Court Opinion

ID: 9650501
Source: CourtListenerOpinion
Date Created: 2023-08-23 15:41:03.549615+00
Date Added: 2024-06-11T18:12:22.587446
License: Public Domain

ELLIOTT, Bankruptcy Judge,
dissenting.
I respectfully dissent. One of the most litigated areas under the Bankruptcy Reform Act of 1978 was “good faith” of Chapter 13 plans that provided nothing or only a nominal amount for creditors. The cases cited by the majority show that eight circuit courts (including the District of Columbia) have taken up the issue. In addition the reports are filled with dozens of opinions by bankruptcy judges and district court judges on the subject.
To address concerns of the courts and the consumer lending industry, Congress included in the 1984 amendments to the Bankruptcy Code certain requirements for plan confirmation, i.e., provide a standard of good faith. Section 1325(b), as amended, provides:
(b)(1) If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan—
(A) the value of the property to be distributed under the plan on account of such claim is not less than the amount of such claim; or
(B) the plan provides that all of the debtor’s projected disposable income to be received in the three-year period beginning on the date that the first payment is due under the plan will be applied to make payments under the plan.
(2) For purposes of this subsection, “disposable income” means income which is received by the debtor and which is not reasonably necessary to be expended—
(A) for the maintenance or support of the debtor or a dependent of the debtor; or
(B) if the debtor is engaged in business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business.
The filing of a Chapter 7 case followed immediately by the filing of a new Chapter 13 case after receipt of the Chapter 7 discharge for the purpose of dealing with a secured creditor effectively circumvents the requirements of amended § 1325 that the debtor’s plan provide for disbursement to creditors of all of his projected disposable income for three years. We realize that Downey, as a secured creditor, could not have objected under § 1325(b)(1) as amended, but the Chapter 13 trustee or the holder of an unsecured claim could have. The effect of the Chapter 20 scenario is to confirm a plan that pays nothing to unsecured creditors (by reason of the Chapter 7 discharge) without giving the trustee or unsecured creditors an opportunity to test the debtor’s eligibility under § 1325(b).
Good faith has been defined in this Circuit to include an inquiry as to whether the debtor is unfairly manipulating the Bankruptcy Code, In re Goeb, 675 F.2d 1386, 1390 (9th Cir.1982).
In my opinion, a Chapter 7 followed by a separate Chapter 13 case on the heels of a Chapter 7 discharge, is an unfair manipulation of the Bankruptcy Code because it circumvents the requirements of § 1325(b).