In re Ogden
IN PROCEEDINGS UNDER CHAPTER 13 OF THE BANKRUPTCY CODE
ORDER
The above-styled case came before the Court for a' hearing on confirmation of the Debtor’s Second Amended Plan on March 16, 2017, at 9:10 AM. At the hearing, the Chapter 13 Trustee raised an objection to confirmation alleging that the Debtor had failed to satisfy the good-faith requirement of § 1325(a)(3) of the Bankruptcy Code. After hearing argument from counsel at the hearing, the Court requested briefing from both parties. Having considered the record in this case, the arguments of counsel, and the briefs filed with the Court, the Court concludes as set forth below.
Discussion
The Debtor filed this case on November 11, 2016. According to the Debtor’s most recently filed Schedule I, the Debtor has three sources of income: retirement income ($1,123 per month), Veterans Affairs benefits ($1,255 per month), and Social Security income ($2,071 per month). On
The Debtor’s Chapter 13 plan, as proposed, calls for payments of $1,000 per month for thirty-six months. Among other terms, the plan proposes to pay a secured claim based on a home-improvement loan in full—$14,705.89 with 4.5% interest. For unsecured creditors, the Debtor offers a pool of $8,000 for them to share pro rata, which works out to payment of approximately 20% of their claims.
The Trustee objects to the confirmation of the Debtor’s plan because, he asserts, the Debtor has not proposed her plan in good faith. Section 1325(a)(3) requires that a Chapter 13 plan be “proposed in good faith and not by any means forbidden by law.” 11 U.S.C. § 1325(a)(3). The Code does not define “good faith,” so courts have taken it upon themselves to decipher a meaning for the term. In the Eleventh Circuit, courts determine good faith by performing a “totality of the circumstances” review of the case. See Brown v. Gore (In re Brown),
(1) the amount of the debtor’s income from all sources;
(2) the living expenses of the debtor and his dependents;
(3) the amount of attorney’s fees;
(4) the probable or expected duration of the debtor’s Chapter 13 plan;
(5) the motivations of the debtor and his sincerity in seeking relief under the provisions of Chapter 13;
(6) the debtor’s degree of effort;
(7) the debtor’s ability to earn and the likelihood of fluctuation in his earnings;
(8) special circumstances such as inordinate medical expense;
(9) the frequency with which the debtor has sought relief under the Bankruptcy Reform Act and its predecessors;
(10) the circumstances under which the debtor has contracted his debts and his demonstrated bona fides, or lack of same, in dealings with his creditors;
(11) the burden which the plan’s administration would place on the trustee.
Kitchens v. Ga. R.R. Bank and Trust Co. (In re Kitchens),
In his brief, the Trustee identifies three facts that he believes indicate a lack of good faith in this case: (1) the Debtor has failed to fully disclose how she intends to use the $920 in Social Security income she is holding back every month; (2) the Debt- or proposes to “save” $920 every month while only paying unsecured creditors $8,000 pro rata-, and (3) the Debtor proposes to pay a home-improvement loan in full while only paying unsecured creditors
(1) The Debtor’s Disclosure
The Trustee’s first alleged indication of a lack of good faith is the Debtor’s failure to provide details concerning how she plans to use the $920 in Social Security income she is excluding from her case. The Trustee argues that the Debtor’s mere assertion that she is “saving” the money is not sufficient.
Addressing this ground for the Trustee’s objection to confirmation requires consideration of the unique treatment Social Security income receives under the Bankruptcy Code. Though the Eleventh Circuit has not dealt with the issue of Social Security income in a Chapter 13 case, the prevailing view among the courts that have dealt with it is that Social Security income does not need to be paid into a Chapter 13 plan. See, e.g., Mort Ranta v. Gorman,
Reaching this conclusion requires following a straightforward logical path. The path begins with § 1325(b), which requires that a plan provide at least for payment of all of the debtor’s “projected disposable income” to unsecured creditors. 11 U.S.C. § 1325(b)(1)(B). The Code defines “disposable income” in § 1325(b)(2) as, with some exceptions not relevant here, “current monthly income received by the debt- or. . .less” certain expenses allowed by the Code. 11 U.S.C. § 1325(b)(2); see also In re Ragos,
The Code defines “current monthly income” broadly as “the average monthly income from all sources that the debtor receives.. .without regard to whether such income is taxable income....” 11 U.S.C. § 101(10A)(A). However, the next paragraph narrows the definition, noting that current monthly income “excludes benefits received under the Social Security Act.” 11 U.S.C. § 101(10A)(B). Therefore, because Social Security income is excluded from current monthly income, which is in turn used to calculate disposable income and a debtor’s plan payment, Social Security income is not considered when calculating how much a debtor has to pay into his Chapter 13 plan. See, e.g., In re Ragos,
In the instant case, acknowledging the weight of authority in support of the conclusion just reached, the Trustee concedes that the Debtor is not required to pay all of her Social Security income into the plan. Nevertheless, the Trustee maintains that the Debtor still ought to completely disclose what she does with that money, and her failure to do so suggests a lack of good faith. The Court disagrees.
The sections of the Code discussed above show a clear intent to protect Social Security income from the bankruptcy process. What this intent means for the matter at hand—whether the' Debtor must provide greater detail of what she intends to do with her Social Security benefits—is that a debtor need not disclose the disposition of Social Security income he does not intend to use toward his plan.
This does not mean that a debtor cannot disclose how he is using Social Security income. For instance, a debtor may use proof of Social Security income to show that his plan is feasible. See Mort Ranta,
In the instant case, the Debtor’s filings indicate that she does not need the $920 per month, that is, she can make her plan payment and pay all necessary expenses •without it. Consequently, the Debtor proposes to “save” this money. The Court finds that this level of disclosure is not an indication of a lack of good faith. Given Congress’s intention to exclude Social Security income from the bankruptcy process and the fact that no party has raised a feasibility challenge to the Debtor’s plan, the Court does not need to know more about how the Debtor intends to dispose of this $920 per month. It is enough to know that she has the income and that she intends to exclude it, as the Code allows her to do. Accordingly, the Court finds no lack of good faith in her failure to provide a more thorough explanation of her plans for the Social Security income.
(2) Insubstantiality of Payments
The Trustee contends that the Debtor’s proposal to save $920 per month while only paying an $8,000 pool to unsecured creditors indicates a lack of good faith. The Trustee notes that over the life of the Debtor’s proposed plan, this arrangement will allow the Debtor to save $83,120. The Trustee concludes that the insubstantiality of the payments to unsecured creditors, when considered in light of the Debtor’s total income, precludes a finding of good faith.
In support of his position, the Trustee relies on a 2010 case from another court in this District, In re Thomas,
Among the cases cited in the Debtor’s brief in support of confirmation is In re Welsh,
The Court agrees with those courts that have concluded that retaining Social Security income is not sufficient to show a lack of good faith. Indeed, as the Tenth Circuit has noted, to conclude otherwise “would render the Code’s express exclusion of [Social Security income].. .meaningless.” In re Cranmer,
Applying that rule in the instant case, the Court finds that the Debtor’s retention of $920 of her Social Security income, while paying unsecured creditors approximately 20% of their claims, does not constitute a lack of good faith. The Court acknowledges that the optics of the situation are not pleasant, and that it does raise a specter of unfairness to allow the Debtor to amass over $30,000 in savings while her unsecured creditors receive only $8,000. But that is the way the Code is written, and it is not “bad faith for [the Debtor] to adhere to the provisions of the Bankruptcy Code and, in doing so, obtain a benefit provided by it.” See In re Cranmer,
(3) Paying the Secured Loan
The Trustee’s final ground for objecting to confirmation is based on the Debtor’s proposal to pay her home-improvement loan in full, but only pay unsecured creditors $8,000. The Trustee asserts that the Debtor acquired this loan, which the Debtor maintains was for necessary home repairs, near the end of March of 2016, whjch was less than seven months before she filed her petition. The Trustee contends that paying this loan in full, while providing relatively little for unsecured creditors, shows a lack of good faith.
This argument raises issues related to the tenth Kitchens factor: “the circumstances under which the debtor has contracted his debts and his demonstrated bona fides, or lack of same, in dealings with his creditors.” See In re Kitchens,
Here, the Court finds that it cannot, with just the information in front of it, conduct the fact-bound inquiry required to resolve this aspect of the Trustee’s objection. It is suggestive of a lack of good faith that the Debtor had work done to her home and acquired a loan less than a year before filing her case, and now proposes to pay that loan off in full while paying so
Conclusion
For the reasons set forth above, it is hereby ORDERED that the Trustee’s Objection to Confirmation is OVERRULED except to the extent discussed above.
IT IS FURTHER ORDERED that the confirmation hearing is reset to May 18, 2017, at 2:00 PM, in the Second Floor Courtroom, Lewis R. Morgan Federal Building, 18 Greenville Street, Newnan, Georgia.
The Clerk is DIRECTED to serve this Order on the Debtor, the Debtor’s counsel, the Trustee, and all other parties in interest.
Notes
. The Trustee argues that reaching this conclusion is contrary to the goal of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA)—"to help ensure that debtors who can pay creditors do pay them.” See Ransom v. FIA Card Servs., N.A.,