A controversy exists over when a Chapter 13 plan payment is proposed in bad faith. For above-median income debtors, plan payments are determined by the B22C form (means test). However, when a debtor’s actual, current expenses yield a greater surplus than the means test does, the trustee will often argue that proposing to pay the lesser is bad faith because the debtor is not paying all he can afford over the commitment period.
The trustee’s argument is consistent with pre-2005 law and with the opinion of some concerning Congressional intent, but it is at odds with the current statute. How can doing what the law requires, which is to use the means test to derive the plan payment, be bad faith?
In the case In re Young mentioned in a previous post, Massachusetts Bankruptcy Judge Hillman provided a little bit of definition to the bad faith issue. The court stated that when a debtor proposed to pay a monthly amount which was “considerably higher” than the amount on the means test form, there was no bad faith.
I do not think that this sets out any hard-and-fast rule, and doing less might still be in the realm of good faith. However, it suggests that one may obtain some protection from a bad faith objection by adding money voluntarily to a plan payment to bridge part of the gap between the means test surplus and any higher actual surplus.
Nicholas Ortiz, Boston Bankruptcy Attorney
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Last modified: October 22, 2012