What does "good faith" mean?
The term “good faith” in bankruptcy does not have an official definition. It is a phrase that refers to the consumer’s honesty or trustworthiness in his/her papers or declarations. If the consumer truly filed bankruptcy with the intention of wiping the debts so as to be able to start over and then he/she actually makes all the payments specified in his/her Chapter 13 case, the objection should not get in the way of his/her petition.
Sometimes though, the creditors file a good faith objection, as a tactic or a way to manipulate the consumer into changing his/her plan to make it more profitable for them, rather than for it to succeed. They probably already know that it is a feasible plan but they also know that they could get more. If the consumer suspects that this is the case, he/she should seek help from a bankruptcy attorney.
What does the court look for in a contested case?
Multiple Filing. If within a year, the consumer has filed and dismissed two or more cases, the court might view the next filing as also lacking in good faith. The court would wonder what the matter with the consumer is as he/she can’t seem to figure out or change what was wrong with the previous cases.
o How can the consumer justify a refilling then?
The consumer must be able to show the court that his/her circumstances have changed. That his/her income increased, that he/she has a new job that would allow for an income deduction order to commence, that his/her debts were somewhat reduced, and that the reason for the most recent dismissal was an event or circumstance that he/she can’t help.
The court would also consider it bad faith if the consumer filed Chapter 13 to go around Chapter 7’s rule of “cannot file it again within eight years after receiving a discharge.” This is possible in a Chapter 7 case in which the consumer’s proposed payment amount to his/her creditors is way below what he/she owes them.
Misrepresentation or inaccuracy in the papers and statements.
If the consumer inputted incorrect figures like income, debts, expenses, and assets the court will view it as negligence and it might lead to the dismissal of the case. Once the consumer discovers that he/she has committed an error in the papers, he/she should immediately inform the trustee at the meeting with the creditors, and be sure to quickly correct those errors.
The consumers true motive for filing Chapter 13.
If the consumer’s reasons for filing Chapter 13 are making up payments for his/her mortgage, paying off tax debt, or to get a break from paying the creditors, then there is no harm in those. On the other hand if the consumer filed for Chapter 13 to avoid or reject obligations from a lease or contract, then that is a different story. The court would put it down to lack of good faith. Another act that the court is not going to appreciate is if the consumer filed just to pay off a single non-dischargeable debt like a student loan, or financial obligation to somebody whom he/she has committed a crime against.
The consumer’s repayment effort.
If the consumer cannot pay the unsecured, non-priority creditors in full, he/she must show that he/she is maximizing his/her funds or is doing his/her best to make at least the closest amount to the full payment as possible. The court cannot see the consumer spending for luxury items, causing damage to his/her investments, but he/she should instead be making efforts to increase his/her income.
The reason for the hardship.
Bankruptcy courts generally would not fault the consumer if his/her cause for default payments is beyond his/her control. It could be that he/she was hit by a natural disaster, been through an accident, was ill, lost his/her job, or it could be that a death in the family created a negative impact on his/her financial situation.