607 B.R. 774
Bankr. D. Me.2019Background
- Debtor filed Chapter 13 on July 26, 2018 and proposed a 60‑month plan while seeking to retain a 1981 Robalo boat, motor and trailer (the "Boat").
- Norway Savings Bank successfully contested the Plan’s valuation of the Boat; the Court later fixed its value at $15,500.
- Maine State Tax Assessor (MRS) objected to confirmation under 11 U.S.C. § 1325(a)(3), arguing the Plan was not proposed in good faith because the Debtor would retain the Boat while unsecured creditors received a small dividend.
- The Debtor filed multiple versions of Schedules I and J and a revised proposed confirmation order increasing payments mid‑Plan; the schedules showed large and inconsistent swings in household income and expenses and omitted a clear monthly Boat payment.
- The Court found the amended schedules unreliable and unclear about the source of funds for the increased payments; on that basis the Court sustained MRS’s good‑faith objection and denied confirmation, ordering a new plan within 21 days.
Issues
| Issue | MRS's Argument | Debtor's Argument | Held |
|---|---|---|---|
| Whether the Plan was proposed in good faith under § 1325(a)(3) | Retaining a luxury Boat while paying unsecured creditors a minimal dividend shows lack of honest effort to repay and is bad faith | Increasing payments (mid‑Plan) and spouse’s income make the Plan feasible and the Boat retention acceptable | Plan not proposed in good faith; objection sustained; confirmation denied |
| Reliability and feasibility based on Schedules I & J | Multiple, inconsistent schedule amendments timed to rebut objections show lack of credibility; amended J omits Boat payment so Plan may be infeasible | Schedule amendments correct earlier errors; expense reductions reflect legitimate budget tightening; spouse may fund household | Court found schedules unreliable and timing suspicious; Debtor failed burden to show feasibility and good faith |
| Whether retention of a luxury item per se defeats good faith | Payments on a luxury item disproportionate to Plan payments can evidence bad faith and prejudice creditors | Cites Ninth Circuit (Welsh): retention of secured collateral alone does not automatically show bad faith | Court rejects a per se rule; retention can support bad‑faith finding depending on facts, but here decision rested on disclosure/feasibility failures |
| Shifting luxury expenses to non‑filing spouse | Allocating luxury costs to non‑filing spouse to preserve debtor’s lifestyle is improper if debtor benefits and creditors suffer | Non‑filing spouse’s income is hers to spend; her payments can support Plan | Court held that shifting does not necessarily save a plan; spouse’s income alone not dispositive and may be a ploy if used to mask true household finances |
Key Cases Cited
- In re Puffer, 674 F.3d 78 (1st Cir. 2012) (totality‑of‑circumstances good‑faith inquiry under § 1325(a)(3))
- In re Bradley, 567 B.R. 231 (Bankr. D. Me. 2017) (debtor’s lifestyle and schedules evaluated for good faith)
- Drummond v. Welsh (In re Welsh), 711 F.3d 1120 (9th Cir. 2013) (holding retention of secured collateral is not per se bad faith)
- In re Martinelli, 482 B.R. 537 (Bankr. D.S.C. 2012) (examining non‑filing spouse allocations and good‑faith implications)
- In re McNichols, 254 B.R. 422 (Bankr. N.D. Ill. 2000) (false or misleading Schedules I/J can support a bad‑faith finding)
- In re Sutliff, 79 B.R. 151 (Bankr. N.D.N.Y. 1987) (retention of luxury items can indicate bad faith)
- In re Wrobel, 525 B.R. 211 (Bankr. W.D.N.Y. 2015) (distinguishing disposable‑income calculus from good‑faith inquiry)