In Goddard v. Bennetti, the Fourth Circuit U.S. Court of Appeals recently upheld the United States District Court for the Eastern District of North Carolina. The district court had affirmed the bankruptcy court’s denial of plan confirmation. The denial was based on the debtor’s failure to propose a Chapter 13 plan in good faith. The case involved an above-median income debtor who sought to pay off three luxury vehicles through his plan at $2,521.00 per monthii, while offering unsecured creditors only a 7.7% dividend. 2026 WL 1140872.
The court focused on several factors. These included the debtor’s failure to justify a need to retain all three vehicles and the high monthly payments both inside and outside the plan. The court also emphasized the low dividend offered to unsecured creditors. Additional factors included the timing of the vehicle purchases, which occurred shortly before the bankruptcy filing, and the vehicles’ prices - approximately $45,700, $61,800, and $57,700. The debtor acknowledged that he likely could have serviced his unsecured debt if he had reduced his vehicle expenses. Moreover, he had taken out more than $35,000 in unsecured loans around the same time as the vehicle purchases, including one loan taken the day before purchasing the 2022 Genesis G70. The bankruptcy court characterized these actions as “financial indiscretions.” Id. at *1, 2, 6, & 7.
The debtor argued that his plan payment should be determined solely by his budget and disposable income as calculated under the means test. Id. at *2. The court rejected this narrow interpretation of the good faith requirement under 11 U.S.C. § 1325. It agreed with the bankruptcy court that BAPCPA did not eliminate the requirement that a Chapter 13 plan be proposed in good faith. Instead, Congress intentionally preserved that requirement, even as it limited discretion within the means test. The good faith requirement serves as an equitable overlay. It prevents, among other things, plans from becoming a “haven for debtors... to receive a discharge of unsecured debts without making an honest effort to pay those debts.” Deans v. O’Donnell, 692 F.2d 968, 972 (4th Cir. 1982); 11 U.S.C. § 1325(a)(3); Id. at *4. Indeed, Mr. Goddard found no safe haven in bankruptcy for his financial indiscretions at the expense of his unsecured creditors.
As the court noted, “foundationally, the entire bankruptcy process is ‘an equitable procedure that is available to those who employ its benefits in good faith.’” Id. at 4 (quoting Herlihy v. DBMP, LLC, 167 F.4th 142, 151 (4th Cir. 2026)). A comparison of the outcomes underscores the inequity of the proposed plan. The debtor would have emerged with three paid-off vehicles and a discharge of over $78,000 of the $84,700 in allowed unsecured claims. In contrast, unsecured creditors would have received only 7.7% on debts that largely financed the luxury vehicle purchases.
This decision reinforces that a Chapter 13 plan must be proposed in good faith based on the totality of the circumstances. Technical compliance with the disposable income test under 11 U.S.C. § 1325(b) is not sufficient on its own. The ruling should encourage unsecured creditors to scrutinize plans more closely, particularly in cases where rising mortgage and vehicle expenses already strain repayment capacity.
While this case represents a cautionary tale for debtors living beyond their means and then seeking bankruptcy relief, it also serves as a reminder to lenders to be vigilant in the underwriting process.
We will continue to monitor developments in bankruptcy law closely and will update you as new guidance, court decisions, or regulatory changes become available. If you have questions on this topic or would like to learn more about Weltman’s Bankruptcy Recovery Solutions, feel free to connect with Attorney Genny Moss at any time.
This blog is not a solicitation for business, and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.
i. The vehicles involved were a 2015 Chevrolet Corvette, a 2021 GMC Sierra, and a 2022 Genesis G70.
The court focused on several factors. These included the debtor’s failure to justify a need to retain all three vehicles and the high monthly payments both inside and outside the plan. The court also emphasized the low dividend offered to unsecured creditors. Additional factors included the timing of the vehicle purchases, which occurred shortly before the bankruptcy filing, and the vehicles’ prices - approximately $45,700, $61,800, and $57,700. The debtor acknowledged that he likely could have serviced his unsecured debt if he had reduced his vehicle expenses. Moreover, he had taken out more than $35,000 in unsecured loans around the same time as the vehicle purchases, including one loan taken the day before purchasing the 2022 Genesis G70. The bankruptcy court characterized these actions as “financial indiscretions.” Id. at *1, 2, 6, & 7.
The debtor argued that his plan payment should be determined solely by his budget and disposable income as calculated under the means test. Id. at *2. The court rejected this narrow interpretation of the good faith requirement under 11 U.S.C. § 1325. It agreed with the bankruptcy court that BAPCPA did not eliminate the requirement that a Chapter 13 plan be proposed in good faith. Instead, Congress intentionally preserved that requirement, even as it limited discretion within the means test. The good faith requirement serves as an equitable overlay. It prevents, among other things, plans from becoming a “haven for debtors... to receive a discharge of unsecured debts without making an honest effort to pay those debts.” Deans v. O’Donnell, 692 F.2d 968, 972 (4th Cir. 1982); 11 U.S.C. § 1325(a)(3); Id. at *4. Indeed, Mr. Goddard found no safe haven in bankruptcy for his financial indiscretions at the expense of his unsecured creditors.
As the court noted, “foundationally, the entire bankruptcy process is ‘an equitable procedure that is available to those who employ its benefits in good faith.’” Id. at 4 (quoting Herlihy v. DBMP, LLC, 167 F.4th 142, 151 (4th Cir. 2026)). A comparison of the outcomes underscores the inequity of the proposed plan. The debtor would have emerged with three paid-off vehicles and a discharge of over $78,000 of the $84,700 in allowed unsecured claims. In contrast, unsecured creditors would have received only 7.7% on debts that largely financed the luxury vehicle purchases.
This decision reinforces that a Chapter 13 plan must be proposed in good faith based on the totality of the circumstances. Technical compliance with the disposable income test under 11 U.S.C. § 1325(b) is not sufficient on its own. The ruling should encourage unsecured creditors to scrutinize plans more closely, particularly in cases where rising mortgage and vehicle expenses already strain repayment capacity.
Key Takeaway:
While this case represents a cautionary tale for debtors living beyond their means and then seeking bankruptcy relief, it also serves as a reminder to lenders to be vigilant in the underwriting process.
We will continue to monitor developments in bankruptcy law closely and will update you as new guidance, court decisions, or regulatory changes become available. If you have questions on this topic or would like to learn more about Weltman’s Bankruptcy Recovery Solutions, feel free to connect with Attorney Genny Moss at any time.
This blog is not a solicitation for business, and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.
