Large Mortgage Payments Alone Do Not Indicate Bad Faith Bankruptcy

April 27th, 2010 by Reed Allmand

In the Chapter 13 bankruptcy case of Wick, Dana L.; In re, the bankruptcy court confirmed the debtors’ Chapter 13 bankruptcy plan over the bankruptcy trustee’s objection.

Bankruptcy case details:

The debtor and her husband purchased a home in February 2006. At the time, they had not sold their existing home. The real estate market began its fall after the debtors bought their new home. At the same time, the debtor’s husband lost his income. After making mortgage payments on both properties with diminished income for 18 months, the debtor opted to file for Chapter 13 relief. The debtor’s plan proposed to surrender the couple’s former home and a car. The trustee objected to confirmation of the plan. The trustee argued that the debtor and her husband should abandon their current home with its monthly mortgage pay­ment of $4,856, which was 4.7 times greater than the IRS standard allowance and accounted for 59.4 percent of the debtor’s income. If the debtor’s family moved to a more afford­able home, she could increase her plan payments. For this reason, the trustee asserted that the debtor was not paying all her projected disposable income into the plan and that the plan was not proposed in good faith.

The bankruptcy court also said that the trustee had no evidence that there would be significant changes in the debtor’s disposable income during the commitment period of the Chapter 13 bankruptcy plan.   Also, the bankruptcy court asserted that the bankruptcy trustee could not redefine disposable income or projected disposable income just because a debtor’s mortgage payment appears much higher that the reasonable needs of the debtor. In the end, the bankruptcy court found that the debtor filed bankruptcy in good faith for reasons beyond her control and that her Chapter 13 bankruptcy plan represented her best efforts.

About Reed Allmand

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Allmand's vision is rooted in his own financially precarious childhood in Abilene "My father always had difficulty holding a job and supporting our family, so after my parents divorced when I was 12, my sister and I got jobs to help make ends meet," he recalls. "I remember what it felt like as a child to worry that our car would be repossessed or home foreclosed on."

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