b)(2)(A) and (B). However, in the absence of facts demonstrating that projected disposable income will be actually significantly different than the formula derived disposable income, it appears Congress intends that the formula meets the requirement of Section 1325(b)(1)(B). A plan that proposes to pay at least the projected disposable income of debtor, in the absence of other facts, cannot be found to be in bad faith, simply because it does not pay more.”); In re Owsley, 384 B.R. 739, 750 (Bankr. N.D. Tex. Mar. 31, 2008) (Nelms) (“It seems fundamentally inconsistent to characterize an expense amount as reasonably necessary in section 1325(b)(3), yet conclude under section 1325(a)(3) that it is bad faith for the debtor to claim it. . . . [E]xpenses deemed to be ‘reasonably necessary’ under subsection (b)(3) are presumed to be asserted in good faith under subsection (a)(3). The presumption of good faith can be negated by aggravating circumstances, an example of which might be a debtor’s deduction of an ownership expense for a luxury vehicle purchased on the eve of bankruptcy.”); In re Franco, No. 07-30741, 2008 WL 444679, at *2 (Bankr. S.D. Ill. Feb. 12, 2008) (unpublished) (Meyers) (Good-faith analysis under § 1325(a)(3) does not intrude on deduction of secured debt for three encumbered cars under § 707(b)(2)(A)(iii) for a Chapter 13 debtor with CMI greater than applicable median family income absent evidence other than lack of necessity of the collateral. “[In re Sallee, No. 07-30776, 2007 WL 3407738 (Bankr. S.D. Ill. Nov. 15, 2007) (unpublished) (Meyers),] did not foreclose a court’s ability to examine a debtor’s expenses under the good faith standards of 11 U.S.C. §§ 1325(a)(3) and (7). . . . [T]hese standards still apply after enactment of BAPCPA and allow it ‘to review the debtors’ plan and petition to determine if they are fundamentally fair to creditors and comply with the spirit of the Bankruptcy Code.’ . . . Nonetheless, given Congress’ supplanting of the Court’s role of making a subjective analysis of ‘reasonably necessary’ by virtue of its enactment of § 707(b)(2)(A)(iii)(I), a good faith determination cannot depend solely upon an examination of whether the expense is reasonable and/or necessary. . . . [T]he trustee . . . has provided the Court with no facts that would support a finding of lack of good faith other than his reliance on the number of vehicles owned by the debtors and his argument that such a number is unreasonable and unnecessary for these debtors. . . . [I]n a post-BAPCPA world, since the secured expenses for the instant debtors’ three vehicles can be deducted under § 707(b)(2)(A)(iii)(I), the trustee must challenge them on some basis other than lack of necessity.”).

 

23  See § 163.1 [ In General ] § 91.1  In General.

 

24  See discussion of best-interests-of-creditors test beginning at § 90.1  In General: Plan Payments vs. Hypothetical Liquidation.

 

25  574 F.3d 349 (7th Cir. July 20, 2009) (Posner, Sykes, Van Bokkelen).

 

26  574 F.3d at 356. Accord In re Kalata, No. 07-21710, 2008 WL 552856, at *6 (Bankr. E.D. Wis. Feb. 27, 2008) (unpublished) (McGarity) (Although debtor with CMI greater than applicable median family income cannot deduct secured debt when plan proposes to surrender collateral, it is not bad faith for debtor to propose that plan. “The debtor’s attempt to obtain the results offered by law, as opposed to manipulation of his circumstances to the unfair or wrongful detriment of creditors, are [sic] not the kind of bad faith contemplated by 11 U.S.C. § 1325(a)(3). . . . [W]ithout such manipulation, any objection to the sufficiency of the debtor’s chapter 13 plan payments had to be under the specific code provision applicable to the payment calculation, not the catch-all good faith provision.”).

 

27  See below in this section.

 

28  See In re Heal, No. 09-13026, 2010 WL 55895, at *1 (Bankr. N.D. Cal. Jan. 4, 2010) (Jaroslovsky) (In a Chapter 13 case that “test[s] the limits of the majority decision in [Maney v. Kagenveama (In re Kagenveama), 541 F.3d 868 (9th Cir. June 23, 2008) (Pregerson, Siler, Bea)],” good faith precludes confirmation of eight-month plan that pays unsecured creditors nothing, pays attorney fees and strips off (without payment) a wholly unsecured junior mortgage. “[A]t some point simple principles of good faith limit [Kagenveama’s] application. . . . [T]he debtors have not met the good faith requirement of § 1325(a)(3) because their plan is so short and because it accomplishes nothing other than something forbidden in Chapter 7; while either factor alone might not result in denial of confirmation, the two factors together render the plan unconfirmable.”); In re Villca, No. 09-16569-SSM, 2009 WL 3754737 (Bankr. E.D. Va. Nov. 5, 2009) (Mitchell) (Thirty-six-month plan that strips off second mortgage fails good-faith test unless debtors extend payments to five years. Debtors with CMI greater than applicable median family income had negative disposable income on Form B22C and proposed plan paying trustee $110 per month for 36 months. Separate adversary proceeding would strip off a wholly unsecured second deed of trust. Although use of Chapter 13 to strip off second mortgage—relief not available in Chapter 7—standing alone does not constitute bad faith, applying totality-of-circumstances test, plan was not proposed in good faith unless debtor agreed to extend plan to five years.).

 

29  See, e.g., In re Heal, No. 09-13026, 2010 WL 55895 (Bankr. N.D. Cal. Jan. 4, 2010) (Jaroslovsky) (Plan that pays attorney fees and nothing to unsecured creditors in eight months fails good-faith requirement in § 1325(a)(3) notwithstanding that plan satisfies § 1325(b).); In re Villca, No. 09-16569-SSM, 2009 WL 3754737, at *3 (Bankr. E.D. Va. Nov. 5, 2009) (Mitchell) (Thirty-six-month plan that pays unsecured creditors less than amount of attorney fees fails good-faith test unless debtors extend payments to five years. Debtors with CMI greater than applicable median family income had negative disposable income on Form B22C. “[A] plan does not lack good faith simply because the debtors are paying their attorney more than they are paying their creditors. On the other hand, the disproportion does raise the question of why . . . these above-median income debtors have chosen to make payments only over three years. . . . [A]lthough the court does not find that either the ratio of the attorneys fees to the plan payment or the use of chapter 13 to obtain relief not available in chapter 7, standing alone, constitutes bad faith, they are appropriate factors to be considered in applying the totality of the circumstances test. Coupled as they are here, with a minimal, even meaningless dividend on unsecured claims, and a plan period that is less than the statutory commitment period, the court cannot find that the plan is proposed in good faith unless the debtors agree to extend the plan period to five years.”); In re Paley, 390 B.R. 53, 58–60 (Bankr. N.D.N.Y. June 3, 2008) (Littlefield) (Short-duration Chapter 13 plans that pay attorney fees and nothing to unsecured creditors fail good-faith analysis notwithstanding satisfaction of § 1325(b). Consolidated debtors proposed 9-month and 12-month plans that paid attorney fees and trustee commissions but nothing to unsecured creditors. Debtors had CMI less than applicable median family income. “BAPCPA has not ended the good faith/projected disposable income analysis. . . . Congress did not intend to abrogate the good faith requirement of § 1325(a)(3) . . . . Satisfaction of § 1325(b) does not displace the good faith analysis required under § 1325(a)(3). . . . A plan whose duration is tied only to payment of attorney’s fees simply is an abuse of the provisions, purpose, and spirit of the Bankruptcy Code. These cases, basically Chapter 7 cases hidden within Chapter 13 petitions, blur the distinction between the chapters into a meaningless haze. To allow them to go forward would, in effect, judicially invalidate § 727(a)(8).”).

 

30  See § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1  Average Monthly Payments on Account of Secured Debts. See, e.g., In re Lilienthal, No. 09-80928-TLS, 2009 WL 3103735 (Bankr. D. Neb. Sept. 23, 2009) (Saladino) (Further hearing necessary to determine whether it is good faith for debtors to retain a camper and boat.); In re Cordle, No. 08-82332-TLS, 2009 WL 762184 (Bankr. D. Neb. Mar. 19, 2009) (Saladino) (Paying $31,000 to creditors secured by motorboat and travel trailer while paying little to unsecured creditors violates good-faith test in § 1325(a)(3).); In re Alston, No. 07-02100-5-ATS, 2008 WL 3981811 (Bankr. E.D.N.C. Aug. 22, 2008) (unpublished) (Small) (Plan fails good-faith requirement in § 1325(a)(3) when unsecured creditors will receive nothing and debtor is keeping an expensive car.); In re Owsley, 384 B.R. 739, 750 (Bankr. N.D. Tex. Mar. 31, 2008) (Nelms) (Debtors failed to carry burden to prove good faith when creditor challenged expense deductions for two cars; court gives “luxury vehicle purchased on the eve of bankruptcy” as example of evidence that would overcome presumption of good faith with respect to expense deductions allowed by § 1325(b).); In re Allawas, No. 07-06058-HB, 2008 WL 6069662, at *4 (Bankr. D.S.C. Mar. 3, 2008) (unpublished) (Burris) (Debtor failed to prove that plan was proposed in good faith when debtor proposed to retain unnecessary vehicle and pay little to unsecured creditors over five years. “Debtor argues that nothing is due from her to general unsecured creditors under the disposable income test of § 1325(b)(1), so any payment to such creditors is a sign of good faith. The Court disagrees. The Debtor proposes only a 1% repayment to general unsecured creditors over five years, and stretches payments to other creditors over a five-year period as well even though she has the actual ability to pay more quickly, so that she can retain and pay for a luxury item. Any points the Debtor gains for her voluntary repayment are countered by the lengthy repayment period and minimal amount.”); In re Hylton, 374 B.R. 579, 586 & n.8 (Bankr. W.D. Va. Aug. 22, 2007) (Krumm) (Although debtors are entitled by § 707(b)(2)(A)(iii) to deduct average monthly payments secured by a luxury boat, those deductions are subject to good-faith analysis. “Notwithstanding the fact that the Debtors are entitled to account for the boat payments when calculating their disposable income under the means test, confirmation of a plan proposing to retain the boat is subject to the good-faith test under 11 U.S.C. § 1325(a)(3). . . . While an above-median debtor who proposes to retain a nonessential or luxury asset may not be doing so at the expense of unsecured creditors post-BAPCPA, because the return to general unsecured creditors under a Chapter 13 plan is guided by the means test, such a conclusion does not make this court any less mindful of the fact that ‘the good faith inquiry is intended to prevent abuse of the provisions, purpose, or spirit of Chapter 13.’ . . . Debtors’ proposal to retain their boat, which is used solely for recreational purposes, is subject to the Bankruptcy Code’s good faith test.” In a note: “To achieve confirmation with the asset included in the plan, the Debtors will have to demonstrate that unsecured creditors are better off than they would be if the asset is excluded and the monthly payments on the secured debt are added into a monthly plan payment.”); In re Martin, 373 B.R. 731, 735–36 (Bankr. D. Utah May 8, 2007) (Thurman) (Although secured debt deduction of $21,350 for luxury ski boat is permitted by § 707(b)(2)(A), it is indicative of lack of good faith under § 1325(a)(3). Citing factors from Flygare v. Boulden (In re Flygare), 709 F.2d 1344 (10th Cir. June 1, 1983) (Holloway, McKay, Seymour): “The Debtors’ intention to retain their Ski Boat raises particular good faith concerns . . . . It seems fundamentally inappropriate that a debtor might file for bankruptcy relief and obtain a discharge while still enjoying a luxury item such as a recreational ski boat and trailer. . . . Simply because an item is an allowable expense on Form B22C does not shelter it from scrutiny under the Court’s good faith analysis. . . . [G]ood faith is distinct and independent from the requirements of § 1325(b).”). See also In re Shafer, 393 B.R. 655, 663, 661 (Bankr. W.D. Wis. June 9, 2008) (Martin) (BAPCPA’s amended definition of disposable income does not alter application of totality of circumstances test to determine good faith in filing petition and proposing plan. “No single circumstance is dispositive, but together, they indicate that the debtors fail the [totality-of-circumstances] test. These debtors are not trying to pay creditors; they are trying to avoid paying them.” Decision of district court in Mancl v. Chatterton (In re Mancl), 381 B.R. 537 (W.D. Wis. Feb. 12, 2008) (Crabb), “that the sufficiency of assets contributed to the plan has no bearing on the issue of good faith, so long as the payments have been properly calculated, and the payments are not artificially low because of prepetition misconduct[,]” is not controlling on issue of bad faith when it is “alleged that the debtors have inflated their expenses, live extravagant lifestyles, and voluntarily dismissed their [prior] case and refiled in order to avoid the repayment of $40,000 in preferences.”).

 

31  See §§ 493.1 [ Applicable Commitment Period Calculation ] § 100.1  Applicable Commitment Period Calculation and 500.1 [ Length of Plan ] § 112.2  Length of Plan after BAPCPA.

 

32  See, e.g., In re Heal, No. 09-13026, 2010 WL 55895 (Bankr. N.D. Cal. Jan. 4, 2010) (Jaroslovsky) (Eight-month plan that pays unsecured creditors nothing “tests the limits” of both projected disposable income test and good-faith analysis.); In re Sanchez, 394 B.R. 574 (Bankr. D. Colo. Sept. 12, 2008) (Brooks) (Thirty-six-month plan fails good-faith analysis when debtor with CMI greater than applicable median family income has negative disposable income on Form B22C and 36-month plan would not pay creditors in full; applicable commitment period for a debtor with CMI greater than applicable median family income is 60 months, and a 60-month plan must be proposed to satisfy good-faith requirement.); In re Paley, 390 B.R. 53 (Bankr. N.D.N.Y. June 3, 2008) (Littlefield) (Nine-month and 12-month plans that pay attorney fees but nothing to unsecured creditors fail good-faith analysis notwithstanding satisfaction of projected disposable income test in § 1325(b).). See also In re Simpson, No. 08-21251, 2008 WL 2705606, at *4–*5 (Bankr. E.D. Wis. July 3, 2008) (unpublished) (McGarity) (Sixty-month plan that commits one-half of future tax refunds for only first 36 months lacks good faith. “[T]his debtor wishes to pay one half of her tax refunds into the plan for three years, but to retain all refunds for the remaining two years of the proposed plan. . . . [S]he wishes to retain the protections of chapter 13 longer than would be required, while also retaining more than her disposable income, without a showing that circumstances necessitate such a change or provision. In essence, she is using the bankruptcy law to pay all she can for three years, but after that, she is proposing an initial plan that on its face is stating that she is not going to pay all she can, even though she enjoys the benefits of chapter 13. I believe this is a misuse of chapter 13, and does not constitute good faith in proposing the plan[.]”).

 

33  See In re Marti, 393 B.R. 697, 700–01 (Bankr. D. Neb. Aug. 4, 2008) (Saladino) (Physician with no income during six months before petition and income of $18,333.33 per month after petition has no CMI and no projected disposable income but lacks good faith under § 1325(a)(3) and (7) when plan pays unsecured creditors only $12,700. “[B]ased on [Educational Assistance Corp. v. Zellner, 827 F.2d 1222 (8th Cir. Sept. 3, 1987) (Arnold, Gibson, Wright),] and subsequent cases from the Eighth Circuit, this Court has determined that ‘[a] debtor does not fail the good faith test simply because of the ability to pay more than the means test result. There must be something else to trigger a lack of good faith in proposing a plan.’ . . . [T]his case has that ‘something else’—in this situation the means test is meaningless. . . . [T]he ‘current monthly income’ numbers used in the means test do not even reflect income. Debtor had no income prior to filing. This is an unusual situation where Debtor went from no income prior to filing to substantial income immediately after filing. . . . ‘Outside the box’ is certainly an apt description for this case. . . . For purposes of determining whether the plan was proposed in good faith under § 1325(a)(3), this Court cannot merely defer to established precedent which says ability-to-pay factors should not be taken into account because they are subsumed into other sections of § 1325 (the means test). Instead, the totality-of-circumstances consideration, which does remain a part of the § 1325(a)(3) analysis, reveals that the means test calculation is meaningless under the present circumstances. Further, § 1325(a)(7) seems to reinforce the need to consider unique situations using a totality-of-circumstances approach. . . . [D]espite the results of the means test, this Debtor has substantial income and has the ability to pay all creditors in full. The timing of the filing of this bankruptcy case and the plan proposed by Debtor indicate that Debtor’s intent is to take advantage of what he perceives as a ‘loophole’ in the calculation of his current monthly income. . . . Debtor’s bankruptcy filing and plan appear to be an attempt to unfairly manipulate the Bankruptcy Code and do not represent a good faith effort to pay creditors. . . . Debtor has failed to meet the good faith requirements of 11 U.S.C. § 1325(a)(3) and (7).”).

 

34  See, e.g., In re Delp, No. 08-31466, 2009 WL 322227, at *3 (Bankr. S.D. Ill. Feb. 9, 2009) (Pepper) (When Schedules I and J show monthly net income of $1,492.43 and Form B22C shows negative disposable income, it is bad faith for debtors to amend plan to reduce monthly payment from $1,492 to $1,020 when only explanation for reduction is that counsel “forgot” decision in the district that calculated projected disposable income based on Form B22C. “[T]he debtors have demonstrated that they have the ability to make plan payments of $1,492 per month. They now propose to make plan payments that amount to some $472 per month less than that—not because their income has decreased, not because their debts have increased, but because at the time they proposed the $1,492 payments, they ‘forgot’ that there was a court decision which, if followed, would allow them to pay less. . . . [T]he debtors’ proposal to make smaller plan payments than they are capable of making does not indicate a fundamental fairness in dealing with their creditors.”); In re Kenney, 399 B.R. 516 (Bankr. N.D. Okla. Dec. 22, 2008) (Michael) (Amended plan was not filed in good faith when seven months after the petition but before confirmation, debtors determined to surrender home and proposed to reduce the payment in modified plan by amounts paid to the trustee under the original plan that included the home mortgage.).

 

35  See § 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline.

 

36  11 U.S.C. § 101(10A)(B), discussed in § 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline.

 

37  See § 467.1 [ Projected Disposable Income: All Debtors ] § 92.2  Projected Disposable Income: All Debtors.

 

38  See In re Upton, 363 B.R. 528, 536 (Bankr. S.D. Ohio Mar. 14, 2007) (Preston) (Notwithstanding that Social Security benefits are excluded from CMI by § 101(10A) and are not considered in the projected disposable income calculation in § 1325(b), good faith in the Sixth Circuit includes consideration of proposed payments in light of debtor’s surplus income; debtor with Social Security benefits can fail good-faith analysis when effect of SSI is surplus income that is not committed to paying unsecured creditors. “Congress . . . did not amend the requirement of good faith contained in § 1325, or the elements to be considered in that analysis.”).

 

39  See In re Barfknecht, 378 B.R. 154, 164–65 (Bankr. W.D. Tex. Nov. 7, 2007) (Clark, L.) (Applying totality-of-circumstances test, failure to commit Social Security benefits to funding plan is not lack of good faith. “The trustee here has not directed the court to any peculiar circumstances in either of these cases demonstrating a lack of good faith. The trustee points only to the issue of the Debtors’ retention of some or all of their Social Security benefits. . . . [T]he enactment of BAPCPA calls into doubt whether a debtor’s retention of Social Security benefits may ever be a factor to consider under the good faith standard. . . . The Bankruptcy Code specifically states that Social Security benefits are excluded as income of the debtor for purposes of satisfying the debtor’s ability to pay test. The good faith test in section 1325(a)(3) serves a salutary purpose to be sure—cutting off abuse. But it strikes this court at least as an odd reading of the Code indeed to conclude that a debtor’s following the Code, without more, could constitute abuse of the bankruptcy process. . . . As there is no other evidence indicating that the Debtors’ plans have not been proposed in good faith, and the Debtors otherwise have been honest and forthcoming with the court, this court concludes that the plans have been proposed in good faith.”).

 

40  See In re Ward, 359 B.R. 741, 745 (Bankr. W.D. Mo. Jan. 7, 2007) (Federman) (Although Social Security income is not included in projected disposable income because of the exclusion from CMI in § 101(10A), Chapter 13 debtor is still required to propose a plan in good faith, and in the Eighth Circuit “a good faith determination under § 1325[(a)](3) requires the court to consider, among other things, whether the debtor has unfairly manipulated the Code.” Because the trustee did not raise good-faith objection to confirmation, bankruptcy court does not decide whether exclusion of Social Security income is bad faith.).

 

41  See 11 U.S.C. § 541(b)(7), discussed in § 403.1 [ Property of the Chapter 13 Estate—New Ins and Outs ] § 46.2  Property of the Chapter 13 Estate—Changes by BAPCPA.

 

42  11 U.S.C. § 541(b)(7)(A)(i), discussed in § 492.1 [ Employee Benefit Plan Contributions ] § 99.5  Employee Benefit Plan Contributions.

 

43  No. 09-01196-JDP, 2009 WL 2868445 (Bankr. D. Idaho Aug. 31, 2009) (Pappas).

 

44  2009 WL 2868445, at *3.

 

45  370 B.R. 861 (Bankr. N.D. Ga. June 11, 2007) (Murphy).

 

46  370 B.R. at 867–69 (“BAPCPA expressly limited the application of § 541(b)(7) to one particular paragraph, § 1325(b)(2). Section 1325(b)(2) is also limited to a specific application: ‘[f]or purposes of this subsection.’ Had Congress sought to soften the good faith requirement, a statement to that effect is conspicuously absent. . . . Good faith has no role in assessing whether the amount of income paid into the plan is sufficient . . . but good faith and the remaining [Kitchens v. Georgia Railroad Bank & Trust Co. (In re Kitchens), 702 F.2d 885 (11th Cir. Mar. 29, 1983) (Tjoflat, Clark, Miller),] factors remain relevant to confirmability of a plan. . . . Even if disposable income is not considered, the degree of effort a debtor will expend in completing the plan remains a factor in determining good faith. . . . Debtor proposes a zero percent dividend . . . and a contribution of $655 a month to his retirement plan. The proposed plan would permit Debtor . . . to shelter $39,300 in his retirement account . . . pay nothing to unsecured creditors . . . . Such a grossly disproportionate plan invites scrutiny. Debtor is under no legal or practical compulsion to pay $655 a month to his retirement account. The record is inconclusive as to whether debtor made a similar retirement contribution pre-petition. . . . [F]oregoing or substantially reducing retirement contributions for the length of the plan is unlikely to unreasonably impair Debtor’s ability to obtain his fresh start. . . . Achieving an appropriate balance between payment of unsecured creditors and saving retirement funds is the natural end of viewing the totality of Debtor’s circumstances. . . . Full and complete disclosure of financial circumstances is required to obtain the privilege of discharging debt through confirmation of a Chapter 13 plan; accordingly, Debtor will be given that opportunity.”).

 

47  390 B.R. 11 (Bankr. D. Mass. June 9, 2008) (Feeney).

 

48  390 B.R. at 17–18 (“[T]he Debtor’s 401(k) contributions do not evidence bad faith under the totality of the circumstances in this case. The Debtor is merely taking advantage of what the law allows. . . . Congress has implemented a policy of protecting and encouraging retirement savings. . . . BAPCPA’s amendments to section 1325(b) alter the good faith inquiry under section 1325(a)(3) by narrowing the scope of judicial discretion and excluding certain sources of income that do not need to be committed to Chapter 13 plans. In particular, debtors, pursuant to section 541(b)(7), may shelter contributions to certain qualified employee benefit plans. . . . In this case, the dividend to unsecured creditors most likely will be in excess of 50% . . . . [U]nder appropriate circumstances, particularly if the debtor’s contributions exceed those legally permitted, a good faith inquiry may be warranted. This is not such a case.”). See also In re Jones, No. 07-10902-13C, 2008 WL 4447041, at *4–*5 (Bankr. D. Kan. Sept. 26, 2008) (unpublished) (Somers) (Postpetition commencement of retirement contributions does not by itself establish a lack of good faith. Debtors originally filed Chapter 7 petition that was challenged as abusive under § 707(b). Debtors converted to Chapter 13 and at about the time of conversion, employer changed retirement plan to require contributions. Debtor commenced contributions somewhat less than maximum amount allowed. “The Court is not convinced the fact the Wife’s contributions started postpetition should control the good faith analysis here. . . . [M]oney an employer withholds from an employee’s wages to contribute to a retirement plan like the Wife’s is neither property of the bankruptcy estate nor disposable income in a Chapter 13 case. This Congressional protection for such contributions could be interpreted to mean a ‘good faith’ analysis of a debtor’s Chapter 13 plan can never rely on the fact the debtor is making such contributions to find a lack of good faith. . . . [T]he Court concludes the fact the Debtors are contributing to a retirement plan can be considered in analyzing their good faith in proposing their plan. Under these Debtors’ circumstances, the Court believes their commencement of retirement contributions does not show their plan was not proposed in good faith. Both Debtors are fast approaching retirement age, and also have medical conditions . . . . After the Debtors filed for bankruptcy, the Wife’s employer changed its retirement plan . . . . Although the Debtors began making the contributions while they were in bankruptcy, they are contributing only about one-half (or less) of the full amount the Wife could legally contribute to the plan. In other circumstances, a debtor who commences retirement contributions while in a bankruptcy case might be demonstrating a lack of good faith, but that is not so in this case.”); In re Anstett, 383 B.R. 380, 384–86 (Bankr. D.S.C. Feb. 8, 2008) (Duncan) (Although projected disposable income is negative amount after debtor is required to include funds that will become available when pension loans are repaid, confirmation is denied on good-faith ground when debtor declines to increase payments to unsecured creditors when pension loans are repaid. “Once the [pension] loan is repaid Debtor will have a greater amount of ‘projected disposable income.’ A revised calculation of § 1325(b)(2) disposable income . . . continues to result in a negative amount of disposable income. . . . This Court has the authority to make an independent review of the propriety of plan confirmation. Among the requirements for confirmation is that the plan be proposed in good faith. . . . Here Debtor proposes a one percent dividend . . . . He proposes to make plan payments for 60 months but will have paid one of his 401(k) loans after only twenty months. . . . Debtor is essentially repaying himself. . . . While Congress has expressed the public policy favoring continuation of debtor contributions to qualified retirement plans in bankruptcy and providing that loans from such plans may be repaid, this in no way supports Debtor’s proposal to repay the loan to his retirement plan and then use the funds for other living expenses. The strict mechanical application of § 1325(b)(1)(B) following computation of disposable income using artificial expenditures does not necessarily satisfy the requirement to propose a plan in good faith. . . . The completion of payments to the 401(k) plan does not simply free that money for discretionary application but should shift to creditors, at least in significant part, and result in repayment of the people Debtor owes. To propose nothing further to them, especially with an initial one percent dividend, is not a good faith effort.”).

 

49  See § 473.1 [ Accounting for Spouses ] § 94.3  Accounting for Spouses.

 

50  See §§ 164.1 [ Projected (Disposable) Income ] § 91.2  Projected (Disposable) Income and 165.1 [ Reasonably Necessary for Maintenance or Support ] § 91.3  Reasonably Necessary for Maintenance or Support.

 

51  389 B.R. 502 (Bankr. E.D. Tex. Apr. 4, 2008) (Parker).

 

52  389 B.R. at 511 (Although not appropriate to account for nonfiling spouse’s income as a single line item in Schedule I, when filing debtor’s income falls after petition and it is appropriate to use Schedules I and J rather than Form B22C to determine projected disposable income, good faith is satisfied when expenses are apportioned roughly in same ratio as filing and nonfiling spouses’ incomes. “[T]he Debtor has satisfactorily demonstrated that the bankruptcy estate has not assumed a disproportionate share of the reasonable family expenses in this case and the Trustee’s objection based upon a lack of good faith must be denied.”). See also § 473.1 [ Accounting for Spouses ] § 94.3  Accounting for Spouses.

 

53  No. 07-40280 JTL, 2007 WL 2986124 (Bankr. M.D. Ga. Oct. 9, 2007) (unpublished) (Laney).

 

54  341 B.R. 181 (Bankr. M.D.N.C. Apr. 5, 2006) (Stocks).

 

55  341 B.R. at 184–86. Accord In re Mancl, 381 B.R. 537, 542–43 (W.D. Wis. Feb. 2, 2008) (Crabb) (“[T]he prevailing rule of law since the initial adoption of § 1325(b) in 1984 is that the sufficiency of resources committed to unsecured creditors is governed by that more specific provision and is no longer a consideration in good faith analysis under § 1325(a)(3). . . . The 2005 BAPCPA amendments support this conclusion . . . . It is conceivable that debtors might fail the good faith test if they engaged in prepetition conduct for the purpose of manipulating the § 101(10A) calculation. For example, had debtors intentionally taken leaves from work to artificially depress their earnings in the six-month pre-petition period . . . . [T]he income of the debtors in this case was reduced in the pre-petition period because of unplanned misfortune. Debtors who suffer an unplanned loss of income that leads them to bankruptcy and who propose a plan committing assets to unsecured creditors in compliance with § 1325(b) have acted in good faith in proposing the plan.”); In re Wick, 421 B.R. 206, 216 (Bankr. D. Md. Jan. 5, 2010) (Keir) (“It therefore appears unsupportable that where no other facts support a lack of good faith, the seeming disproportionate result of the calculation of disposable income by itself would provide a basis to find that the Chapter 13 plan is not proposed in good faith. . . . It is true that some courts nonetheless have imposed a further test of ‘reasonably necessary’ upon expenses of an above median income debtor even though those expenses are expressly allowed as part of the determination of disposable income under Section 1325(b) referring to Section 707(b)(2)(A) and (B). However, in the absence of facts demonstrating that projected disposable income will be actually significantly different than the formula derived disposable income, it appears Congress intends that the formula meets the requirement of Section 1325(b)(1)(B). A plan that proposes to pay at least the projected disposable income of debtor, in the absence of other facts, cannot be found to be in bad faith, simply because it does not pay more.”); In re Soos, No. 13-09-10557 MA, 2009 WL 2913226, at *3 (Bankr. D.N.M. May 6, 2009) (McFeeley) (“‘It seems fundamentally inconsistent to characterize an expense amount as reasonably necessary in section 1325(b)(3), yet conclude under [§] 1325(a)(3) that it is bad faith for the debtor to claim it.’ Courts evaluating the good faith requirement of 11 U.S.C. § 1325(a)(3) have consistently held that a finding of bad faith cannot be based solely on the fact that the debtor’s plan proposes to pay only what is required under the Code, despite an apparent ability to pay more. . . . This is not to say that compliance with the requirements under 11 U.S.C. § 1325(b)(3), by definition, satisfies the good faith requirement under 11 U.S.C. § 1325(a)(3). . . . [E]xpenses taken in compliance with 11 U.S.C. § 1325(b) are presumed to be taken in good faith under 11 U.S.C. § 1325(a)(3), but . . . the ‘presumption of good faith can be negated by aggravating circumstances.’”); In re Stallings, No. 08-08973-8-ATS, 2009 WL 1241263 (Bankr. E.D.N.C. May 4, 2009) (Small) (It cannot be a lack of good faith that debtors listed their cars to maximize their expense deductions for purposes of the projected disposable income test and Official Form B22C.); In re Parker, No. 08-81819C-13D, 2009 WL 1147949, at *2 (Bankr. M.D.N.C. Apr. 28, 2009) (Stocks) (Rule announced in In re Barr, 341 B.R. 181 (Bankr. M.D.N.C. Apr. 5, 2006) (Stocks), extends to debtors with CMI less than applicable median family income: “[T]he issue of whether the debtor is committing sufficient income to the plan should be determined under section 1325(b) rather than as an element of good faith under section 1325(a)(3).”); In re Smith, No. 07-82462, 2009 WL 937144, at *3 (Bankr. C.D. Ill. Mar. 24, 2009) (unpublished) (Perkins) (When debtor with CMI greater than applicable median family income shows negative disposable income on Line 58 of Form B22C, good faith is not an obstacle to confirmation of plan that will pay approximately 8% to unsecured creditors with payments to unsecured creditors beginning around 37th month after confirmation. “Generally, the court may not use the good faith standard of Section 1325(a)(3) to require greater payments by an above-median debtor whose Schedule J shows excess available funds. . . . Since the DEBTORS’ Second Amended Plan will propose to pay unsecureds more than minimally required by Line 58 on Form 22C, it passes the ‘projected disposable income’ test of Section 1325(b)(1)(B). Having passed that hurdle, it does not run afoul of the good faith requirement merely because Schedule J shows available disposable income that is not being paid into the plan for a portion of the plan’s term. . . . It is common for secured claims, that are payable ahead of unsecured claims, to be paid inside the plan, in which case unsecured creditors may receive no distribution until the third, fourth, or even fifth year of the plan. A similar result occurs here, under the proposed Second Amended Plan, even though the DEBTORS are proposing to pay the two secured claims outside the plan. . . . [T]he proposed deferral of the plan payments does not result in unsecured creditors being treated worse than they have the right to demand. . . . [T]he deferral in commencement of the plan payments, which is not prohibited by any applicable statutory provision, does not rise to the level of a lack of good faith.”); In re Faison, 416 B.R. 227, 231–32 (Bankr. E.D. Va. Dec. 16, 2008) (Huennekens) (Not indicative of bad faith that debtor did what Congress mandated—listing expenses for monthly payments on account of secured debts and leaving no monthly disposable income for unsecured creditors. “The Court will not find that the Debtor acted not in good faith by doing what Congress has allowed in BAPCPA, even if the expenses taken result in a lower dividend to unsecured creditors than they would receive if the Debtor were forced to relinquish property that is worth far less than the debt securing it.”); In re Arrigo, 399 B.R. 700 (Bankr. D. Colo. Dec. 4, 2008) (Romero) (When plan satisfies § 1325(b), statements and schedules were accurate and decline in income rebuts trustee’s allegations of bad faith, plan is proposed in good faith and can be confirmed.); In re Smith, 401 B.R. 469 (Bankr. W.D. Wash. Nov. 14, 2008) (Snyder) (Applying Maney v. Kagenveama (In re Kagenveama), 541 F.3d 868 (9th Cir. June 23, 2008) (Pregerson, Siler, Bea), not bad faith to deduct secured debt payments with respect to two houses and a car that will be surrendered through the plan when only evidence of a lack of good faith is that plan satisfies minimum dividend required by projected disposable income test. “Although it is tempting to use a good faith analysis to alleviate what the Court believes to be an unfair result, the Court concludes that this would be an improper use of these Code provisions. The Debtors . . . have no disposable income based on the calculations set forth by the Code. There is no allegation of any misconduct on the part of the Debtors or of misrepresentations in their proposed Plan. Offering a Chapter 13 plan that proposes to pay only what is required by the Code should logically not be a violation of good faith. . . . The Court is not holding that a good faith analysis is no longer applicable to Chapter 13. Rather, the Court holds that it is not bad faith to propose a Chapter 13 plan that commits the least amount of income required by the Code. The Objecting Parties have not provided any evidence that would support a finding of lack of bad [sic] faith, other than it is ‘unfair’ or ‘unreasonable’ to allow the Debtors to deduct expenses on surrendered property.”), rev’d on other grounds, 418 B.R. 359 (B.A.P. 9th Cir. Oct. 5, 2009) (Montali, Jury, Hollowell); In re O’Connor, No. 08-60641-13, 2008 WL 4516374, at *18–*19 (Bankr. D. Mont. Sept. 30, 2008) (unpublished) (Kirscher) (When plan satisfies disposable income test and de minimis payment to unsecured creditors is only challenge to confirmation, plan cannot be rejected for lack of good faith under § 1325(a)(3). “[T]his Court concludes that post-BAPCPA, ‘[t]he disposable income a debtor decides to commit to his plan is not the measure of his good faith in proposing the plan’. . . . Since neither the record nor the Trustee’s objection identify [sic] any factor other than the amount of the plan payment to support a finding that the Debtors’ Plan fails to meet the good faith requirement, and there is no dispute that the Debtors properly computed the plan payment under the means test, the Court finds the Debtors’ Plan may not be denied confirmation based upon the good faith plan requirement of § 1325(a)(3). . . . [T]he failure to include the boat expense in Form [B]22C when paying a monthly plan payment greater than the monthly disposable income amount calculated on line 59 does not establish by itself . . . a failure of the good faith requirement.”); In re Roberts, No. 07-15653DWS, 2008 WL 4279549, at *3 (Bankr. E.D. Pa. Sept. 17, 2008) (unpublished) (Sigmund) (Lack of good faith not implicated when debtors with CMI greater than applicable median family income have monthly disposable income of negative $776 on Form B22C but net monthly income of $384 on Schedules I and J. “Congress’s intention in amending the disposable income test was to substitute a more objective standard that would leave little room for judicial discretion. . . . [T]he good faith paradigm has no place in this analysis and a debtor’s economic effort must be measured by the above provisions of the Code [§ 1325(b).]”.); In re Hoskings, No. 07-13785-RGM, 2008 WL 2235350, at *6 (Bankr. E.D. Va. May 29, 2008) (unpublished) (Mayer) (“If the sole objection to the debtor’s good faith is that the debtor proposes to pay the amount Congress requires by the mathematical formula, the debtor has complied with the good faith requirement.”); In re Van Bodegom Smith, 383 B.R. 441 (Bankr. E.D. Wis. Mar. 6, 2008) (Pepper) (Citing In re Smith, 848 F.2d 813 (7th Cir. June 9, 1988) (Cudahy, Ripple, Manion), because Congress dealt quite specifically with a Chapter 13 debtor’s ability to pay in § 1325(b)(2) and (b)(3), “the question of whether the debtors committed all of their projected disposable income into the plan is a matter solely for review under § 1325(b), and is not pertinent to engaging in a review of good faith under § 1325(a)(3).”); In re Franco, No. 07-30741, 2008 WL 444679, at *2 (Bankr. S.D. Ill. Feb. 12, 2008) (unpublished) (Meyers) (“[G]iven Congress’ supplanting of the Court’s role of making a subjective analysis of ‘reasonably necessary’ by virtue of its enactment of § 707(b)(2)(A)(iii)(I), a good faith determination cannot depend solely upon an examination of whether the expense is reasonable and/or necessary. . . . [I]n a post-BAPCPA world, since the secured expenses for the instant debtors’ three vehicles can be deducted under § 707(b)(2)(A)(iii)(I), the trustee must challenge them on some basis other than lack of necessity.”); In re Petro, 381 B.R. 233, 235, 242–43 (Bankr. M.D. Tenn. Jan. 23, 2008) (Paine) (When recently employed debtor has negative disposable income on Form B22C and satisfies projected disposable income test, good-faith requirement in § 1325(a)(3) does not require denial of confirmation. Form B22C calculation and Schedules I and J “paint a different financial picture” because one debtor was recently employed. “The court overrules any objection to good faith based on the debtors’ failure to contribute all their disposable income to the plan. . . . The court cannot find these debtors acted in bad faith by following Congress’ statutory instructions in calculating their disposable income.”), rev’d on other grounds, 395 B.R. 369 (B.A.P. 6th Cir. Oct. 17, 2008) (Fulton, McIvor, Shea-Stonum); In re James, 379 B.R. 903, 907–08 (Bankr. D. Neb. Nov. 30, 2007) (Saladino) (When excess of income over expenses on Schedules I and J is greater than disposable income calculated on Form B22C, good faith does not require debtor to pay more than disposable income to unsecured creditors. “While recognizing that as a result of [Education Assistance Corp. v. Zellner, 827 F.2d 1222 (8th Cir. Sept. 3, 1987) (Arnold, Gibson, Wright),] and later cases, Debtors’ ability to pay cannot be reached under the good faith test, the Chapter 13 Trustee urges that such law should no longer be applicable post-BAPCPA. . . . [W]hen revising § 1325(b), Congress made significant changes and incorporated a detailed formula for calculating the debtor’s projected disposable income. Thus, by making § 1325(b) more detailed (and mandatory), it appears clear that the ability to pay factors are intended to be subsumed into § 1325(b). Thus, this Court is compelled to follow Eighth Circuit precedent that ability to pay factors are subsumed into § 1325(b), and not in the good faith standard of § 1325(a)(3). A debtor does not fail the good faith test simply because of the ability to pay more than the means test result. There must be something else to trigger a lack of good faith in proposing a plan.”); In re Burmeister, 378 B.R. 227, 232 (Bankr. N.D. Ill. Nov. 16, 2007) (Goldgar) (“Lack of good faith is not a proper basis for objecting to a miscalculation of disposable income. ‘Disposable income is “determined under section 1325(b) rather than as an element of good faith under section 1325(a)(3).”’”); In re Chavez, No. 07-60567-13, 2007 WL 3023145, at *4 (Bankr. D. Mont. Oct. 11, 2007) (unpublished) (Kirscher) (“The Trustee’s primary argument with respect to his § 1325(a)(3) good faith objection is that Debtors are able to pay more per month, as reflected on their Schedules I and J, than is reflected in Debtors’ Second Amended Chapter 13 Plan. . . . [A]lthough the Trustee has framed his objection as a ‘good faith’ objection, his objection is in reality a disposable income objection. . . . [W]hether a plan has been proposed in good faith is independent of whether the ‘best efforts’ test of § 1325(b) is satisfied.”); In re Austin, 372 B.R. 668, 683 (Bankr. D. Vt. Aug. 7, 2007) (Brown) (For debtor with CMI greater than applicable median family income, question whether debtor has committed sufficient income to plan is decided by § 1325(b), not by good-faith test in § 1325(a)(3). “[P]ost-BAPCPA, ‘[t]he disposable income a debtor decides to commit to his plan is not the measure of his good faith in proposing the plan.’”); In re Meek, 370 B.R. 294 (Bankr. D. Idaho June 27, 2007) (Myers) (Citing Fidelity & Casualty Co. of New York v. Warren (In re Warren), 89 B.R. 87 (B.A.P. 9th Cir. Aug. 16, 1988) (Volinn, Meyers, Jones), good faith in § 1325(a)(3) is independent of “best efforts” test in § 1325(b); applying totality-of-circumstances test, plan passes good-faith analysis notwithstanding that plan does not satisfy disposable income test.); In re Anderson, 367 B.R. 727, 732 (Bankr. D. Kan. Apr. 13, 2007) (Berger) (“[W]hether a debtor is committing sufficient income to a Chapter 13 plan is determined by § 1325(b), not § 1325(a)(3). Thus, the Court does not consider the debtor’s ability to pay in determining good faith because Congress specifically dealt with the debtor’s plan payments in § 1325(b).”); In re Winokur, 364 B.R. 204, 206 (Bankr. E.D. Va. Jan. 18, 2007) (Mayer) (“If the sole objection to the debtor’s good faith is that the debtor proposes to pay the amount Congress requires by the mathematical formula, the debtor has complied with the good faith requirement. . . . Congress could have written the law differently. . . . It could have required a plan payment that was the greater of the mathematical formula or the debtor’s actual ability to pay. It did not. It knew that the formula approach was not perfect and that some debtors would pay less than they could actually afford. This may be an abuse in a particular case, but Congress was concerned with the entire bankruptcy system. It may have concluded that although the abuse under the formula approach will be more visible than under the prior approach, total abuse will be less.”); In re Foster, No. 05-50448 HCD, 2006 WL 2621080, at *8 (Bankr. N.D. Ind. Sept. 11, 2006) (unpublished) (Dees) (Citing In re Smith, 286 F.3d 461 (7th Cir. Apr. 11, 2002) (Bauer, Posner, Ripple): “the plan requirements listed in § 1325(a)(1)–(4) were not changed by BAPCPA. It therefore follows the Seventh Circuit’s holding that the § 1325 mandate to determine the disposable income available for a chapter 13 plan was independent of the good faith requirement.”); Baxter v. Johnson (In re Johnson), 346 B.R. 256, 262–64 (Bankr. S.D. Ga. July 21, 2006) (Dalis) (BAPCPA altered test for good faith in Kitchens v. Georgia Railroad Bank & Trust Co. (In re Kitchens), 702 F.2d 885 (11th Cir. Mar. 29, 1983) (Tjoflat, Clark, Miller), by changing calculation of income and allowance of expenses for purposes of disposable income test. “I find that § 1325(b), as amended by BAPCPA, does alter the good faith inquiry under § 1325(a)(3) in several important ways. The changes do not entirely eliminate a good faith inquiry into the sufficiency of income. However, they do narrow the scope of judicial discretion. Not all sources of income need be committed to a Chapter 13 plan. By specifically excluding some income from the disposable income analysis, BAPCPA recasts the totality-of-the-circumstances test set forth in Kitchens . . . . Besides income . . . amended § 1325(b) also narrows [the living expenses] element of the good-faith inquiry—at least with respect to above-median-income debtors.”); In re Alexander, 344 B.R. 742, 752 (Bankr. E.D.N.C. June 30, 2006) (Leonard) (Disposable income test in § 1325(b), not good faith-test in § 1325(a)(3), determines entitlement of unsecured creditors in Chapter 13 case. “The Fourth Circuit in [Deans v. O’Donnell, 692 F.2d 968 (4th Cir. Sept. 12, 1982) (Winter, Phillips, Murnaghan),] made clear that there was no minimum repayment requirement in order to meet the good faith test. . . . [I]f a debtor follows the calculation method for determining disposable income under § 1325(b)(2), the debtor is not manipulating the statute. While this figure may differ from what was historically known to be ‘disposable income,’ the debtor is simply complying with the new law. . . . [T]he debtor’s disposable income must be determined under § 1325(b) and not as an element of good faith under § 1325(a)(3) . . . . Congress demonstrated a determination to replace judicial discretion under general standards with precise rules-based calculations. . . . So long as the debtor calculates the projected disposable income with specific reference to the new definition of disposable income and commits that projected disposable income to pay unsecured creditors for the applicable commitment period, she is in good faith compliance with the Code.”).

 

56  See, e.g., In re Daniel-Sanders, 420 B.R. 102, 105 (Bankr. W.D.N.Y. Dec. 30, 2009) (Bucki) (“[P]rojected disposable income will not necessarily constitute a payment sufficient to satisfy the mandate of good faith in section 1325(a)(3). . . . [T]his court finds no lack of good faith in the mere retention of a second car. Rather, the issue of concern is whether the cost of satisfying the outstanding car loans will exceed the limits of reasonableness, to the effect of compromising a good faith distribution to unsecured creditors.”); In re Kelly, 416 B.R. 232, 238–39 (Bankr. E.D. Va. Mar. 2, 2009) (Mitchell) (That plan satisfies projected disposable income test does not preclude finding that plan fails good-faith test in § 1325(a)(3) because debtor could pay more to unsecured creditors. “[T]he estimated percentage of repayment, 25%, although more than ‘minimal,’ and indeed substantial in dollar amount, nevertheless represents a severe compromise. . . . [T]his is not a case in which the debtor is living a luxurious or extravagant lifestyle . . . . At the same time, the debtor’s current financial situation would rather clearly allow him to make payments significantly in excess of the $1,805 per month that he has proposed to make. . . . [T]he court is left with the conviction that the plan does not represent an honest effort to repay creditors to the extent that the debtor’s financial ability and circumstances will permit. . . . [A]lthough the court will overrule the disposable income objection, the court will deny confirmation on the alternate ground that the plan was not proposed in good faith.”); In re Styles, 397 B.R. 771, 774 (Bankr. W.D. Va. Nov. 21, 2008) (Krumm) (“‘Notwithstanding the fact that the Debtors are entitled to account for [the nonessential assets] when calculating their disposable income under the means test[,] confirmation of a plan proposing to retain [the nonessential asset] is subject to the good faith test under 11 U.S.C. § 1325(a)(3).’”); In re Stitt, 403 B.R. 694 (Bankr. D. Idaho Nov. 7, 2008) (Pappas) (Considering Maney v. Kagenveama (In re Kagenveama), 541 F.3d 868 (9th Cir. June 23, 2008) (Pregerson, Siler, Bea), BAPCPA did not eliminate totality-of-circumstances review of good-faith factors when debtor otherwise satisfies projected disposable income test. De minimis payment plan fails good-faith analysis when debtor lives in an “upside down” $300,000 house located more than 100 miles from his work, the debtor’s one-horse breeding enterprise loses money and the debtor “has not attempted to prove that adequate, cheaper housing is not available to him in areas nearer to his principal place of employment.”); In re Baughman, No. 07-63208, 2008 WL 4487879, at *5–*6 (Bankr. N.D. Ohio Sept. 30, 2008) (unpublished) (Kendig) (Plan that satisfies disposable income test with respect to transportation ownership deductions nonetheless fails the good-faith analysis when payments allowed by the disposable income test are greater than payments actually experienced by the debtors. “[M]ore than merely permitting the deduction is necessary . . . . [W]hen Congress allowed debtors to shelter money from creditors for the costs of owning a motor vehicle, they meant that money to be used for the costs of owning a motor vehicle, or for debtors to specifically justify the good faith of their actions.”); In re Namie, 395 B.R. 594, 596–97 (Bankr. D.S.C. Aug. 5, 2008) (Waites) (Plan paying $5,376.54 per month to maintain and cure mortgage arrearages when unsecured creditors will receive 1% is not proposed in good faith. “Notwithstanding the test formulated under 11 U.S.C. § 1325(b), a debtor must propose a plan in good faith pursuant to 11 U.S.C. § 1325(a)(3). . . . Utilization of the vast majority of Debtor’s net disposable income to retain an expensive asset while depriving his other creditors of payment indicates a lack of good faith. . . . Debtor presented no testimony or other evidence that alternative housing, suitable for a family of two, cannot be found at a lesser cost. . . . [R]etention of a home that consumes all of his personal net disposable income, to the detriment of his significant number of unsecured creditors, is not in good faith.”); In re Shafer, 393 B.R. 655, 663, 661 (Bankr. W.D. Wis. June 9, 2008) (Martin) (BAPCPA’s amended definition of disposable income does not alter application of totality-of-circumstances test to determine good faith in filing petition and proposing plan. “No single circumstance is dispositive, but together, they indicate that the debtors fail the [totality-of-circumstances] test. These debtors are not trying to pay creditors; they are trying to avoid paying them.” Decision of district court in Mancl v. Chatterton (In re Mancl), 381 B.R. 537 (W.D. Wis. Feb. 12, 2008) (Crabb), “that the sufficiency of assets contributed to the plan has no bearing on the issue of good faith, so long as the payments have been properly calculated, and the payments are not artificially low because of prepetition misconduct[,]” is not controlling on issue of bad faith when it is “alleged that the debtors have inflated their expenses, live extravagant lifestyles, and voluntarily dismissed their [prior] case and refiled in order to avoid the repayment of $40,000 in preferences.”); In re Paley, 390 B.R. 53, 58–59 (Bankr. N.D.N.Y. June 3, 2008) (Littlefield) (“BAPCPA has not ended the good faith/projected disposable income analysis. . . . Congress did not intend to abrogate the good faith requirement of § 1325(a)(3) . . . . Satisfaction of § 1325(b) does not displace the good faith analysis required under § 1325(a)(3).”); In re Allawas, No. 07-06058-HB, 2008 WL 6069662, at *4 (Bankr. D.S.C. Mar. 3, 2008) (unpublished) (Burris) (“Debtor argues that nothing is due from her to general unsecured creditors under the disposable income test of § 1325(b)(1), so any payment to such creditors is a sign of good faith. The Court disagrees.”); In re Anstett, 383 B.R. 380, 386 (Bankr. D.S.C. Feb. 8, 2008) (Duncan) (“The strict mechanical application of § 1325(b)(1)(B) following computation of disposable income using artificial expenditures does not necessarily satisfy the requirement to propose a plan in good faith.”); In re Briscoe, 374 B.R. 1, 20–21 (Bankr. D.D.C. Sept. 4, 2007) (Teel) (Plan that satisfies disposable income test can still fail good-faith test in § 1325(a)(3) when use of allowable expenses demonstrates a lack of good faith. “The means test now incorporated into the ‘projected disposable income’ requirement accomplishes Congress’ goal of removing discretion from the judiciary . . . . Unfortunately, it also introduces a new means for abuse of the system, as opportunistic debtors may be able to claim expenses under the Local or National Standards that they do not actually have. . . . The § 1325(b)(3) calculation of disposable income is but a mechanical test for determining that the debtor is proceeding reasonably, but it does not purport to cover all instances of bad faith that may arise from the debtor’s actual financial circumstances.”); In re Mancl, 375 B.R. 514, 517 (Bankr. W.D. Wis. Aug. 24, 2007) (Utschig) (When debtor was injured and received less income during six months before petition, projected disposable income test is not based on CMI but is tempered by good-faith determination of projected income. “Form B22C should ‘be the basis for projected disposable income unless there is evidence that simply using the historic six-month snapshot does not form a reasonable basis for projecting income forward.’ This Court believes this is a fair application of the good faith test to the calculation of current monthly income. . . . [T]here is evidence that the Form B22C does not constitute a reasonable forecast of the debtors’ future income.”), rev’d, 381 B.R. 537 (W.D. Wis. Feb. 2, 2008) (Crabb); In re Hylton, 374 B.R. 579, 586 (Bankr. W.D. Va. Aug. 22, 2007) (Krumm) (“While an above-median debtor who proposes to retain a nonessential or luxury asset may not be doing so at the expense of unsecured creditors post-BAPCPA, because the return to general unsecured creditors under a Chapter 13 plan is guided by the means test, such a conclusion does not make this court any less mindful of the fact that ‘the good faith inquiry is intended to prevent abuse of the provisions, purpose, or spirit of Chapter 13.’”); In re Shelton, 370 B.R. 861, 867–68 (Bankr. N.D. Ga. June 11, 2007) (Murphy) (“Section 1325(b)(2) is . . . limited to a specific application: ‘[f]or purposes of this subsection.’ Had Congress sought to soften the good faith requirement, a statement to that effect is conspicuously absent. . . . Good faith has no role in assessing whether the amount of income paid into the plan is sufficient . . . but good faith and the remaining [Kitchens v. Georgia Railroad Bank & Trust Co. (In re Kitchens), 702 F.2d 885 (11th Cir. Mar. 29, 1983) (Tjoflat, Clark, Miller),] factors remain relevant to confirmability of a plan. . . . Even if disposable income is not considered, the degree of effort a debtor will expend in completing the plan remains a factor in determining good faith.”); In re McGillis, 370 B.R. 720, 743–53 (Bankr. W.D. Mich. May 15, 2007) (Hughes) (Ability to pay and consideration of actual income and expenses at effective date of plan remain components of good faith notwithstanding BAPCPA amendments to disposable income test; debtor with CMI greater than applicable median family income who has little or no disposable income under § 707(b)(2)(A) and (B) is denied confirmation when actual income and reasonable and necessary expenses on effective date of plan reveal income to pay creditors. “[W]hat is important is that [Hardin v. Caldwell (In re Caldwell), 851 F.2d 852 (6th Cir. July 14, 1988) (Krupansky, Boggs, Brown),] adopted the [United States v. Estus (In re Estus), 695 F.2d 311 (8th Cir. Dec. 15, 1982) (Heaney, Stephenson, Henley),] list one year after the Eighth Circuit itself determined in [Education Assistance Corp. v. Zellner, 827 F.2d 1222 (8th Cir. Sept. 3, 1987) (Arnold, Gibson, Wright),] that most of the Estus factors had been subsumed by the ability to pay criteria of Section 1325(b) when it had been enacted in 1984. . . . Consequently, there is no question that the Sixth Circuit is not in agreement with Zellner . . . for its conclusion that a debtor’s ability to pay is not an appropriate subject for consideration under Section 1325(a)(3). . . . [T]he developing body of case law recognizes a relationship between Section 707(b)(2) and Section 707(b)(3)(B) whereby all debtors must submit first to an objective evaluation of their financial circumstances and perhaps then a second, subjective evaluation of their financial circumstances as well. Therefore, it stands to reason that BAPCPA includes a similar objective/subjective dichotomy between Section 1325(b) and Section 1325(a)(3), for it is essential that these two sections mirror Sections 707(b)(2) and (b)(3)(B). . . . I conclude that proposing a plan in good faith today under Section 1325(a)(3) means the same as what it meant under Section 1325(a)(3) pre-BAPCPA, that the debtor is to make a honest effort to repay his creditors . . . . Section 1325(b) affords no relief to debtors from this responsibility. Section 1325(b) is a hazard, not a harbor. . . . Section 1325(a)(3) good faith is best measured by comparing what the debtor is proposing under his plan with what a similarly situated person in the debtor’s community could afford to pay yet still live a modest but comfortable lifestyle. . . . [A] significant number of relatively well off debtors will be able to avoid compliance under Section 1325(b) because of differences between their average historical earnings and their current earnings. Debtors so situated certainly do not like the fact that Section 1325(a)(3) good faith still requires them to account for their present wherewithal in order to confirm their plan. . . . I conclude that all debtors’ plans should be evaluated for good faith under Section 1325(a)(3) based upon the assumption that three years is the appropriate measure. . . . I conclude that a debtor’s ability to fund a Chapter 13 plan based upon his current earnings and expenses remains an important consideration for purposes of determining whether the debtor’s plan is proposed in good faith under Section 1325(a)(3) even in those instances when the debtor has successfully withstood an objection brought under Section 1325(b). Section 1325(b) does nothing more than set an objective benchmark for determining when confirmation is to be denied. Passing the Section 1325(b) test, though, does not mean that the debtor’s financial wherewithal is exempt from further scrutiny by the court. Rather, the good faith standard of Section 1325(a)(3) still requires the debtor to establish to the court’s satisfaction that he is in fact making an honest effort under the circumstances to repay his creditors through his proposed plan.”); In re Upton, 363 B.R. 528, 536 (Bankr. S.D. Ohio Mar. 14, 2007) (Preston) (Notwithstanding that Social Security benefits are excluded from CMI by § 101(10A) and are not considered in the projected disposable income calculation in § 1325(b), good faith in the Sixth Circuit includes consideration of amount of debtor’s proposed payments and amount of debtor’s surplus. “Congress . . . did not amend the requirement of good faith contained in § 1325, or the elements to be considered in that analysis.”); In re Devilliers, 358 B.R. 849 (Bankr. E.D. La. Jan. 9, 2007) (Magner) (Compliance with the “strict and technical” provisions of § 1325(b) does not necessarily satisfy a Chapter 13 debtor’s burden with respect to good faith.); In re LaSota, 351 B.R. 56, 62–63 (Bankr. W.D.N.Y. Sept. 19, 2006) (Kaplan) (Arguably in dicta, debtors with CMI above median income who show disposable income on Schedules I and J but less or none on Form B22C are subject to “rough justice” and must commit larger amount to confirm a plan. “[T]he word ‘projected’ cannot be meaningless given that the Form [B]22C computation does not discern between secured debts for necessities and secured debts for luxuries. Rather, ‘Projected disposable income,’ properly applied, often requires surrender of those luxuries to repossession or foreclosure, if confirmation of a less-than-100% Plan is to be won. Whether it is the application of the word ‘projected’ alone or the application of the ‘good faith’ requirement alone that requires such a result is of no practical moment. The flaw in the reasoning of the Courts in the cases to the contrary is in the failure to recognize the profound truth that Chapter 13 always was, and still remains, ‘rough justice.’ There is no precision in it, and there never was. Any effort to parse its components and reconcile them is, and always was, doomed to failure. . . . [T]he Trustee is the voice of the community, and that fact is why he or she is the ‘representative of the estate.’ . . . He is not a mere cipher or bureaucrat throwing issues to the Court for deliberation without care. . . . This writer will continue to examine each case on its own merits, using the ‘good faith’ test and the flexibility of the term ‘projected’ disposable income to inform the Court’s evaluation of the Form [B]22C calculation of CMI, at the time of confirmation, and only considering the Trustee’s recommendation.”); In re Edmunds, 350 B.R. 636, 648–49 (Bankr. D.S.C. Sept. 18, 2006) (Waites) (Disposable income test as modified by BAPCPA does not eliminate economic factors in good-faith test in § 1325(a)(3); it is lack of good faith when debtors with CMI greater than applicable median family income exhaust disposable income consistent with Form B22C but have additional income available for creditors according to Schedules I and J. “[T]he strict mechanical application of the Means Test does not necessarily satisfy Debtors’ burden of demonstrating good faith in the proposal of their plans, including whether they are devoting sufficient income to their plan. . . . In [Deans v. O’Donnell, 692 F.2d 968 (4th Cir. Sept. 23, 1982) (Winter, Phillips, Murnaghan)], the Fourth Circuit sets forth a nonexclusive list of factors to determine whether a plan has been proposed in good faith. Included in this list is a debtor’s current financial situation and percentage of proposed repayment to unsecured creditors. . . . These factors are relevant even if a debtor’s plan satisfies § 1325(b). . . . Nothing in the legislative history of [BAPCPA] clearly indicates that Congress intended to change the existing practice in this Circuit of considering a debtor’s actual financial situation at the time of the filing or the percentage of proposed repayment as elements of good faith. . . . Since it appears from Debtors’ respective Schedules I and J that they have sufficient projected disposable income to pay a greater distribution to general unsecured creditors than proposed in their current plans . . . Debtors’ present plans were . . . not proposed in good faith.”).

 

57  See, e.g., In re Spruch, 410 B.R. 839, 843, 844 (Bankr. S.D. Ind. Nov. 12, 2008) (Lorch) (Leasing a 2006 Hummer for $1,000 per month and deducting $58 for a vacation timeshare are some evidence of bad faith but not sufficient to deny confirmation when debtors have negative disposable income on Form B22C and propose to pay all monthly net income from Schedules I and J toward priority and secured debt for 60 months. Citing In re Williams, 394 B.R. 550 (Bankr. D. Colo. Sept. 12, 2008) (Brown), for the “intermediate approach, whereby . . . compliance with section 1325(b) precludes a good faith challenge under [§] 1325(a)(3) based on ability to pay except in cases of manipulation, subterfuge, or unfair exploitation of the Code by the debtor[,]” court found that retention of the timeshare “is not what this Court would deem a particularly extravagant entertainment expense” and the Hummer, though a luxury vehicle, could not be replaced by the debtors at “much of a financial advantage over the course of a five year plan.”); In re Williams, 394 B.R. 550, 572–73 (Bankr. D. Colo. Sept. 12, 2008) (Brown) (BAPCPA did not entirely eliminate economic considerations from good-faith analysis. “This Court agrees with the intermediate approach. . . . [T]he primary measure of whether the debtor has committed sufficient income to the plan is the [projected disposable income] analysis of § 1325(b). . . . But the passage of BAPCPA did not wholly eliminate consideration of a debtor’s ability to pay in the context of a good faith analysis under § 1325(a)(3). . . . [T]he best guidance this Court can offer is the old adage of ‘pigs get fat, but hogs get slaughtered.’”).

 

58  See, e.g., Shafer v. Heartspring, Inc., 415 B.R. 705, 711 (W.D. Wis. Aug. 25, 2009) (Crabb) (Plan that pays four times disposable income is not proposed in good faith when other good-faith factors are considered. Debtors were keeping a retirement account that contained almost $1 million and living in a home valued at $565,000. Debtors had monthly income of $10,717.50 and substantial expenses because of two autistic children. “Appellants argue that their offer of $1,000 a month to pay off their debt is quite generous considering they have only $267.50 in disposable income a month and this somehow creates a presumption of ‘good faith.’ Although an offer to pay four times the amount of one’s disposable income appears to be generous, the offer cannot be viewed in isolation.”); In re Ellis, 388 B.R. 456, 460 (Bankr. D. Mass. June 10, 2008) (Feeney) (Without reaching good-faith objection to confirmation, debtor with gross monthly income of $12,870 whose expenses exceed income, leaving no disposable income or monthly net income, has insufficient income to make payments under a plan as required by § 101(30) and cannot confirm a plan that pays nothing to any creditor. “The amalgam of Chapter 13 provisions, together with the definition of ‘current monthly income’ set forth in section 101(10A) and the definition of the term ‘individual with regular income’ set forth in section 101(30), when read together, compel the conclusion that a zero payment plan under which a debtor makes no payments to the Trustee for distribution to any class of creditors provided for under the plan cannot be confirmed. To confirm a Chapter 13 plan which should more appropriately be a Chapter 7 case, contravenes the express provisions of Chapter 13 and its overall purpose of providing a structure for repayment of debt.”); In re Phillips, 382 B.R. 153, 172–73 (Bankr. D. Mass. Feb. 7, 2008) (Feeney) (Arguably in dicta: “Although the Trustee has failed . . . with respect to her ‘best efforts test’ objection, the Court’s ruling is without prejudice to the filing of an objection to confirmation . . . under 11 U.S.C. § 1325(a)(3). In view of the extraordinary disparity in required plan payments resulting from the financial portraits produced by Form [B]22C and Schedules I and J, an examination of the Debtor’s subjective intent to repay her creditor is warranted. This case may be one of those times ‘when a debtor commits so little income to creditors, relative to his true ability . . . to make payment to them based on his actual expenses, that his proffered plan suggests a subjective intent not to make a good faith effort at repayment at all.’”); In re Meador, No. 06-80509-GE-13, 2008 WL 243673 (Bankr. S.D. Tex. Jan. 25, 2008) (unpublished) (Clark) (Confirmation is denied and petition is dismissed when debtors filed succession of amended schedules and Forms B22C which misstated and obscured disposable income; that debtors were unable to explain fluctuating figures demonstrated an attempt to manipulate and mislead the trustee and the court with respect to the entitlement of unsecured creditors.); In re Long, 372 B.R. 467 (Bankr. W.D. Wis. May 10, 2007) (Martin) (Overwithholding of income taxes to accumulate a significant sum of money could be bad faith for purposes of § 1325(a)(3), but debtors who use standard exemptions and withholding allowances have done nothing that indicates bad faith.); In re Corbin, No. 4:05-bk-06707-JMM, 2007 WL 1232162, at *2 (Bankr. D. Ariz. Apr. 26, 2007) (unpublished) (Marlar) (Plan fails disposable income test based on budget recalculation by court and plan fails good faith under § 1325(a)(3) because debtor proposes 8% interest to car lender when contract interest rate was 6.54%. “Under non-bankruptcy law, the debt to the secured creditor calls for 60 monthly payments . . . at a 6.54% annual interest rate. Under the plan, that obligation unnecessarily accelerates payment and increases the interest rate. This auto debt, in order for the plan to be accorded good faith, can be remedied by simply leaving it unimpaired and paying it ‘outside’ the plan. Such payment would then alter Schedule J, and such payment would be placed in the monthly expense category. The plan can be so modified.”).

 

59  See § 197.1 [ Smell Tests ] § 109.1  Smell Tests.