668 B.R. 555
Bankr. E.D. Tenn.2025Background
- Gary and Terica Warwick filed for Chapter 13 bankruptcy in Tennessee after incurring substantial secured and unsecured debt, including significant recent credit card use and loans.
- Leading up to bankruptcy, debtors refinanced their home, took out a large business loan (BHG), purchased a new BMW SUV with high monthly payments, and took multiple vacations (including a financed trip to Germany).
- The debtors’ proposed plan offered pro rata payments to unsecured creditors totaling much less than the full value of those claims, while retaining expensive assets and high living expenses.
- The Chapter 13 Trustee objected, arguing the plan was not filed in good faith, failed to commit all disposable income, and failed the best interests test for creditors.
- After an evidentiary hearing (including stipulated facts, documentary evidence, and debtor testimony), the bankruptcy court evaluated whether the Warwicks operated in good faith under 11 U.S.C. § 1325(a)(3) and (7).
- The court concluded the defect was irremediable and dismissed the case.
Issues
| Issue | Debtors’ Argument | Trustee’s Argument | Held |
|---|---|---|---|
| Was the plan filed in good faith? | Debtors lived modestly; financial woes were unforeseen. | Plan maintains an unsustainable lifestyle, not good faith. | Plan was not filed in good faith. |
| Did the plan propose all disposable income? | Claimed expenses were necessary; plan used all income. | Discretionary/misleading expenses; not all income used. | Plan failed disposable income test. |
| Was the case filed in good faith? | Debtors sought relief after failed bonuses; no prior cases. | Debtors incurred significant recent debt, luxury vehicle. | Case not filed in good faith. |
| Can the defects be remedied by amendment? | N/A | Defects are fundamental and cannot be remedied. | Defect is irremediable; case dismissed. |
Key Cases Cited
- Alt v. United States (In re Alt), 305 F.3d 413 (6th Cir. 2002) (totality of circumstances in evaluating bankruptcy good faith)
- Metro Emps. Credit Union v. Okoreeh-Baah (In re Okoreeh-Baah), 836 F.2d 1030 (6th Cir. 1988) (good faith in Chapter 13 requires holistic consideration)
- Soc’y Nat’l Bank v. Barrett (In re Barrett), 964 F.2d 588 (6th Cir. 1992) (lists factors for assessing debtor good faith)