In re: Welsh

Summarized by:

  • Court: 9th Circuit Court of Appeals Archives
  • Area(s) of Law: Bankruptcy Law
  • Date Filed: 03-25-2013
  • Case #: 12-60009
  • Judge(s)/Court Below: Senior Circuit Judge Ripple for the Court; Circuit Judges Trott and Paez
  • Full Text Opinion

The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act specifically prohibits the inclusion or evaluation of a debtor’s social security benefits when reviewing the debtor’s proposed Chapter 13 plan according to §1325(a)’s requirement for good faith, and bad faith is not present merely because the debtor’s properly calculated disposal income is seriously reduced by payments to secured creditors, leaving relatively little chance that unsecured creditors would be substantially repaid.

Defendant debtors’ proposed Chapter 13 plan, drafted in accordance with the statutory means test for the determination of discretionary income, was submitted without using one of the debtor’s monthly Social Security income since Social Security benefits are statutorily excluded from consideration. The trustee objected to the plan, arguing that the plan was not submitted in good faith because there was “egregious behavior” since a significant portion of the debtors’ income would be going to secured creditors for recreational vehicles, and social security income was not considered to help pay unsecured creditors. The plan would only pay off $14,700 of the debtors’ $180,500 total unsecured debt. The bankruptcy court and bankruptcy appeals panel affirmed the plan, but the trustee renewed his arguments before the Court of Appeals for the Ninth Circuit. The panel examined the history of the good faith requirement, observing that Congress was aware that some courts had reached unique results when they considered whether the good faith requirement had a substantial repayment requirement. Ultimately, with the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act that revised Chapter 13, Congress replaced the court’s discretion to evaluate each debtor’s unique circumstances to determine the debtor’s “ability to pay” with the statutory means test procedure to calculate the debtor’s disposable income. The panel found that Congress made the policy choice to give preference to debtors paying secured claims before unsecured claims. Congress also made a policy choice when its 2005 revision of Chapter 13 supplanted the courts’ discretion about what is not “reasonably necessary” for the maintenance and support of the debtor, and in turn allows debtors to reduce their disposable income determination by payments made on secured debts. AFFIRMED.

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