597 B.R. 647
Bankr.D. Colo.2019Background
- Debtor Fidencio Melendez (age ~55) filed Chapter 13 and proposed a 60‑month plan paying $142.03/month to the trustee (total ~$8,521.80) to cover counsel fees, IRS priority taxes, and trustee fees; mortgage is paid directly.
- Debtor earns $5,017 gross/month (above‑median single household), makes $995/month voluntary 401(k) contributions and $146/month loan repayments to his 401(k); retirement account balance ≈ $254,222 (claimed exempt).
- Scheduled unsecured debt (mostly credit cards) ≈ $66,000; under the Plan unsecured creditors receive $0 while the Debtor would contribute ~$59,700 to his retirement over five years.
- Trustee objected principally that the plan lacked good faith under 11 U.S.C. §1325(a)(3) because of continued large voluntary retirement contributions and zero payout to unsecured creditors; trustee did not press a formal §1325(b)(1) projected disposable income objection.
- Court confined its review to the §1325(a)(3) good‑faith issue (declining to resolve broader split of authority on whether postpetition voluntary retirement contributions must be counted as projected disposable income) and applied the Flygare totality‑of‑the‑circumstances test as clarified by Cranmer.
- Court denied confirmation: held the Plan was not proposed in good faith because the Debtor elected to substantially increase retirement savings while offering unsecured creditors nothing, which constituted an abuse of Chapter 13’s purpose.
Issues
| Issue | Plaintiff's Argument (Debtor) | Defendant's Argument (Trustee) | Held |
|---|---|---|---|
| Whether a Chapter 13 plan that permits substantial postpetition voluntary retirement contributions while paying unsecured creditors $0 is proposed in good faith under §1325(a)(3) | Contributions are necessary, were disclosed, and Debtor bears burden to show good faith; court should not reject a plan solely because payout is small if calculations comply with law | Plan lacks good faith: Debtor preferentially funds his retirement ($995/mo) to the detriment of unsecured creditors; such treatment is abusive and manipulative of the Code | Denied confirmation: plan not proposed in good faith under §1325(a)(3); voluntary contributions and $0 payout create abuse of Chapter 13 purpose |
| Whether the court should decide the statutory projected disposable income question (i.e., whether postpetition voluntary retirement contributions must be included in §1325(b)(1) calculations) | Debtor did not concede that contributions must be disallowed; argued good faith inquiry is the proper focus here | Trustee identified split in authority but did not press a §1325(b)(1) exclusion argument; focused on good faith | Court declined to decide the broader projected disposable income issue because parties litigated only good faith; reserved the question for another case |
Key Cases Cited
- Flygare v. Boulden, 709 F.2d 1344 (10th Cir. 1983) (announces totality‑of‑the‑circumstances good‑faith test and enumerates Flygare factors)
- Anderson v. Cranmer (In re Cranmer), 697 F.3d 1314 (10th Cir. 2012) (limits good‑faith inquiry post‑BAPCPA and endorses Flygare factors while narrowing focus toward ability‑to‑pay issues)
- Seafort v. Burden (In re Seafort), 669 F.3d 662 (6th Cir. 2012) (supports the view that postpetition voluntary retirement contributions may be excluded from disposable income analysis)
- Johnson (In re Johnson), 346 B.R. 256 (Bankr. S.D. Ga. 2006) (holds debtors may make postpetition retirement contributions and courts should assess good faith separately)
- Prigge (In re Prigge), 441 B.R. 667 (Bankr. D. Mont. 2010) (takes the contrary view that postpetition voluntary retirement contributions are not excludable from projected disposable income)