## Facts

- Marcia Britt worked for David M. Landis, P.A. (DML).
- While employed by DML, Britt embezzled almost $20,000 from the firm.
- Britt later filed for bankruptcy relief under Chapter 13 and proposed a Chapter 13 repayment plan.
- DML filed (1) an objection to confirmation and (2) a motion to dismiss the Chapter 13 case.
- DML argued Britt’s plan failed the “good faith” requirement of 11 U.S.C. § 1325(a)(3) because the debt arose from embezzlement and was the type of obligation that would not be discharged in Chapter 7 under § 523(a)(4).
- DML did not claim Britt misstated her debts, income, or expenses, hid assets, or made fraudulent statements in her schedules or in the plan.

## Issues

1. Whether a Chapter 13 plan is not proposed in good faith under 11 U.S.C. § 1325(a)(3) solely because the plan seeks to deal with a debt arising from embezzlement that would be nondischargeable in Chapter 7.

## Decision

- The court held that the embezzlement-based nature of the debt, without more, did not establish a lack of good faith under § 1325(a)(3).
- Applying a totality-of-the-circumstances review, the court treated the character of the debt as one consideration, but not a stand-alone bar to Chapter 13 relief.
- The court overruled DML’s objection to confirmation on the good-faith ground asserted.
- The court denied DML’s motion to dismiss the Chapter 13 case.

## Legal Principles

- Under 11 U.S.C. § 1325(a)(3), good faith is evaluated by examining the totality of the circumstances surrounding the debtor’s Chapter 13 filing and proposed plan.
- A plan is not automatically filed in bad faith simply because it addresses a debt arising from fraud or embezzlement, even if that debt would not be discharged in Chapter 7.
- Good-faith review commonly considers the debtor’s candor and accuracy in bankruptcy disclosures, whether the plan is a sincere repayment effort, and whether the debtor is misusing Chapter 13 procedures.
- The Bankruptcy Code allows Chapter 13 debtors, upon completion of plan payments and satisfaction of confirmation standards, to obtain a discharge broader than Chapter 7 for certain categories of debt; using Chapter 13 for that legally available result does not by itself show bad faith.

## Conclusion

In re Britt held that a creditor cannot defeat confirmation or obtain dismissal on § 1325(a)(3) grounds merely by pointing to the debtor’s prior misconduct and the embezzlement-based character of the debt; absent evidence of dishonesty or abuse in the Chapter 13 process itself, good faith must be determined from all the circumstances and the plan may proceed.


In re Britt, 211 B.R. 74 (1997)