In a second chapter 7 case filed by the debtor, a creditor was granted relief from stay based on two deeds of trust on real property.  The debtor then received a discharge.  Thereafter, the creditor attempted to sell the property on 3 separate occasions, but was not successful.  The creditor then agreed to modify the debt owed under the first deed of trust.   The debtor then filed a chapter 13 case and provided for avoidance of the creditor’s second deed of trust.  The creditor and the debtor entered into a consensual judgment to avoid the second deed of trust, subject to approval by the Court and completion of performance under Chapter 13 plan.  The Chapter 13 Trustee objected to the plan on the grounds that it was filed in bad faith.

The Court held that a debtor may avoid a lien in a Chapter 13 bankruptcy case if the value of the collateral is less than all senior liens and if the debtor is not eligible to receive a discharge in the case.   The Court held that the determination of whether a plan has been proposed in good faith is to be determined by considering all militating factors.   In this case, the creditor holding the lien consented to the entry of a judgment avoiding its lien.  That decision followed 3 failed attempts to auction off the real property and an agreement between the parties resulting in a signification modification of the creditor’s first deed of trust.  The Court held that the filing of the petition and the plan did not constitute bad faith because the debtor had not forced any creditor to accept a modification of its rights.  The plan only modified the creditor’s claim and the creditor had agreed to that modification.