Goddard, an above-median income debtor and Army veteran suffering from PTSD, proposed a plan in which he would retain three secured vehicles—a Corvette, a GMC Sierra pickup truck, and a Genesis sedan—while making minimal distributions to unsecured creditors. The trustee objected to confirmation on the basis that retaining all three vehicles was not necessary and was inconsistent with the debtor’s obligation to propose the plan in good faith.
The Bankruptcy Court agreed, finding that although BAPCPA and Bledsoe v. Cook
70 F.4th 746 (4th Cir. 2023) permits above-median debtors to deduct payments on secured debts when calculating disposable income under the means test, the retention of the vehicles in this case—especially when viewed alongside the debtor’s prepetition borrowing activity—reflected an abuse of the spirit and purpose of Chapter 13. The court emphasized that the debtor would emerge from bankruptcy with three unencumbered vehicles while discharging over $78,000 in unsecured debt.
On appeal, Goddard argued that his full compliance with § 1325(b)’s means test should insulate the plan from any further scrutiny under the good faith standard of § 1325(a)(3). Relying on Bledsoe v. Cook, 70 F.4th 746 (4th Cir. 2023), he contended that the Bankruptcy Code leaves no room for judicial second-guessing where the debtor’s deductions are authorized under the means test.
The District Court disagreed, holding that § 1325(a)(3)’s good faith requirement remains a separate, independent confirmation standard that survived BAPCPA. While Bledsoe confirmed a debtor’s right to claim allowed expenses under the means test, it did not displace § 1325(a)(3), nor did it address whether a debtor’s use of allowable deductions could, under the totality of circumstances, still reflect bad faith. The District Court found the Bankruptcy Court’s factual findings not clearly erroneous and concluded that the plan’s structure—prioritizing retention of luxury vehicles while providing only token payments to unsecured creditors—violated the good faith requirement.
Commentary:
The bankruptcy adaga that a debtor "shouldn't drive a nicer car than the judge" still holds under this decision. That notwithstanding, hopefully bankruptcy judges and trustees also recognize current conditions where the average monthly car payment for vehicles is, according to Bankrate., around $742. That amount is the average for all consumers, but those filing bankruptcy overwhelmingly have subprime credit scores, increasing their costs.
The court’s ruling in Goddard risks reviving the pre-BAPCPA “smell test” that Congress deliberately replaced with a more mechanical means test. While the court paid lip service to Bledsoe v. Cook, its approach invites subjective moralizing about what a debtor “deserves” to keep, which runs counter to the explicit Congressional purpose and structure of Chapter 13 that not only limited judicial activism but privileged secured claims over unsecured creditors.
The potential for improper implicit biases, found in recent research to have a statistically significant effect on dismissal rates for bankruptcy judges and trustees, to further affect this already subjective standard is also a troubling consequence of this holding.
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