No Bad Faith in Failure to Modify

Posted by NCBRC - October 28, 2013

It is not bad faith for a debtor to fail to move to modify her chapter 13 plan to take into account post-confirmation increased equity in her residential property. In re Garajau, 10-18478 (Bankr. D. Mass. Sept. 30, 2013). When the debtor filed for bankruptcy she owed more on her mortgage than her residence was worth. At that time, she was also in the midst of a lawsuit concerning a parking easement to her property which the state-court defendants had blocked access to. The debtor disclosed the lawsuit in amendments to her schedules, valuing it at $8,000.00 and claiming that amount as exempt. The debtor’s 1% plan was confirmed. After the debtor won her state court lawsuit the trustee requested that the property be revalued. The new valuation showed that the debtor now had equity in the property.  The trustee then moved to dismiss arguing that the debtor’s failure to modify her plan to take into account the new equity in the property constituted bad faith.

The court began by noting that the motion before it was not to modify that plan or revoke confirmation but to dismiss “for cause” on the basis of bad faith pursuant to the court’s discretion under section 1307(c). Bad faith is not included in the list of examples of the “cause” that could justify dismissal, and though that list is non-exclusive, the court stated that it was aware of no cases in which failure to modify a plan could constitute bad faith. In fact, section 1329 permits the debtor or trustee to move for modification but does not require it of any party. The court found that bad faith cannot be based on the failure to do what the Code explicitly does not require.

The court declined to discuss whether a trustee motion to modify would have met with success.

Garajau opinion


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