Bobby Goddard, an above-median income debtor in North Carolina, filed for Chapter 13 bankruptcy while earning over $12,000 per month. He owned three luxury vehicles—a Corvette, a GMC Sierra, and a Genesis G70—which he had purchased within the 32 months prior to filing, often financing them with personal loans taken out shortly before the purchase. Goddard proposed a Chapter 13 plan that utilized the statutory means test to calculate his disposable income. By deducting the full monthly payments for these secured vehicle loans, he reported zero disposable income available for unsecured creditors. Consequently, his plan proposed paying unsecured creditors only about 7.7% of their claims over a 60-month period, while allowing him to retain ownership of the three vehicles free of liens. The Chapter 13 Trustee objected, arguing the plan was not proposed in good faith. The bankruptcy court rejected the plan, finding that Goddard was attempting to use the bankruptcy process to improve his financial condition at the expense of creditors by retaining luxuries without making an honest effort to repay debts. The district court affirmed, and Goddard appealed to the Fourth Circuit.
Judge Niemeyer, writing for a unanimous panel, rejected Goddard's argument that strict compliance with the disposable income test under 11 U.S.C. § 1325(b) immunizes a plan from a good faith inquiry under § 1325(a)(3). The court explained that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) removed judicial discretion from the calculation of disposable income but did not eliminate the separate, equitable requirement of good faith. The court reasoned that the good faith inquiry is broader than a mechanical calculation; it asks whether the plan is an abuse of the provisions, purpose, or spirit of the Chapter. The court noted that the Bankruptcy Code was designed to give a fresh start to debtors making an honest effort to repay debts, not to serve as a haven for those who manipulate the system to discharge unsecured debt while retaining luxury assets. The court distinguished the Ninth Circuit's decision in In re Welsh, clarifying that while the means test determines the amount of funds to be paid, the good faith test examines the debtor's motivation and whether the plan constitutes an abuse of the Code. Applying these principles, the court found no clear error in the bankruptcy court's determination that Goddard's plan was proposed in bad faith. The court highlighted that Goddard purchased the vehicles shortly before filing, did not establish a practical need for three vehicles, and sought to discharge over $78,000 in unsecured debt while retaining unencumbered ownership of the cars. The court concluded that such conduct demonstrated an attempt to improve his financial condition at the expense of creditors, violating the good faith requirement.
The decision affirms that Chapter 13 debtors cannot rely solely on the means test to shield their plans from good faith scrutiny. Debtors who purchase luxury assets shortly before filing and propose plans that pay unsecured creditors a minimal percentage while retaining those assets risk rejection of their plans. The ruling reinforces that bankruptcy courts must look beyond the numbers to ensure debtors are making an honest effort to repay debts. The case is remanded with instructions to affirm the lower courts' rejection of Goddard's plan, meaning he cannot discharge his debt under the proposed terms and must either modify the plan to pay more to creditors or face dismissal.