531 B.R. 840
Bankr. D. Idaho2015Background
- Debtor Christopher Broadbent (below-median income) filed Chapter 13 to cure substantial mortgage arrears after completing vocational training and obtaining employment as a diesel mechanic.
- Original plan proposed 36 months of $300/month (amended to $370/month) to pay mortgage arrears, attorney fees, and a modest dividend to unsecured creditors.
- Debtor initially omitted his live‑in girlfriend Cassandra’s income from Schedule I/Form 22C, later disclosed $1,346.67 monthly on amended Form 22C; Schedule I showed only a $200/month household contribution from her.
- Trustee objected (via recommendation) that the plan lacked good faith: (1) Cassandra’s income was excluded or minimized, (2) plan primarily cures mortgage arrears with little to unsecureds, and (3) Debtor sought to retain up to $1,621/year in tax refunds.
- Hearing evidence: Cassandra routinely contributes $200/month for groceries, is not contractually obligated to contribute, and Debtor testified she would likely leave if asked to increase contributions.
- Court invited post-hearing briefs and evaluated confirmation under §1325(a) (good faith and other requirements).
Issues
| Issue | Trustee's Argument | Debtor's Argument | Held |
|---|---|---|---|
| Whether plan was proposed in good faith under §1325(a)(3) | Debtor manipulated schedules to minimize household income and direct nearly all payments to mortgage arrears, excluding Cassandra’s income to reduce plan payments | Plan was filed in good faith: arrears curing is legitimate, disclosures were corrected, and plan payments reflect Debtor’s true ability to pay | Plan proposed in good faith; confirmation permitted |
| Whether Cassandra’s income must be included in plan/payment calculations | Cassandra’s full income should be counted; exclusion understates Debtor’s ability to pay creditors | Cassandra’s contributions are not legally obligated or regular enough to be included like a non‑filing spouse; only $200/month contributed to household | Court held no per se rule requiring inclusion of live‑in partner’s income; exclusion not bad faith given facts (irregular contribution, no obligation) |
| Whether retaining up to $1,621/year in tax refunds is permissible | Trustee argued Debtor failed to show need; refunds should go to Trustee for creditors | Debtor treated a monthly equivalent of refund as plan income and agreed to remit any annual excess above $1,621 to Trustee | Court approved treatment; retaining up to $1,621 not bad faith because Debtor accounted for it monthly and excess must be remitted |
| Whether plan’s limited payments to unsecured creditors indicate bad faith | Paying little to unsecureds while curing secured arrears shows lack of good faith | Curing mortgage arrears to save the home is a legitimate Chapter 13 purpose; low unsecured dividend alone not dispositive | Court held low unsecured dividend not dispositive of bad faith; plan still in good faith |
Key Cases Cited
- Leavitt v. Soto, 171 F.3d 1219 (9th Cir. 1999) (good‑faith determination requires totality of the circumstances)
- Goeb v. Heid, 675 F.2d 1386 (9th Cir. 1982) (bad‑faith factors include misrepresentation or manipulation)
- Metz v. Downey Sav. & Loan Ass'n (In re Metz), 820 F.2d 1495 (9th Cir. 1987) (cure of secured arrears via Chapter 13 is permissible)
- Marsch v. Marsch (In re Marsch), 36 F.3d 825 (9th Cir. 1994) (district/circuit standards on dismissal for bad faith)
- Fidelity & Cas. Co. of N.Y. v. Warren (In re Warren), 89 B.R. 87 (9th Cir. BAP 1988) (non‑exclusive factors to evaluate good faith in Chapter 13)