[CLBS] Important Decision issued by 9th Circuit 3-25-13 regarding "Good Faith" in chapter 13 cases

[Jon Wilson]

Dear List Mates, attached is the 9th Circuit's decision in Welsh regarding
"good faith" in chapter 13 plans.

 

To quote Robin Miller and her excellent electronic service pertaining to BK
decisions across the country:

 

On Monday the Ninth Circuit Court of Appeals decided In re Welsh, Case No.
12-60009.

The court held that, where a Chapter 13 plan pays unsecured creditors the
amount calculated as the debtor's projected disposable income in accordance
with the Bankruptcy Code, the debtor's calculations cannot support a finding
that the plan was not proposed in good faith for the purpose of Code section
1325(a)(3). The court was categorical in holding that income exclusions or
expense deductions allowed under the Code have been explicitly authorized by
Congress and therefore cannot be in bad faith: "We cannot conclude, however,
that a plan prepared completely in accordance with the very detailed
calculations that Congress set forth is not proposed in good faith. To hold
otherwise would be to allow the bankruptcy court to substitute its judgment
of how much and what kind of income should be dedicated to the payment of
unsecured creditors for the judgment of Congress."

Therefore, here, the debtors' plan could not be found to be lacking good
faith, where the debtors (1) excluded Social Security income and (2)
deducted secured debt expenses for items that could be considered luxury
items. And this was a pretty egregious case, in that the debtors deducted
payments for six motor vehicles: three cars, two ATVs, and a trailer. What a
life.

With respect to the court's consideration of the debtors' Social Security
income in particular, the Ninth Circuit's decision goes beyond other cases
in holding that the income cannot be considered at all as a factor showing a
lack of good faith--other cases have held that the exclusion of Social
Security income, in itself, does not support a finding of bad faith, but
those cases have not categorically precluded consideration of Social
Security income under a totality of the circumstances analysis.

 

Thoughts on how this decision will help chapter 13 debtors/your clients or
will be opposed by the chapter 13 Trustee (Calling Alex) are appreciated.

 

Jon

 

Jon R. Wilson

Attorney at Law

 

Wilson Law Offices, P.C.

4614 W. Emerald St.

Boise, ID 83706

Tel. (208)343-8400

Fax (208)424-5006

Email:   <mailto:jon at boiselaw.org> jon at boiselaw.org

 

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