452 B.R. 886
Bankr. D.N.J.2011Background
- Debtors seek confirmation of a Chapter 13 plan to cure arrears and keep a second home in the Poconos while paying unsecured creditors nothing.
- Two properties are listed: primary residence with first mortgage ~$308,000 and second mortgage ~$35,000; Poconos investment property with mortgage ~$233,000.
- Schedule I shows monthly income about $8,591 and Schedule J expenses about $7,915, yielding minor net income, though Form 22C calculations yield negative disposable income for plan purposes.
- Plan proposes 60 monthly payments of $862, prioritizing cure of arrears on both mortgage liens and treating unsecured debts as zero, plus continued mortgage payments on both properties.
- First Financial Federal Credit Union objects, arguing the Poconos Property is a luxury and not necessary; Trustee signals objection but ultimately relies on First Financial's position.
- Court must decide (1) disposable income calculation, (2) whether good faith inquiry is independent, and (3) whether the plan is proposed in good faith.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Projected disposable income adequacy | First Financial contends substantial unsecured payments required. | Amos and trustee rely on § 707(b)(2) deductions including mortgage payments. | Projected disposable income is effectively zero; plan does not require payments to unsecured creditors. |
| Independence of good faith review from disposable income test | Good faith should be subsumed by the disposable income calculation. | Good faith remains a separate inquiry independent of § 1325(b). | Good faith is an independent requirement, not pre-empted by the disposable income test. |
| Whether the plan is proposed in good faith | Plan seeks to retain a questionable Poconos property and pay unsecured creditors nothing. | Debtors argue plan complies with means test; to the extent the property is nonessential, deductions may be improper but plan could still pass § 1325(b). | Plan is not proposed in good faith; it abuses Chapter 13 and confirmation is denied. |
Key Cases Cited
- Hamilton v. Lanning, 130 S. Ct. 2464 (2010) (projected disposable income requires forward-looking adjustments)
- Ransom v. FIA Card Servs., N.A., 131 S. Ct. 716 (2011) (limits mechanical interpretations of § 707(b)(2) deductions)
- In re Mundy, 363 B.R. 407 (Bankr.M.D.Pa. 2007) (mechanical means test approach criticized)
- In re Sandberg, 433 B.R. 837 (Bankr.D. Kan. 2010) (treats good faith as independent of disposable income test)
- In re Barr, 341 B.R. 181 (Bankr.M.D.N.C. 2006) (discusses treatment of above-median debtors under means test)