Good Faith in Chapter 13 Bankruptcy
For a chapter 13 plan to be confirmed by the bankruptcy court it must have been filed and proposed in “good faith” and “not by any means forbidden by law.” Interestingly, the term “good faith” is not defined in Section 101 of the bankruptcy code and courts have been left to give substance to the term. The following page will discuss the good faith requirement for chapter 13 plan confirmation.
Filed in good faith
For a chapter 13 bankruptcy attorney to file a confirmable chapter 13 plan it must have been filed in good faith. [See 11 USC §1325(a)(7)]. Since “good faith” is not defined in the bankruptcy code the analysis of whether a plan has been filed in good faith likely considers the same factors relevant to whether a plan has been proposed in good faith and not by any means prohibited by law. [1325(a)(3)].
Proposed in good faith
Section 1325(a)(3) of the bankruptcy code requires the chapter 13 plan to be proposed in good faith and not by any means prohibited by law for it to be confirmed by the court. Unless a creditor objects to the chapter 13 plan, the bankruptcy court is allowed to find that the plan was proposed in good faith without receiving evidence on the issue. However, if a creditor objects to the plan, a hearing must be held and the burden of proving that the plan was proposed in good faith pursuant to 1325(a)(3) rests with the debtor.
The factors relevant to whether a plan has been proposed in good faith generally center upon whether the debtor has acted equitably or fairly in proposing the plan. For instance, proposing a plan that discharges student loan debt without an undue hardship finding may constitute a lack of good faith since the plan proposes to achieve what cannot be done without an undue hardship finding (ie. discharge student loans). Presumably, by proposing to discharge the student loans without the required undue hardship finding the petitioner and their bankruptcy attorney are attempting to achieve a result inconsistent with the law through the court’s and creditors ignorance of the omission. In essence, the petitioner is trying to sneak the discharge of a nondischargeable debt past the court, and that action may warrant the court’s finding that the plan has not been proposed in good faith. Similar actions indicative of a lack of good faith include dishonesty in disclosing assets and liabilities and misrepresentations in Schedules I and J regarding income and expenses.