570 B.R. 432
Bankr. N.D. Ga.2017Background
- Debtor filed Chapter 13 on November 11, 2016; monthly income sources: retirement $1,123, VA benefits $1,255, Social Security $2,071.
- On Schedule J debtor deducts $920 of Social Security monthly as “savings for unforeseen expenses.”
- Plan: $1,000/month for 36 months; pay home-improvement secured claim in full ($14,705.89 at 4.5%); unsecured creditors receive a $8,000 pool (≈20% recovery).
- Chapter 13 Trustee objected under 11 U.S.C. §1325(a)(3) asserting lack of good faith based on (1) insufficient disclosure about the $920 Social Security exclusion, (2) apparent ability to save large sums while paying unsecured creditors little, and (3) recent home-improvement loan being paid in full while unsecured creditors get modest distribution.
- Court applied the Eleventh Circuit’s totality-of-the-circumstances Kitchens factors and requested additional evidence on the home-improvement loan treatment.
Issues
| Issue | Plaintiff's Argument (Trustee) | Defendant's Argument (Debtor) | Held |
|---|---|---|---|
| Must debtor disclose how excluded Social Security funds will be used? | Debtor must fully disclose disposition; failure suggests bad faith. | Social Security benefits are excluded from "current monthly income" and need not be paid into plan; detailed disclosure unnecessary. | Court: No additional disclosure required; exclusion of Social Security is permitted and not per se bad faith. |
| Is retaining Social Security while proposing modest unsecured payments bad faith? | Retaining $920/mo and paying unsecured creditors ~$8,000 (≈20%) across plan shows insufficient payments and bad faith. | Code and precedent exclude Social Security from disposable income; following statutory calculations is good faith. | Court: Retention alone is insufficient to show bad faith; plan consistent with Code may be proposed in good faith. |
| Is paying a recently incurred home-improvement secured loan in full while unsecured creditors get little evidence of bad faith? | Paying that secured loan in full (incurred within a year of filing) suggests recent lifestyle change or manipulation to prefer secured creditor. | Debtor says loan funded necessary home repairs. | Court: Cannot resolve on present record; hearing reset for evidence on circumstances of loan acquisition and necessity. |
| Overall confirmation? | Trustee seeks denial for lack of good faith. | Debtor seeks confirmation. | Court: Trustee's objection overruled except as to the home-improvement loan issue; confirmation hearing continued to permit proof on that loan. |
Key Cases Cited
- Brown v. Gore (In re Brown), 742 F.3d 1309 (11th Cir.) (totality-of-the-circumstances good-faith test in Eleventh Circuit)
- Kitchens v. Ga. R.R. Bank & Trust Co. (In re Kitchens), 702 F.2d 885 (11th Cir.) (listing nonexclusive factors for good-faith review)
- Mort Ranta v. Gorman, 721 F.3d 241 (4th Cir.) (Social Security income excluded from disposable income in Chapter 13 feasibility analysis)
- Welsh (In re Welsh), 711 F.3d 1120 (9th Cir.) (following statutory calculations that exclude Social Security does not constitute bad faith)
- Beaulieu v. Ragos (In re Ragos), 700 F.3d 220 (5th Cir.) (retention of exempt Social Security benefits insufficient alone to prove bad faith)
- Anderson v. Cranmer (In re Cranmer), 697 F.3d 1314 (10th Cir.) (same: exclusion of Social Security from disposable income precludes per se bad-faith finding)
- Baud v. Carroll, 634 F.3d 327 (6th Cir.) (recognizing Social Security exclusions in Chapter 13 calculations)
- Ransom v. FIA Card Servs., N.A., 562 U.S. 61 (2011) (discussing BAPCPA objectives and means-testing)