Evolution of Pre-Bankruptcy Planning Raises Questions of Good Faith

Ever since the enactment of the Bankruptcy Code decades ago, bankruptcy courts have had to address the threshold question of whether the debtor should be allowed to utilize the provisions of the Bankruptcy Code. In the early years, this issue of whether the bankruptcy case was filed in "good faith" usually involved a solvent or insolvent debtor that was embroiled in a two-party dispute and filed the case as a litigation tactic to stop the litigation. Later cases often involved a solvent debtor with many parties in litigation, and courts reviewed whether the debtor had a legitimate bankruptcy purpose or was under financial distress other than the present ability to pay bills as they matured or balance statement insolvency.