In re Stanley; Case No. 10-50152; August 19th, 2010
Mr. Stanley, a below median debtor, filed a Chapter 13 bankruptcy by himself, although he was married. He held a low paying job and his wife did not work, though she did receive unemployment compensation. Most of her compensation went towards her own outstanding debt and Mr. Stanley’s income funded the Chapter 13 plan and paid their joint expenses.
The Trustee objected to confirmation of the plan on the basis that §1325(a)(3) of the bankruptcy code requires that a Chapter 13 plan be “proposed in good faith and not by any means forbidden by law.” The Court noted that “good faith” is not defined and the Bankruptcy Code, but noted with approval Collier on Bankruptcy, which says “[w]hile no precise definition can be sculpted to fit the term ‘good faith’ for every Chapter 13 case . . ., ‘the basic inquiry should be whether or not under the circumstances of the case there has been an abuse of the provisions, purpose, or spirit of [the Chapter] in the proposal or plan.” Collier on Bankruptcy, 9.20 at 319 (14th ed. 1978). Good faith is determined on a case-by-case basis by examining the totality of the circumstances.
The court went on to cite In re Solomon, 67 F.3d 1128, 1134 (4th Cir.1995), listed the factors of this totality of the circumstances inquiry:
1. the percentage of proposed repayment to creditors,
2. the debtor’s financial situation,
3. the period of time over which creditors will be paid,
4. the debtor’s employment history and prospects,
5. the nature and amount of unsecured claims,
6. the debtor’s past bankruptcy filings,
7. the debtor’s honesty in representing the facts of the case,
8. the nature of the debtor’s pre-petition conduct that gave rise to the debts,
9. whether the debts would be dischargeable in a Chapter 7 proceeding, and
10. any other unusual or exceptional problems the debtor faces.
Solomon, 67 F.3d at 1134.
The court noted that the income and expenses of the non-filing spouse should be considered in determining whether a plan has been proposed in good faith under §1325(a)(3). The income of a non-filing spouse is also regularly and properly considered in determining a debtor’s disposable income in a case under §707(b).
In this case, the court has a problem with the Debtor’s spouse paying her creditors in full while the debtor pays only 9% to his creditors, while coving all of their joint expenses. With respect to the §1325(a)(3) objection, the court sustains the Trustees objection and denies confirmation. “The proposed payment of a substantially higher dividend to the creditors of the non-filing spouse raises a serious question of good faith, which the court must view in the totality of the circumstances.
The court also, noting the non-filing spouse’s unemployment income was running out in two months and denied confirmation on feasibility grounds, §1325(a)(6), “a plan may be confirmed only if. . .the debtor will be able to make all payments under the plan and to comply with the plan.”
