Bankruptcy Court Abused Discretion in Failing to Confirm Plan

Posted by NCBRC - February 26, 2019

In a terse opinion, the Fifth Circuit balanced the evidence relied on by the bankruptcy court against various additional factors and concluded that the bankruptcy court abused its discretion when it denied the debtors’ chapter 13 plan for lack of good faith under section 1325(a)(3). Booker v. Johns (In re Booker), No. 18-30526 (5th Cir. Feb. 11, 2019) (unpublished).

In holding that the debtors’ plan was proposed in bad faith, the bankruptcy court relied on the fact that the debtors proposed to pay unsecured creditors at 4% while retaining their 1998 fishing boat, motor and trailer. The debtors proposed a new plan that was less favorable to them which the bankruptcy court confirmed. The debtors appealed, and the district court affirmed.

The circuit court found that the bankruptcy court apparently overlooked the following critical facts: neither the trustee nor any creditor objected to the proposed plan; the debtors voluntarily committed their social security income to the plan; there were no issues with respect to the debtors’ credibility or intention to maintain plan payments; and the plan finally approved by the bankruptcy court included surrender of the boat, motor and trailer, three TVs and a riding lawnmower, but did not increase the payments to unsecured creditors beyond the originally-proposed 4%. These facts and circumstances left the circuit court with “a firm and definite conviction that a mistake has been made.” (quoting Wilson v. Huffman (In re Missionary Baptist Found. of Am., Inc.), 712 F.2d 206, 209 (5th Cir. 1983)).

The court vacated the order confirming the debtors’ plan, reversed the finding of bad faith, and remanded for further proceedings.

Booker 5th Cir Feb 2019


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