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Chapter 13 Plan: Complying with the Code and Filing in Good Faith

First, as is described in other areas of this Blog, all of the mandatory provisions of a Chapter 13 must be in the Plan.

The debtor must be eligible to file the Chapter 13 which means that the debts cannot be above the ceiling.

If there is a matter that must be decided in an adversary proceeding, then that adversary proceeding must be filed (i.e. discharge of a debt)

Good Faith

The court must find that the action of the debtor in filing the petition was in good faith. Although “good faith" is not defined by the Code, it probably requires consideration of the same matters relevant to whether the Chapter 13 plan was proposed in “good faith". There is the issue when the debtor files a Chapter 7 and must convert to a Chapter 13 because he does not pass the means test and whether that is in good faith. The Chapter 13 plan must have been proposed in “good faith" and “not by any means forbidden by law. ‘Good faith’ is a pervasive concept in the Bankruptcy Code and plays a role in the determination whether a chapter 13 plan may be confirmed.

If no timely objection has been filed, the court may find, without receiving evidence, that the plan has been proposed in good faith and not by any means forbidden by law. If an objection is filed, a hearing must be held and the burden is on the debtor to establish “good faith." Notwithstanding the above presumption, some cases hold that the bankruptcy court has an independent duty to make a considered assessment of the debtor’s good faith, even when no objection to the plan has been filed.

Factors bearing on whether the plan was proposed in “good faith" include: —amount of proposed payments and amount of debtor’s surplus

—debtor’s employment history, earning ability and likelihood of future increases in income;

—probable or expected duration of the plan;

—accuracy of the plan’s statements of debts, expenses and percentage repayment of unsecured debt and whether any inaccuracies are an attempt to mislead the court

—extent of preferential treatment between creditor classes;

—extent to which secured claims are modified;

—type of debt sought to be discharged and whether any such debt is nondischargeable in Chapter 7

—existence of special circumstances (e.g., inordinate medical expenses);

—frequency with which the debtor has sought relief in bankruptcy

—debtor’s motivation and sincerity in seeking Chapter 13 relief ; and

—burden the plan’s administration would place on the Chapter 13 trustee.

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