What is the Good Faith Requirement in Chapter 13 Bankruptcy?
Are you currently considering a Chapter 13 bankruptcy filing? If so, you might have come across information concerning “good faith.” While there are frequently discussions about how a debtor may be deemed to be acting in bad faith in certain types of bankruptcy actions or omissions, the terminology of “good faith” is written into the US Bankruptcy Code in relation to the filing the bankruptcy petition and in relation to the proposed repayment plan in a Chapter 13 case. In short, the Code says that Chapter 13 bankruptcy plans must be “proposed in good faith and not by any means prevented by law,” and the Code also says that “the action of the debtor in filing the petition was in good faith.”
What does good faith require? And how can you ensure that you meet the good faith requirements when you file your Chapter 13 bankruptcy petition and draft a proposed repayment plan? Consider the following information from our West Palm Beach bankruptcy lawyers.
What Does “Good Faith” Mean?
Courts have not always agreed about the specific elements of “good faith,” and what it means to file a petition and a proposed repayment plan in good faith. Further, the term “good faith” is not expressly defined in the US Bankruptcy Code. As such, courts have relied on varying factors, and different courts have relied on different tests to make good faith determinations.
In general, whether or not a debtor has filed and proposed a plan in good faith in a Chapter 13 case revolves around fairness and equitableness, and the feasibility of the debtor’s plan. For the most part, courts will consider a totality of the circumstances and take into account a range of factors to determine whether the debtor’s case and proposed plan are fair to creditors involved and feasible given the circumstances. There is no single determinative factor, and “good faith” is determined on a case-by-case basis. Typically, a plan will be considered to be fair if creditors would be paid as much as they would under the proposed repayment plan as they would if a debtor filed for Chapter 7 bankruptcy instead.
Complications of Fee-Only Cases
The question of whether a repayment plan was proposed in good faith often arises in fee-only proposed plans. A fee-only plan proposes paying only the trustee’s fees and the attorney’s fees, with minimal or no payments going to unsecured creditors.
These types of proposed plans do not usually meet the good faith requirement, but these types of plans are not automatically rejected. It could be possible, depending on circumstances, to have a proposed repayment plan that pays little to unsecured creditors but is found to be in good faith. It is essential to discuss the specific details of your case and your financial circumstances with an attorney, and to work with an attorney to propose a repayment plan that is likely to meet the good faith requirements.
Contact a West Palm Beach Bankruptcy Lawyer Today
If you have any questions or concerns about acting in good faith when you file your bankruptcy petition, or as you create your proposed repayment plan, you should seek advice from one of the experienced West Palm Beach bankruptcy attorneys at Kelley, Kaplan & Eller as soon as possible. It is important to have an experienced lawyer on your side throughout your individual bankruptcy case, and our firm is here to assist you with your Chapter 13 filing. Contact us today for more information about the services we provide to clients in South Florida.
Source:
law.cornell.edu/uscode/text/11
