## Facts

- Phillip Brian Essex and Virginia May Essex filed a Chapter 13 bankruptcy case.
- The Essexes owned a residence subject to a mortgage of about $656,000, with a monthly mortgage payment exceeding $6,000 and very little equity.
- The mortgage and related housing expenses consumed roughly 51% of the Essexes’ income.
- The housing expense was about four times the IRS Local Standards amount for housing and utilities for a household of that size in the region.
- Essex bought the home in 2006 but had not paid federal income taxes since 2002.
- Essex owed the IRS more than $256,000, including approximately $136,000 in unsecured tax debt.
- The proposed Chapter 13 plan allowed the Essexes to keep the home and proposed only a 1% dividend to unsecured creditors.
- The Chapter 13 trustee, Mary K. Viegelahn, objected to confirmation, arguing the plan was not proposed in good faith under 11 U.S.C. § 1325(a)(3).
- The bankruptcy court confirmed the plan as compliant with the Chapter 13 confirmation requirements it addressed, but did not reach the trustee’s good-faith objection.
- The trustee appealed the confirmation order to the U.S. District Court for the Western District of Texas.

## Issues

1. Does satisfying the projected disposable income test in 11 U.S.C. § 1325(b) eliminate the need to separately evaluate good faith under 11 U.S.C. § 1325(a)(3) when good faith is contested?
2. Did the bankruptcy court err by confirming the plan without ruling on the trustee’s § 1325(a)(3) good-faith objection and making findings applying the proper good-faith standard?

## Decision

- The district court reversed (vacated) the confirmation order and remanded for further proceedings.
- The court held that § 1325(a)(3)’s good-faith requirement is an independent confirmation requirement that remains enforceable after BAPCPA.
- The court held that compliance with § 1325(b) does not automatically establish good faith under § 1325(a)(3).
- Because the bankruptcy court did not decide the contested good-faith objection, the district court required the bankruptcy court on remand to apply a totality-of-the-circumstances good-faith analysis and make findings.

## Legal Principles

- A Chapter 13 plan must satisfy both § 1325(b) (if triggered by an objection) and § 1325(a)(3); meeting the disposable-income test does not, by itself, satisfy the good-faith requirement.
- Good faith under § 1325(a)(3) is assessed through a fact-based, totality-of-the-circumstances inquiry aimed at whether the plan is consistent with the purposes of Chapter 13.
- When a trustee raises a good-faith objection, the bankruptcy court must address it and apply the correct legal standard; confirmation without resolving a contested § 1325(a)(3) issue is error.
- A debtor’s choice to retain unusually expensive housing while offering only a token distribution to unsecured creditors may be considered as part of the good-faith analysis, even in an above-median, means-test case.
- BAPCPA’s amendments to § 1325(b) did not repeal § 1325(a)(3); courts may still evaluate whether a plan reflects an improper use of Chapter 13.

## Conclusion

In Veighlan v. Essex (In re Essex), the district court reversed confirmation and remanded because the bankruptcy court treated disposable-income compliance as sufficient and failed to rule on a contested § 1325(a)(3) good-faith objection; the bankruptcy court was required to conduct a totality-of-the-circumstances good-faith review and make findings.


Veighlan v. Essex (In re Essex), 452 B.R. 195 (2011)