## Facts

- Susan M. Keckler, a Chapter 13 debtor, previously worked for Cleveland Trust Company and embezzled about $9,300.
- She was criminally prosecuted and imprisoned; after release she had limited employment and earned about $215 per month working for her father while training as a court reporter.
- She scheduled approximately $925 in assets (asserted to be exempt in Chapter 7) and about $11,500 in unsecured debts, including the bank’s embezzlement claim.
- Keckler proposed a 36-month Chapter 13 plan paying $15 per month, yielding roughly a 5% dividend to unsecured creditors.
- The parties agreed the bank’s claim would be nondischargeable in Chapter 7 under 11 U.S.C. § 523 (embezzlement/larceny or willful and malicious injury), but dischargeable upon completion of the plan under Chapter 13’s § 1328(a) discharge as then written.
- The bank and the Chapter 13 trustee objected to confirmation, arguing the plan was not proposed in good faith under 11 U.S.C. § 1325(a)(3).

## Issues

1. Whether a Chapter 13 plan proposing nominal repayment (about 5%) on an embezzlement-based debt that would be nondischargeable in Chapter 7 satisfies the “good faith” requirement of 11 U.S.C. § 1325(a)(3).
2. Whether the good-faith inquiry permits denial of confirmation when Chapter 13 is used primarily to obtain a broad discharge of serious misconduct-based debt through minimal payments.

## Decision

- Confirmation was denied.
- The court held the plan was not proposed in good faith within the meaning of § 1325(a)(3).
- The court treated good faith as a substantive confirmation requirement allowing examination of the debtor’s purpose and the fairness of the proposed repayment in context.
- The court concluded that seeking a Chapter 13 discharge of an otherwise nondischargeable embezzlement obligation while offering only a negligible dividend was an improper use of Chapter 13.

## Legal Principles

- Under § 1325(a)(3), a Chapter 13 plan must be proposed in good faith; the court may evaluate the debtor’s motive and whether the plan reflects an honest and fair effort to repay.
- Chapter 13’s broader discharge does not eliminate the good-faith constraint; the availability of discharge for certain misconduct-based debts does not require confirmation of a token-payment plan aimed at avoiding Chapter 7 discharge limits.
- Minimal repayment may be acceptable in some circumstances, but when combined with a plan’s primary purpose to discharge a serious wrongdoing-based debt, it can support a finding of lack of good faith.
- The good-faith requirement functions to prevent Chapter 13 from being used to circumvent § 523 by converting nondischargeable Chapter 7 debts into dischargeable obligations through nominal payments.

## Conclusion

The court denied confirmation because the proposed plan’s negligible payments, viewed against the embezzlement-based nature of the principal debt and the plan’s apparent purpose of obtaining a broad Chapter 13 discharge, failed the good-faith requirement of § 1325(a)(3).


In re Keckler, 3 B.R. 155 (Bankr. N.D. Ohio 1980)