Background
Bobby Eugene Goddard, an above-median income debtor, filed a Chapter thirteen petition proposing a plan to pay off loans on three recently purchased luxury vehicles while paying unsecured creditors less than eight cents on the dollar. The bankruptcy court rejected the plan, finding it was not proposed in good faith because it allowed Goddard to retain luxuries at the expense of creditors despite technical compliance with the means test. The district court affirmed the rejection, and Goddard appealed to the Fourth Circuit.
The court’s reasoning
The court rejected the argument that compliance with the disposable income test immunizes a debtor from good faith scrutiny. It explained that the good faith requirement is a separate, equitable overlay designed to prevent abuse of the bankruptcy process. The court noted that Congress intended the means test to calculate disposable income but did not eliminate the broader inquiry into whether a plan abuses the provisions, purpose, or spirit of the Chapter. The court found that Goddard’s plan, which sought to discharge over seventy-eight thousand dollars of unsecured debt while retaining three luxury vehicles, amounted to an abuse of the Chapter thirteen provisions.
What it means going forward
The decision clarifies that debtors cannot rely solely on the mechanical application of the means test to shield Chapter thirteen plans from good faith challenges. It empowers bankruptcy courts to deny confirmation of plans where debtors manipulate the system to retain luxury assets while minimizing payments to unsecured creditors.