And, he complained, they proposed to keep and pay for vehicles that are luxury items.
The plan is not proposed in good faith, he claimed, as required by the Bankruptcy Code.
The trustee fought for inclusion of the debtors’ Social Security payments through three different courtrooms. The 9th Circuit Court of Appeals decided in the debtors’ favor.
The good faith test for confirmation is not a back door around the statutory calculation of disposable income to be paid to creditors nor does it entitle courts to second guess which pre bankruptcy secured creditors the debtor pays through his plan.
Good faith doesn’t require Social Security
The trustee in Welsh argued that the debtors’ plan was not confirmable because it excluded Mr. Welsh’s Social Security benefits from the plan. The plan was not proposed in good faith, the trustee claimed.
Not so, said the 9th Circuit.
With the 1984 amendments to the Bankruptcy Code, Congress created the best efforts test for confirmation of a plan.
With the formulation of that test, the amount of the payment to unsecured creditors was no longer a basis to challenge the debtor’s good faith.
The 9th Circuit held that BAPCPA and the means test introduced in those 2005 amendments refined the best efforts test. The law did not permit opposition to a plan that argued for larger payments than the Form b-22 calculations, at least where those larger payments would have to be funded by Social Security.
Good faith could not be stretched to gather into the Chapter 13 plan the debtors’ Social Security. [Read more…]