What Is Good Faith In Bankruptcy?
When filing for bankruptcy, one of the tests that is applied by a trustee is whether or not your petition and its components have been filed in ‘good faith’. In a Chapter 13 petition, for example, the trustee will look at how much you are proposing to pay in your monthly plan, and whether or not you are, within reason, paying as much as possible. While bankruptcy is designed to help debtors make a fresh start in life, the underwriting principle is that every creditor receives as much as possible from the process.
The principle of ‘good faith’ then is where you are representing everything honestly, and that you are trying to deliver as much as possible to your creditors. In effect, you are saying, “This is everything I can spare; take it, then leave me in peace.” And that is exactly what the Bankruptcy Act is designed to do. While the trustee is independent to an extent, their role is to follow the Bankruptcy Act in the best interests of everyone and that includes your creditors.
Creditors will often lodge objections to Chapter 13 payment plans based on that argument of good faith. From the debtor’s perspective, the important person in the equation is the trustee. If the trustee supports the creditor and also lodges an objection based on good faith, then you know your petition is in for a rough ride – you (and your attorney) are going to have to prove that good faith. On the other hand, if the trustee does not support the creditor, then it’s rare for their objection to succeed.
Your good faith commences when you first start talking to your attorney. You need to be honest and open about every aspect of your finances. Your attorney can juggle (where allowed in the Bankruptcy Act) your information in order to present the possible case for you. If you don’t act in good faith with your attorney, you may find a few unpleasant surprises waiting for you.
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March 16th, 2012 at 11:10 pm
I suppose I’m biased, but you’re always better off with a hired professional.