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Good Faith in Bankruptcy

Role of ‘good faith’ is of great importance in bankruptcy.  A bankruptcy trustee checks whether or not a petition and repayment plan have been filed in ‘good faith’.  The bankruptcy court will confirm a debtor’s repayment plan only if the court is convinced that the plan is proposed in good faith.  What means by ‘good faith’, differs among the courts.

While checking the good faith element, the trustee will look at how much you are proposing to pay in your monthly plan, and whether or not you are paying as much as possible.  The element of good faith would be found when a debtor is representing everything honestly, and is trying to distribute from his/her disposable income as much as possible to all creditors.  A debtor should not overstate the amount of deductions or deducted expenses that are not reasonably necessary for the support of his/her family.  At the same time as bankruptcy is designed to help debtors make a fresh start in life after discharging debts, the principle is also that every creditor gets as much as possible from the course of action.

However, if the Chapter 13 trustee does not think a debtor acted in good faith while proposing the repayment plan, the trustee can object to his/her plan.  The role of an independent trustee is to follow the Bankruptcy Code in the best interests of everyone including the creditors.

Additionally, creditors may file objections to payment plans based on good faith.  It is important from the debtor’s side that the trustee supports the debtor.  If a trustee objects to the plan along with the creditors, a debtor may have tough time ahead proving good faith.  In contrast, if the trustee is not convinced by the objection of the creditor, then it is highly possible for the debtor to succeed.

Inside Good Faith in Bankruptcy