Per Se Bad Faith? An Empirical Analysis of Good Faith in Chapter 13 Fee-Only Plans

Section 1325(a)(3) of the Bankruptcy Code requires chapter 13 plans to be proposed in good faith and not by any means prevented by law. Section 1325(a)(7) requires that the action of the debtor in filing the petition was in good faith. Courts evaluate both good faith provisions through a subjective inquiry into the totality of the circumstances in each case, typically using similar factors in the analysis. Many jurisdictions provide a list of factors for this assessment. Courts caution that any list is non-exhaustive and should not limit the subjective nature of the good faith inquiry. Some chapter 13 plans propose to pay little more than the trustee and attorney fees, and leave nothing or a nominal repayment to general unsecured creditors. These so-called fee-only plans challenge one of the underlying goals of chapter 13: a fair distribution of the debtor\u27s future income to repay creditors. While courts find most fee-only plans fail to satisfy the good faith requirements, three circuit courts have ruled that fee-only plans are not per se bad faith. This Comment provides insight into how courts are actually dealing with fee-only cases through an empirical study of good faith litigation over plans proposing zero or a nominal repayment to general unsecured creditors. This study compiles data and conducts a broad analysis of the factors that courts have listed and discussed in the totality of the circumstances test for good faith. This Comment hypothesizes that two particular variables are significant predictors of a court\u27s ruling on good faith: (1) the repayment to general unsecured creditors and (2) the number of factors discussed in the case. Analysis of the data does not support the first hypothesis but does support the second. This Comment concludes that, in the absence of a strong correlation between the number of factors and good faith rulings, courts should not overhaul the traditional good faith analysis when dealing with fee-only plans. This Comment suggests, however, one of the circuit court rulings may provide a modified approach that balances the benefits of a subjective, discretionary standard against the wide-ranging concern over plans that propose little or no repayment to general unsecured creditors