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Determining whether a debt repayment plan was in good faith

On Behalf of | May 28, 2016 | Chapter 13 Bankruptcy, Firm News

Filing for Chapter 13 bankruptcy allows Florida residents to keep their property while dealing with their financial situations. A debt repayment plan is required as part of the process. That plan needs to be made and presented in good faith, and sometimes, it is up to the court to determine whether that is truly the case.

For example, a woman’s financial situation had deteriorated to the point where she could not even afford to file for Chapter 7 bankruptcy because she could not pay her attorney. Therefore, she filed under Chapter 13. When she presented her repayment plan to the court, it only included the payments of fees and no payments were included for creditors.

The trustee objected to her plan and even asked the court to convert her case to a Chapter 7. In the objection, it was stated that in order for the plan to include only fees, “special circumstances” had to be proved by the filer. The trustee proposed that the filer did not meet those criteria. The judge rejected the argument, finding that was a restriction placed on filers by the courts and was not in line with the federal Bankruptcy Code. He determined that her plan was filed in good faith and should be approved.

The courts are in the precarious position of attempting to ensure that the filer is given the opportunity to be bound by a debt repayment plan that is fair. However, they are also required to ensure that creditors are also treated fairly. A Florida filer will need to provide the court with the evidence it needs to know that the plan was created in good faith and will best serve everyone involved.

Source: Bloomberg BNA, “Debtor Can Confirm ‘Fees Only’ Chapter 13 Plan”, Daniel Gill, May 18, 2016

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