Excerpt from Chapter 13 Good Faith Rant, I mean Brief

This relates to my previous post about April Fools and Chapter 13.  Before, I get to the excerpt, I'm going to start a little contest with my tiny, but hopefully growing readership.  In paragraphs 3 and 4, I give some examples of Debtor expenses -  the best expense that someone can provide from a REAL CASE, I will add to my brief.  Enjoy.

It is well settled good faith is a totality of the circumstances analysis.  See In re Goeb, 675 F.2d 1386, 1387 (9th Cir. 1982).  A Debtor who merely takes advantage of the bankruptcy code offers him is not acting in bad faith.   In re Ragos, 700 F.3d 220, 227 (5th Cir. 2012) .

The 9th Circuit has recently held that the concept of disposable income no longer has a role in determining good faith.  In re Welsh, 2013 WL 1192961.  While, the Welsh court was specifically analyzing social security income and secured debt payments the holding goes beyond that.  Since disposable income is strictly defined, a bankruptcy court no longer has the discretion to make good faith determinations based on Debtor's individual expenses stated on their Schedule J.

The implications of this may be unsettling to some.  A Debtor who lists expenses for Directv NFL Package, figure skating lessons for children, premium gasoline, fast track, or buying organic groceries might be seen as someone who could "tighten their belt" and pay creditors more.  An argument can be made that when unsecured creditors are getting paid less than the full value of their claims, a debtor should expect to only watch the Fox Game of the week, provide their child with a set of used roller skates, buy 87 octane gas, sit in traffic and shop at Albertsons and devote the difference to their creditors.

On the other hand, it could be argued that a debtor who gets to watch his favorite NFL team every Sunday, provide his children with the sporting activities of their choice, puts high quality fuel in his car, spends less time in traffic (perhaps more time at work), and eats healthy food would be a happier, healthier and less stressed person.  On account of this, this hypothetical debtor might be more economical productive during the life of the plan and hence unsecured creditors would benefit in the long run.

Unfortunately, Congress has foreclosed all of the analysis of the above.  The bottom line is when a Debtor has committed his projected disposable income to the plan, what his "actual" expenses are has no bearing on good faith.

to make a finding of bad faith.