§ 61.4     Proof of Good Faith
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 61.4, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

When a Chapter 13 debtor had two or more pending and dismissed bankruptcy cases within one year, no § 362(a) stay arises at the filing of the current case.1 On timely motion of a party in interest, the bankruptcy court can order a stay with respect to any or all creditors, but only if the moving party demonstrates that the current case was filed in “good faith” as to creditors to be stayed.2 Under conditions that seem always present when § 362(c)(4) applies,3 a presumption arises that the current case is filed not in good faith upon a request to impose a stay.4 The presumption that the current case is filed not in good faith can be overcome by clear and convincing evidence to the contrary.5

[2]

Good faith is not defined by § 362(c)(4)(B). There is a strong temptation to look to § 362(c)(3) for guidance with respect to the meaning of good faith in § 362(c)(4). As detailed above, § 362(c)(3) terminates parts of the automatic stay 30 days after a Chapter 13 petition when the debtor had one prior bankruptcy case pending and dismissed within the preceding year. Good faith is the test for extending the automatic stay beyond 30 days in § 362(c)(3)(B).6 There is a presumption the current case is filed not in good faith in § 362(c)(3)(C).7 There are a fair number of reported decisions discussing proof of good faith in the context of motions to extend the 30-day stay in § 362(c)(3)(B).8 It is understandable that courts would look to the developing case law interpreting § 362(c)(3) for guidance interpreting § 362(c)(4), but some caution is necessary.

[3]

As discussed above,9 the wording of § 362(c)(4) differs in several material ways from the wording of § 362(c)(3). The presumptions that the current case is filed not in good faith operate differently under the two subsections. In particular, the presumption that the current case is filed not in good faith in § 362(c)(4)(D)(i)(I) seems to apply in every case in which no stay arises because of two (or more) pending and dismissed cases within a year of the current petition. In contrast, the presumption that the current petition is filed not in good faith will not always arise under § 362(c)(3)(C) when the debtor has only one prior pending and dismissed case within a year. Also, the wording of other conditions for the presumption in § 362(c)(4)(D) is different from the analogous wording in § 362(c)(3)(C).10

[4]

Nonetheless, the courts are looking to cases interpreting good faith for § 362(c)(3) purposes when addressing motions to impose the stay under § 362(c)(4).11 Good faith is not defined in § 362(c)(3) or (c)(4), but the same phrase appears in many other important places in Chapter 13. In particular, pre-BAPCPA cases interpreting good faith with respect to the Chapter 13 plan under § 1325(a)(3) have influenced courts testing for good faith in the § 362(c)(3) and (c)(4) context.12

[5]

Not unexpectedly, courts considering proof of good faith for purposes of imposing a stay under § 362(c)(4)(B) are concerned that the debtor has had at least three bankruptcy cases pending in the preceding year. Evidence probative of good faith will necessarily address why the prior cases were filed and dismissed and how circumstances have changed leading to the current case. Proof of changes in job status, proof of improved health and evidence the debtor is performing in the current case have been cited by courts in cases in which debtors have overcome the presumption in § 362(c)(4)(D).13 Claims of improved financial and personal circumstances fail to rebut the presumption when testimony is vague, evidence is thin, feasibility of the current case is in question or proof is lacking that the debtor’s latest effort is different.14 Some courts have considered temporal proximity of current case to the prior dismissed cases as a factor bearing on good faith though not with agreement how this factor cuts.15

[6]

Proof of good faith is inevitably fact-bound with focus on explaining prior bankruptcy experience and why the current case will succeed. The elevated burden of clear and convincing evidence that seems always to apply in § 362(c)(4) circumstances means that debtors seeking to impose a stay must develop credible explanations for multiple prior cases and come to court fully loaded with evidence that the current case will succeed. As explained by one bankruptcy court, if the debtor claims a better job as evidence of good faith in a third Chapter 13 case within a year, clear and convincing evidence includes financial information such as earnings statements, tax and withholding information, employment records and the like.16


 

1  11 U.S.C. § 362(c)(4)(A)(i), discussed in § 433.1 [ When Does § 362(c)(4) Apply? ] § 61.1  When Does § 362(c)(4) Apply?.

 

2  11 U.S.C. § 362(c)(4)(B), discussed in § 433.2 [ Procedure, Timing and Form for Imposing Stay ] § 61.2  Procedure, Timing and Form for Imposing Stay.

 

3  See § 434.1 [ (Rebuttable) Presumption of Lack of Good Faith ] § 61.3  (Rebuttable) Presumption of Lack of Good Faith.

 

4  See 11 U.S.C. § 362(c)(4)(B) & (D), discussed in §§ 433.2 [ Procedure, Timing and Form for Imposing Stay ] § 61.2  Procedure, Timing and Form for Imposing Stay and 434.1 [ (Rebuttable) Presumption of Lack of Good Faith ] § 61.3  (Rebuttable) Presumption of Lack of Good Faith.

 

5  See 11 U.S.C. § 362(c)(4)(D), discussed in § 434.1 [ (Rebuttable) Presumption of Lack of Good Faith ] § 61.3  (Rebuttable) Presumption of Lack of Good Faith.

 

6  See § 60.4  (Rebuttable) Presumption of Lack of Good Faith and § 60.5  Proof of Good Faith.

 

7  See § 432.4 [ (Rebuttable) Presumption of Lack of Good Faith ] § 60.4  (Rebuttable) Presumption of Lack of Good Faith.

 

8  See § 434.2 [ Proof of Good Faith ] § 61.4  Proof of Good Faith.

 

9  See § 434.1 [ (Rebuttable) Presumption of Lack of Good Faith ] § 61.3  (Rebuttable) Presumption of Lack of Good Faith.

 

10  See § 434.1 [ (Rebuttable) Presumption of Lack of Good Faith ] § 61.3  (Rebuttable) Presumption of Lack of Good Faith.

 

11  See, e.g., In re Winters, No. 06-70447, 2006 WL 3392890, at *3 (Bankr. W.D. Va. Nov. 22, 2006) (“[B]ecause of the similarity between §§ 362(c)(3) and (c)(4), decisions under § 362(c)(3) are helpful.”).

 

12  See, e.g., In re Winters, No. 06-70447, 2006 WL 3392890 (Bankr. W.D. Va. Nov. 22, 2006) (Applying Neufeld v. Freeman, 794 F.2d 149 (4th Cir. 1986), and Carolin Corp. v. Miller, 886 F.2d 693 (4th Cir. 1989), in the § 362(c)(4) context, debtors overcame presumption of lack of good faith with clear and convincing evidence that one of the debtors obtained salaried employment after dismissal of prior case, and dental expenses that caused second filing are not expected to recur.); In re Wilson, 336 B.R. 338, 352 (Bankr. E.D. Tenn. 2005) (“[W]hen considering whether a debtor has rebutted the § 362(c)(4)(D) presumptions by clear and convincing evidence, the court will . . . examine . . . factors considered by courts in the Sixth Circuit when contemplating whether a Chapter 13 case was filed in good faith.”).

 

13  See, e.g., In re Winters, No. 06-70447, 2006 WL 3392890, at *3–*4 (Bankr. W.D. Va. Nov. 22, 2006) (“[T]he Court first looks to the past filings of the Debtors. . . . There is no evidence that prefiling conduct is at issue . . . . [T]here is a reasonable explanation for dismissal of two cases within twelve months . . . . [T]he male Debtor now has a steady income and is able to make plan payments through wage deduction. . . . Debtors do not expect any further dental expenses. . . . [T]hey refiled before their property was sold. The creditor involved has not objected to the imposition of the stay. . . . [T]he Debtors filed this case in order to prevent the loss of their home.”); In re Mullins, No. 06-10948, 2006 WL 2571027 (Bankr. M.D.N.C. Sept. 1, 2006) (Testimony that serious medical problems caused debtor to miss work and resulted in demise of previous Chapter 13 case, coupled with immediate filing of current case three weeks after dismissal of previous case, absence of luxury spending and testimony that debtors intended to surrender a residence to be able to fund current plan constituted clear and convincing evidence that current case was filed in good faith.); In re Sarafoglou, 345 B.R. 19, 24–25 (Bankr. D. Mass. 2006) (Imposing stay under § 362(c)(4) is appropriate in third Chapter 13 case within a year when there is substantial equity in the debtor’s home, plan can be modified to solve problems with mortgage and debtor has demonstrated good faith by clear and convincing evidence. Market value of residence was $900,000 subject to mortgage of $485,048. “I construe good faith in the § 362(c)(4) setting to require that the Debtor demonstrate that she filed the Current Case to obtain legitimate bankruptcy law protection and relief, that she is eligible for such protection and relief, that she has sufficient resources to render her pursuit thereof meaningful, and that she is pursuing such protection and relief honestly. . . . [C]lear and convincing means highly probable or reasonably certain or both. . . . [T]he Debtor has demonstrated that she has the resources to propose a plan resolving the Mortgage Debt . . . . That modified plan does not have to be definitively confirmable on its face in order to satisfy the clear and convincing standard but rather have a reasonable likelihood of success. . . . [S]he is eligible for such relief . . . she has pursued these ends in an honest and forthright manner.”).

 

14  See, e.g., In re Ortiz, 355 B.R. 587, 595 (Bankr. S.D. Tex. 2006) (On reconsideration, debtor failed to overcome presumption of lack of good faith in third Chapter 13 case when testimony was vague, ambiguous or perhaps deceptive. Debtor’s claim of improved health and a better job would prove good faith by clear and convincing evidence only if the debtor presented “extensive financial data (including current earnings, tax and other withholdings, and current expenditures), dates on which Debtor had made plan payments, source of plan payments, how Debtor would repay loans . . . name of Debtor’s employer, employment commencement date, reasons Debtor was unable to make payments in [prior] case . . . etc.”); In re Jones, No. 06-51316-13, 2006 WL 3371791, at *3 (Bankr. M.D.N.C. Nov. 16, 2006) (Debtors in fifth bankruptcy failed to overcome presumption of lack of good faith. “[T]he Debtors[’] behavior prior to filing the present case does not support a finding of good faith. . . . [T]he Debtors have neither attempted to remit mortgage payments to GMAC nor set such mortgage payments aside in anticipation of attempting to cure the arrearage through a Chapter 13 plan. . . . Debtors’ amended schedules do not support a finding that the proposed plan is feasible.”).

 

15  See, e.g., In re Winters, No. 06-70447, 2006 WL 3392890 (Bankr. W.D. Va. Nov. 22, 2006) (Filing of current case 29 days after dismissal of last case favors finding that current case is filed in good faith.); In re Jones, No. 06-51316-13, 2006 WL 3371791 (Bankr. M.D.N.C. Nov. 16, 2006) (Filing of fourth case within 180 days of third case was violation of dismissal order and indicative of lack of good faith.); In re Mullins, No. 06-10948, 2006 WL 2571027 (Bankr. M.D.N.C. Sept. 1, 2006) (Immediate filing of current case three weeks after dismissal of previous case favors finding that current case was filed in good faith.).

 

16  In re Ortiz, 355 B.R. 587 (Bankr. S.D. Tex. 2006).