In Re: DAVID C. WELSH and SHARON N. WELSH
711 F.3d 1120
9th Cir.2013Background
- David and Sharon Welsh filed a voluntary Chapter 13 petition in the District of Montana; Trustee objected that the plan was not proposed in good faith under 11 U.S.C. § 1325(a)(3).
- Debt schedules show substantial secured debt and roughly $180,500 unsecured claims, including daughter's $60,000 student loan and $50,000 line of credit; home valued at $400,000 with $330,593.66 secured lien.
- Debtors report Mrs. Welsh’s income as a nurse with pensions; Mr. Welsh is retired with Social Security of $1,165 and other income; Debtors’ Form 22C disposable income calculated with means test shows $218.12 monthly disposable income after deducting secured claims, excluding Mr. Welsh’s SS income per § 707(b)(2)(A)(i).
- Plan proposed $125 monthly to unsecured creditors for first 30 months, then $500 for last 30 months; after vehicle loans are paid, unsecured distributions remain minimal overall.
- Bankruptcy court applied a traditional totality-of-the-circumstances test for good faith and held that excluding Social Security income and payments to secured creditors were not evidence of bad faith; the court relied on § 1325(b) and § 707(b)(2) as controlling.
- BAP affirmed; Welshes’ exclusion of Social Security income from disposable income and payments to secured creditors were not probative of lack of good faith under § 1325(a)(3) in light of BAPCPA changes.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SS income may be considered in good-faith analysis | Welsh argues SS income should not be considered in good faith given § 407 and means test exclusions. | Trustee contends SS income can be considered as a factor in good faith despite disposable income calculation. | SS income cannot be used in good-faith analysis; precluded by BAPCPA. |
| Whether payments to secured creditors affect good faith under § 1325(a)(3) | Welshes’ payments to secured debts are within means test and should not trigger lack of good faith. | Trustee argues heavy secured-debt payments may show inequitable plan design and bad faith. | Payments to secured creditors are not to be evaluated for good faith under § 1325(a)(3); analysis limited by means test. |
Key Cases Cited
- In re Goeb, 675 F.2d 1386 (9th Cir. 1982) (foundation for broad 'good faith' inquiry and case-by-case balancing)
- In re Leavitt, 171 F.3d 1219 (9th Cir. 1999) (totality-of-the-circumstances factors for bad faith)
- Ransom v. FIA Card Servs., N.A., 131 S. Ct. 716 (2011) (means-test deductions and secured/ownership considerations)
- Baud v. Carroll, 634 F.3d 327 (6th Cir. 2011) (pre-BAPCPA vs. post-BAPCPA disposable income considerations)
- Anderson v. Cranmer (In re Cranmer), 697 F.3d 1314 (10th Cir. 2012) (Social Security income not to be included in disposable income in some circuits)