[5:2114 -

5:2121]

prevent automatic dismissal from furthering ... debtor's abusive conduct"; In re Acosta-Rivera, supra, 557 F3d at 13-14 (same)] c. [5:2114] Compare-court may decline to dismiss for inability to file required documents: On motion of the bankruptcy trustee before expiration of the time allowed for filing documents (including any extension), the court may decline to dismiss a case where the debtor "attempted in good faith" to file "payment advices from employers" (pay stubs) for earnings during 60 days before filing (11 USC §521 (a)(1 )(B)(iv), see 115:866) and "the best interests of creditors would be served by administration of the case." [11 USC §521 (i)(4)] [5:2115-2119] Reserved.

3.

Dismissal of Chapter 7 Cases a. [5:2120] Dismissal requested by debtor: A Chapter 7 debtor does not have an absolute right to dismiss the case. A Chapter 7 case may be dismissed only by court order "after notice and hearing" and only "for cause. " [See 11 USC §707(a)] ¢[5:2120.1] PRACTICE POINTER FOR DEBTOR'S COUNSEL: Before filing a Chapter 7 bankruptcy case for a client, be sure to warn the client in writing that, once the case is filed, the client does not have the right to dismiss it simply because the case does not proceed as planned or takes a turn the debtor does not like. (1) [5:2121] Possible reasons for debtor to seek dismissal: Some of the more common reasons a debtor may seek dismissal of a Chapter 7 case are to: • Sell or refinance real property (e.g., where proposed lender requires case dismissal as a condition precedent to lending money). Prevent a bankruptcy discharge from appearing on the debtor's credit record (although the fact the debtor filed bankruptcy may nonetheless appear). Retain the option of filing and obtaining a discharge in a Chapter 7 case within the ensuing 6 years. Reinstate any liens avoided or transfers recovered during the case. Prevent the trustee from avoiding a lien, recovering a transfer, invalidating a claimed exemption or liq-

• • •

Rev. #12010

5(11)-38.1

[5:2122 - 5:2123]
uidating assets to pay creditors (e.g., selling the debtor's residence). • Insulate certain estate property not reachable by creditors to satisfy money judgments under state law (e.g., a claim for personal injuries or legal malpractice not subject to a pending lawsuit). Reacquire control of estate property without court supervision. Refile a new petition under Chapter 7 or another Chapter in order to discharge an otherwise postpetition nondischargeable debt, or to take advantage of a new law or Code amendment (such as an increased exemption) that applies only to cases filed after the earlier petition was filed. Terminate the statute of limitations to protect prepetition and postpetition transfers from avoidance. • Dismiss adversary proceedings pending before the bankruptcy court. Utilize certain tax attributes not used by the estate while the case was pending. • Have the case dismissed without prejudice where the trustee or a creditor may otherwise obtain dismissal of the case with prejudice.

• •

(2) [5:2122] "Cause" required: "Cause" for dismissal must be shown by the debtor. [11 USC §707(a)] (a) [5:2122.1] Statutorily-enumerated grounds: The statute lists three examples of "cause": unreasonable delay by the debtor that is prejudicial to creditors; nonpayment of filing fees; and failure to file bankruptcy schedules. [See 11 USC §707(a)(1)-(3), discussed at ~5:2164 ft.] These grounds are normally raised by interested parties seeking case dismissal (creditors, Chapter 7 trustee), not by the debtor. See discussion at ~5:2164 ft. (b) [5:2123] Approach where dismissal motion based on nonenumerated grounds-two-step process: The three statutorily-enumerated grounds (above) are not exclusive. Indeed, when a debtor seeks to voluntarily dismiss a bankruptcy case, the asserted "cause" for dismissal is usually not one of the grounds listed in §707(a). 5(11)-38.2
Rev. #12010

[5:2123.1 - 5:2123.5]
In determining whether there is "cause" to grant a debtor's dismissal motion based on grounds not enumerated in §707(a), the Ninth Circuit follows a two-step process: 1) [5:2123.1] Applicability of other Bankruptcy Code provisions: "(T)he first question is whether the asserted 'cause' is contemplated by a specific Bankruptcy Code provision. If so, there is no §707(a) 'cause ."• [In re Hickman (9th Cir. BAP 2008) 384 BR 832, 840; In re Sherman (9th Cir. 2007) 491 F3d 948, 970] Otherwise stated, if another Bankruptcy Code provision provides a remedy for the conduct underlying the alleged "cause," §707(a) becomes irrelevant. See discussion at ~5:2165.1. 2) [5:2123.2] "Totality of Circumstances" test where no other Bankruptcy Code provision applies: Where no specific Bankruptcy Code provision provides a remedy for the asserted "cause," courts consider whether the "totality of circumstances" amounts to "cause" under §707(a). [In re Hickman, supra, 384 BR at 840] a) [5:2123.3] Prejudice to creditors as paramount consideration: Of primary concern under the "totality of the circumstances" test is whether, in light of both legal and equitable considerations, dismissal will cause "some plain legal prejudice" to a creditor. [In re Hickman, supra, 384 BR at 840; In re Leach (9th Cir. BAP 1991) 130 BR 855, 857] 1/ [5:2123.4] Debtor's burden: The debtor bears the burden of proving that dismissal would not prejudice creditors. [In re Bartee (9th Cir. BAP 2004) 317 BR 362,365] b) [5:2123.5] Bad faith not included: In the Ninth Circuit, "bad faith" is not a permissible ground for dismissal under §707(a). See discussion at ~5:2166ft. But, "bad faith" is cause for dismissal of an individual consumer debtor's case under 11 USC §707(b)(3)(A) (see discussion at ~5:2216ft.).

Rev. #12010

5(11)-38.3

[5:2124 - 5:2125]
(3) [5:2124] Opposition by Chapter 7 trustee: The Chapter 7 trustee has standing on behalf of nonconsenting unsecured creditors to object to a Chapter 7) debtor's dismissal motion where dismissal would be prejudicia/to the creditors. [Penick v. Tice (4th Cir. 1984) 732 F2d 1211, 1214; In re Hall (9th Cir. BAP 1981) 15 BR 913, 916-unless a creditor affirmatively consents to dismissal, trustee has standing to object on that creditor's behalf;compare In re Riverside-Linden Investment Co. (9th Cir. 1991) 925 F2d 320, 323-trustee has no standing to oppose debtor's motion to dismiss if sale creditor in case affirmatively consents to dismissal] (a) [5:2125] Delay as prejudice: Creditors can suffer prejudice if the dismissal motion is brought after the passage of considerable time during which they have been forestalled from collecting the amounts owed to them. [In re Turpen (8th Cir. BAP 2000) 244 BR 431,435; In re Schwartz (BC SD NY 1986) 58 BR 923, 925-926]
(Text cont'd on p. 5(1/)-39)

5(11)-38.4

Rev. #1 2010

[5:212.6 - 5:2.142]~
(4) Applica.tion (a) Dismissal requested by debtor granted (no prejudice to creditors shown)
[5:2126] Cause existed to grant a debtor's request to dismiss where the debtor was the victim of someone engaged in the unauthoriz.ed practice of law. [In re Anderson (BC SO CA 1987) 79 BA 482, 486] [5:2127] Voluntary dismissal was proper where matters raised were extremely complex, the assets might be insufficient to pay administrative expenses,. and objecting creditors, who had state court action pending, were not prejudiced in their rights to pursue that action or to commence involuntary proceedings. [See Matter of Int'l Airport Inn Partnership (9th Cir.1975) 517 F2d 510,512] [5:212.8-2139] Reserved.

(b) Dismissal requested by debtor refused (prejudice to creditors shown)

[5:2140] Dismissal is properly denied after the debtor's discharge. Reason: Dismissal would not revoke the earlier discharge, which prohibits creditors from collecting on their claim. [See In re Bay/ies (BC 0 DC 1990) 114 BR 324, 325326; Matter of Shell (BC ED WI 1981) 14 BR 1010,1011] [5:2141] Dismissal was denied where the debtor's stated purpose was to enable it to refile bankruptcy to discharge debts that were nondischargeable in the pending case (e.g., federal taxes due less than 3 years prior to bankruptcy or student loan due less than 5 years prior to bankruptcy). [Hammerer v. United States I.R.S. (BC ED WI 1982) 18 BR 524, 525 (federal income taxes): Matter of Shell, supra, 14 BA at 1011 (student loan)] [5:2142] Dismissal was denied where (i) the trustee's objections to the debtor's exemptions would,. if sustained, provide a payment to unsecured creditors; and (ii) the debtor, postdlsmissal, would file a homestead declaration and then file a new bankruptcy, so that there would be no distribution to unsecured creditors. [In re Hall (9th Cir. BAP 1981.) 15 BA 913,914,917918; In re Myers (BC ED CA1982)17 BR 410,
Rev.#12009

5(.11)-39

[5:2143 - 5:2148]
412 (same); see also In re Carrol/CBC NO OH 1982) 24 BR 83, 87-dismissal denied where debtor's purpose was to transfer homestead) exemption to another property] • [5:2143] Dismissal is properly denied where the debtor's purpose is to discharge postpetition debts. [Matter of Poirier (BC D CT 1982) 16 BR 691, 695; In re Reynolds (BC D ME 1980) 4 BR 703, 704; In re Underwood (SD WV 1982) 24 BR 570, 571-572] [5:2144] Courts have denied dismissal where the debtor has "unclean hands" or has engaged in fraudulent conduct. [See In re Simmons (11 th Cir. 2000) 200 F3d 738, 743-dismissal not warranted where it would allow debtor to hinder creditors, secrete assets and further debtor's abuse of the system; In re Mathis Ins. Agency, Inc. (BC ED AR 1985) 50 BR 482, 487-debtor engaged in fraudulent acts] [5:2145] Dismissal was not permitted where the debtor "discovered" new assets to satisfy a secured creditor's claim, but all other debts would be discharged because the debtor intended to immediately file another bankruptcy case. [Matter of Blackmon (BC SO OH 1980) 3 BR 167, 168-169; see also In re Klein (BC ED NY 1984) 39 BR 530, 533-debtor's failure to list assets constitutes basis for finding prejudice justifying denial of dismissal request] [5:2146] Dismissal should be denied where the purpose is to prohibit the trustee from avoiding transfers or selling estate property that would benefit unsecured creditors. [In re Garrow (BC D VT 1985) 50 BR 796, 797-799; In re Green (BC WD KY 1984) 49 BR 7,8 (avoidable transfer); In re Mauk (BC ND OH 1985) 56 BR 445, 448 (sale of property)] [5:2147] Dismissal is properly denied where, as a result of the automatic stay, creditors have been substantially delayed in realizing their claims. [Matter of Atlas Supply Corp. (5th Cir. 1988) 857 F2d 1061, 1063-1064; In re Klein, supra, 39 BR at 532-533; see also 115:2125] [5:2148] That a debtor is willing and able to pay his debts, and has made arrangements for those payments outside bankruptcy, is not itself ~

5(11)-40

Aev.#12009

[5:2149 - 5:2163]
cause for dismissal under §707(a). [In re Turpen (8th Cir. BAP 2000) 244 BR 431,435] • [5:2149] A Chapter 7 Debtor who experienced "buyer's remorse" after (i) being subjected to hard questioning at the creditors' meeting, and (ii) objections to discharge and dischargeability of debt were filed, failed to establish "cause" for voluntary dismissal. In addition, Debtor's unexplained omissions from schedules and lack of cooperation with the Chapter 7 trustee indicated Debtor could not demonstrate that dismissal would not prejudice creditors. [In re Hickman (9th Cir. BAP 2008) 384 BR 832, 834-835, 841-842]

[5:2150-2159]

Reserved.

(5) [5:2160] Procedure: A Chapter 7 dismissal requires "notice and a hearing" (11 USC §707(a)}. The procedure is discussed at tJ5:2375 ff. (6) [5:2161] Court may require payment of trustee's fees and expenses: The court may condition a debtor's voluntary dismissal on the debtor's payment of the trustee's fees and expenses, including attorney fees. [In re Gallman (BC ND GA 1980) 6 BR 1,2; In re Jackson (BC ED TN 1980) 7 BR 616, 618 (debtor required to deposit sufficient funds with trustee to cover all fees, costs and expenses); In re Wolfe (BC SD OH 1981) 12 BR 686, 687 (dismissal conditioned upon debtor's payment of "a fair sum for administrative costs"); see also CD CA LBR 1017-2(f)(3)-court may condition dismissal upon payment of fees and expenses] b. [5:2162] "Forced" dismissals: The creditors, bankruptcy trustee, U.S. Trustee or other parties in interest may request the court, after notice and hearing, to dismiss a Chapter 7 case over the debtor's objections. [11 USC §707 (a)] (1) [5:2163] Creditor's reasons: A creditor may seek case dismissal of a Chapter 7 case in order to:

Pursue the debtor on a nondischargeable debt (an alternative would be to obtain relief from the automatic stay). Pursue its collateral (limited to secured creditors). Evict the debtor. Prevent the trustee or debtor from avoiding a preferential transfer.

• • •

Rev.#12009

5(11)-41

[5:2164 - 5:2165.5]
• • • • Reinstate liens avoided or transfers reversed during
the case.

Reinstate a receivership or general assign ment for benefit of creditors. Protect prepetition and post petition transfers from avoidance under the Bankruptcy Code. Dismiss bankruptcy court adversary proceedings.

(2) [5:2164] Dismissals "for cause" (§707(a»: Creditors or other parties in interest may move for dismissal of a Chapter 7 case, after notice and hearing, for "cause," including:

unreasonable delay by the debtor that is prejudicial to creditors (11 USC §707(a)(1); see also FRBP 1017(a)-case may be dismissed for want of prosecution); nonpayment of court fees or charges (11 USC §707
(a)(2)). (a) [5:2165] Nonexclusive grounds: The above grounds are not exclusive; other cause for dismissal may be shown. [In re Hall (9th Cir. BAP 1981) 15 BR 913,916; see also In re Sacramento Metropolitan Real Estate Investors (BC ED CA 1983) 28 BR 228, 229; In re Zick (6th Cir. 1991) 931 F2d 1124, 1126] 1) [5:2165.1] Limitation where "cause" addressed by other Bankruptcy Code provisions: If a remedy for the alleged "cause" for dismissal is provided by other provisions of the Bankruptcy Code, "cause" cannot be established under §707(a). [In re Hickman (9th Cir. BAP 2008) 384 BR 832, 840] • [5:2165.2] Where a dismissal motion was based on the debtors' use of bankruptcy as a refuge from district court jurisdiction, 11 USC §362(b) (exceptions from automatic stay) specifically addressed the debtors' conduct. Thus, "cause" for dismissal under §707(a) could not be shown. [In re Sherman (9th Cir. 2007) 491 F3d 948,971-972]

[5:2165.3-2165.4]
2)

Reserved.

[5:2165.5] "Totality of circumstances" test where no other Bankruptcy Code provision applies: By contrast, when no specific Bankruptcy Code provision addresses the asserted "cause," courts consider whether the "totality of

5(11)-42

Rev. #1 2009

[5:2166 -

5:2171]

the circumstances" amounts to "cause" under §707(a). See discussion at~5:2123.2 ft. (b) [5:2166] "Bad faith" not "cause" under §707(a): Ninth Circuit cases hold "bad faith" is not cause for dismissal under §707(a) because there is no ongoing relationship between the debtor and creditors in the Chapter 7 context.Thus, a Chapter 7 discharge may be availableto any debtor willing to liquidate his or her assets, regardless of the debtor's motivation for seeking that remedy. [In re Padil/a (9th Cir. 2000) 222 F3d 1184, 1193] 1) [5:2166.1] Contra view: Mostcourtsin other jurisdictions disagree. They hold that good faith is implicitly required in aI/bankruptcy proceedings and "bad faith" is therefore cause for dismissal under §707(a}. [In re Kestel/ (4th Cir. 1996) 99 F3d 146,147-149; In re Tamecki (3rd Cir. 2000) 229 F3d 205, 207; McDow v. Smith (ED VA 2003) 295 BR 69,77] 2) [5:2167] Compare-consumer debtor's "bad faith" as "cause" under §707(b): An individual consumer debtor's bad faith in filing a Chapter 7 bankruptcy can constitute "cause" for dismissal under 11 USC §707(b)(3)(A). See discussion at~5:2216 ff. 3} [5:2168] Compare-Chapters 11, 12 and 13: Creditors who deal with Chapter 11, 12 or 13 debtors in reorganization have an ongoing relationship with the debtor and therefore have standing to seek "bad faith" dismissals (both in the Ninth Circuit and elsewhere). (c) [5:2169] Application: The following may be cause for dismissal under §707(a}: • [5:2170] Debtor ineligible for Chapter 7 discharge: Dismissal under §707(a) was granted where the debtor was ineligible for discharge because he had received a discharge in a prior Chapter 7 case commenced within 6 years before the current case. [In re Blanchette (BC 0 RI 1985) 54 BR 890, 892] [5:2171] Inadequate funds for case administration: Dismissal was appropriate where the case could not be administered due to lack of funds, creating a potential threat to public safety. [In re 30 Hill Top Street Corp. (BC 0 MA 1984) 42 BR 517, 521-trustee had insufficient 5(1J}-43

Rev.#12009

[5:2172 - 5:2186]
funds to operate and correct deficiencies at nursing home; In re Commercial Oil Service, Inc. (BC NO OH 1986) 58 BR 311-trustee lacked expertise in managing hazardous waste and a companion state court environmental enforcement action was pending] • [5:2172] Compare----debtor's death or incompetency not cause: The debtor's death or incompetency is not cause to dismiss a Chapter 7 case. Instead, the estate will be administered and the case concluded (to the extent possible) as if the death or incompetency had not occurred. [See FRBP 1016] (d) [5:2173] Procedure:

ff.

See discussion at'il5:2375

(e) [5:2174] Dismissal discretionary: Even where cause for dismissal under §707(a) is shown, the court is not required to dismiss the case. [Compare 11 USC §707(a)-"court may dismiss" (emphasis added); and 11 USC §§1208, 1307-"court shall dismiss" (emphasis added); and see Matter of Atlas Supply Corp. (5th Cir. 1988) 857 F2d 1061, 1063decision whether to grant dismissal motion lies within bankruptcy judge's discretion; In re Zick (6th Cir. 1991) 931 F2d 1124, 1126 (accord)]

[5:2175-2184]

Reserved.

(3) [5:2185] Dismissal on motion of U.S. Trustee for failure to file required documents: Like creditors and other parties in interest, the U.S. Trustee may move to dismiss a Chapter 7 case for cause. The U.S. Trustee may also seek dismissal of a Chapter 7 case for the debtor's failure to timely file the information required by 11 USC §521 (a)(1 )-i.e., schedules, statements and list of creditors. [See 11 USC §707(a)(3); FRBP 1017(c); In re Dandy Doughboy Donuts, Inc. (BC SO FL 1986) 66 BR 457, 459; In re Greene (BC NO OH 1991) 127 BR 805, 806-807-dismissal without prejudice for failure to timely file Chapter 13 plan and schedules] (a) [5:2186] Compare-local rules permitting sua sponte dismissal by court: Although §707(a)(3) provides that the court may dismiss a Chapter 7 case for failure to file required documents "only on a motion by the United States trustee," local rules in several districts also authorize dismissal by the court sua sponte in those circumstances. See 'il5:2195 ff.

'l

5(11)-44

Rev. #1 2009

[5:2187 - 5:2199]
(b) [5:2187] Procedure: The U.S.Trustee must file and serve its motion to dismiss for cause in the same manner as other parties in interest. [5:2188-2194] Reserved.

(4) [5:2195] Sua sponte dismissal by court: The court may dismiss a Chapter 7 case sua sponte on any of the above grounds and also on the following grounds: (a) [5:2196] Failure to pay filing fee: After a hearing on notice to the debtor and trustee, the court may dismiss a Chapter 7 case for the debtor's failure to pay the filing fee or any installment thereof. [See FRBP 1017(b)(1); see ED CA LBR Gen. Order 03-02 (3/25/03)] (b) [5:2197] Local rules in some districts empower the court to dismiss a Chapter 7 case sua sponte where the debtor fails to appear at the initial 11 USC §341 (a) meeting of creditors. 1) [5:2198] Eastern District procedure: In all cases filed in the Eastern District of California where the debtor fails to attend the §341 (a) meeting, an OSC shall issue requiring the debtor and debtor's attorney to appear and show cause why the case should not be dismissed. [ED CA LBR Gen. Order 03-02 (3/25/03)] [5:2199]

meeting:

Failure to appear at §341(a) creditors'

2)

Central District automatic dismissal procedure: In the Central District of

California, where a Chapter 7 debtor fails to appear at the initial §341 (a) meeting (and any continuance thereof), the court will dismiss the case upon the trustee's request and certification that the debtor failed to appear at two meetings of creditors. The clerk will provide notice of the dismissal to the debtor, debtor's attorney, the U.S. Trustee and parties in interest. [CD CA LBR 1017-2(b) & (c)] The debtor (or other party), however, may request the courtto reinstate the case by motion. If the case is reinstated, the court may "impose such sanctions as it deems just and reasonable." [CD CA LBR 1017-2(d)] A debtor who refiles a petition following dismissal of the case must disclose that the prior case was dismissed for failure to attend the creditors' meeting. [CD CA LBR 1017-2(e)]
Rev.#12010

5(11)-45

[5:2199.1 - 5:2214]
3) [5:2199.1] Comment re purposeful "no shows": A debtor who is unhappy with the way the case is proceeding may be tempted to "miss"the §341(a) meeting in the hope the case will be automatically dismissed. However, if the Chapter 7 trustee suspects there might be assets in the estate, he or she may request the court notto dismiss the case. Moreover, purposefully "missing" several scheduled §341 (a) meetings may be viewed as bad faith. (c) [5:2200] For failure to timely file petition documents: Although 11 USC §707(a)(3) authorizes the court to dismiss a Chapter 7 case for failure to file documents required under §521 (statements, schedules and list of creditors) "on/yon a motion by the United States trustee" (emphasis added), local rules in some districts authorize sua sponte dismissals in those circumstances: 1) [5:2201] Eastern District procedure: In all cases filed in the Eastern District of California where the debtor fails to timely file documents under §521 (statements, schedules and list of creditors), an OSC shall issue requiring the debtor and debtor's attorney to appear and show cause why the case should not be dismissed. [ED CA LBR Gen. Order 03-02 (3/25/03)] 2) [5:2202] Central District automatic dismissal procedure: In the Central District of California, where a Chapter 7 petition is filed without required documents, an OSC may issue containing notice to the debtor that the case may automatically be dismissed if the documents are not filed within 14 days unless an extension is obtained from the court. [See CD CA LBR 1017-2(a)] Ifthe case is automaticallydismissed, however, the debtor (or other party) may file a motion to reinstate the case. Upon reinstatement, the court may "impose such sanctions as it deems just and reasonable." [CD CA LBR 1017-2(d}] A debtor who refiles a petition following dismissal of the case must disclose that the prior case was dismissed for failure to timely file petition documents. [CD CA LBR 1017-2(e)] [5:2203-2214] 5(11)-46 Reserved.

Rev. #12010

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,0

[5:2216.7 - 5:2217.4]
stances" test denied for lack of showing under §707(b)(3)] 3) [5:2216.7] Filing deadline: The deadline for filing a §707(b)(3) dismissal motion is 60 days after the first date set for the creditors' meeting. (The court may,for cause, extend this time if a request is made before the deadline expires.) [FRBP 1017(e)(1); In re dePellegrini, supra, 365 BR at 831] (b) Dismissal based on "bad faith" petition filing 1) [5:2217] Independent ground for dismissal: Pursuant to §707(b)(3)(A), an individual consumer debtor's "bad faith" filing of a Chapter 7 bankruptcy case is itself sufficient "abuse" to warrant dismissal. [In re Booker (BC WO MO 2009) 399 BR 662, 667-"bad faith" and abuse under ''totality of circumstances" test "constitute separate and distinct grounds for relief"; In re Parada (BC SO FL 2008) 391 BR 492, 499-"Either ability to payor bad conduct in connection with the bankruptcy will warrant dismissal for abuse under §707(b)(3)"] (This is a departure from the pre-BAPCPA version of §707(b), under which a debtor's bad faith in filing bankruptcy was simply one of the relevant factors considered in determining whether dismissal was warranted for "substantial abuse.") a) [5:2217.1] "Bad faith filing": "Bad faith filing" is somewhat of a misnomer. It does not require a showing of ill will or malicious conduct on the part of the debtor (see 115:2219). Rather, it means that the petition was filed for a purpose other than that sanctioned by the Code. [See In re Southern Calif. Sound Systems, Inc. (BC SO CA 1987) 69 BR 893, 901, fn. 2; In re McCormick Road Assocs. (NO IL 1991) 127 BR 410, 415; but see 'J5:2217.5] b) [5:2217.2] Compare-successive "bad faith" bankruptcy filings: Repeated filings under Chapter 7 (or other Chapters) by consumer or nonconsumerdebtors may be dismissed if found to be in bad faith. See detailed discussion at 115:1490 ft. [5:2217.3-2217.4] 5(11)-48 Reserved.

Rev. #1 2010

[5:2217.5 - 5:2218]
2) [5:2217.5] Limited to egregious cases: High standards are set for finding a "bad faith filing." Dismissal of a Chapter 7 case based on lack of good faith is generally ordered "only in those egregious cases that entail concealed or misrepresented assets and/or sources of income, lavish lifestyles, and intention to avoid a large single debt based upon conduct akin to fraud, misconduct or gross negligence." [In re Tamecki (3rd Cir. 2000) 229 F3d 205, 207 (emphasis added)] [5:2218] Factors considered: In evaluating whether dismissal of a Chapter 7 case is warranted under §707(b)(3)(A), some courts consider factors employed in the context of Chapter 11 and Chapter 13 "bad faith" dismissal motions. [In re Mitchell (BC CD CA 2006) 357 BR 142, 153-154; see also In re Ashraf (BC 0 AZ 2007) 367 BR 151, 158 at fn. 15 (dictum noting that §707(b)(3)(A) "bad faith" finding requires courts to examine factors set forth in In re Leavitt (9th Cir. 1999) 171 F3d 1219,1224-1225 (Chapter 13 dismissal))] Relevant factors include whether: the debtor will have sufficient future income to fund a Chapter 11, 12 or 13 plan that would pay a substantial portion of unsecured claims; the debtor's petition was filed due to illness, disability, unemployment or some other calamity; the debtor's schedules suggest the debtor obtained cash advancements and consumer goods on credit exceeding his or her ability to repay them; the debtor's proposed family budget is excessive or extravagant; the debtor's statement of income and expenses misrepresents the debtor's actual financial condition; the debtor has engaged in eve-of-bankruptcy purchases; the debtor has a history of bankruptcy petition filings and case dismissals; the debtor intended to invoke the automatic stay for improper purposes (e.g., solely to defeat state court litigation); and egregious behavior is present. [In re Mitchell, supra, 357 BR at 155; see also In re
Rev. #12010

3)

5(11)-49

[5:2218.1 - 5:2221.2]
Ashraf, supra, 367 BR at 158 at fn. 15 (suggesting shorter list of similar factors set forth in In re Leavitt, supra, 171 F3d at') 1224-1225 (Chapter 13 dismissal))] a) [5:2218.1] No single factor determlnative: No one factor should be considered dispositive; all facts in a case must be evaluated. [In re Mitchell, supra, 357 BR at 155] b) [5:2219] Malice/fraudulent intent not required: Neither malice nor fraudulent intent is required to find bad faith under §707(b)(3)(A). [In re Mitchell, supra, 357 BR at 155] [5:2220] 4) Application a) [5:2221] Cash advances for consumer goods: Debtor's Chapter 7 case was dismissed under §707(b)(3)(A) for bad faith, with a 180-day bar to refiling (115:2451.1), where Debtor: spent over $28,000 on nonessential consumer items one year prior to bankruptcy ($13,000 of which was spent four months before the filing date after contacting a bankruptcy attorney) despite having been unemployed for two years and earning $11,000 in annual income; offered no mitigating circumstances for her credit card spending (e.g., illness, disability); and failed to list on her schedules or statement of financial affairs $16,000 in deposits to her bank account and $14,000 in electronic payments to several credit cards. [In re Mitchell, supra, 357 BR at 155-157] b) [5:2221.1] Ability to pay: Bad faith was present where Debtors had the ability to pay creditors 50% but sought instead to reaffirm a $63,000 debt on a boat in which the debtor had no equity. [In re Boyle (BC WD NY 2009) 412 BR 108, 112-113] c) [5:2221.2] Egregious behavior: A "poster-child case" of abuse existed where 5(11)-50 Reserved.

Rev. #1 2010

[5:2221.3 -

5:2228.3]

(i) Debtor Wife and Nondebtor Husband's combined income exceeded $300,000; (ii) Debtor failed to attend numerous creditor meetings; (iii) Debtor failed to produce sufficient documentation; and (iv) Debtor transferred jewelry prepetition to family members for inadequate consideration. [In re Victoria (MD AL 2008) 389 BR 250, 257] d) [5:2221.3] Eve-of-bankruptcy purchases: Debtors exhibited bad faith where, after Husband retired and Wife quit her job, Debtors used their lump-sum retirement funds to buy a beach house instead of paying creditors. [In re Schwenk (BC MD PA 2009) 411 BR 211,216] 5) [5:2222] Dismissal order may include 180day refiling bar: The court's order dismissing a case for bad faith under §707(b)(3)(A) may include a 180-day bar to refiling another bankruptcy case. See fi5:2451. 1.
[5:2223-2227] Reserved.

(c) [5:2228] Dismissal based on "totality of circumstances" demonstrating "abuse": Even where a Chapter 7 consumer debtor's case survived the "means test" and was not filed in "bad faith" (above), the case is still subject to dismissal if the ''totality of the circumstances" of the debtor's financial situation demonstrates "abuse." [11 USC §707(b)(3)(B)]
[5:2228.1] Reserved.

1) [5:2228.2] "Substantial" abuse not required: Before it was amended by the BAPCPA, §707(b) allowed dismissal for "substantial abuse" of Chapter 7 (former 11 USC §707(b)). The current provision authorizes dismissal simply for "abuse." [In re Ashraf (Be D AZ 2007) 367 BR 151, 155-"the threshold question for dismissal under Section 707 has changed from 'substantial abuse' to simply 'abuse": In re Maya (BC SD CA 2007) 374 BR 750,754] 2) [5:2228.3] Effect of pre-BAPCPA case law: Because a "totality of the circumstances" test was used pre-BAPCPA to determine "substantial abuse,"courts have continued to rely on preBAPCPA case law in determining "abuse" unRev. #12010

5(11)-50.1

[5:2229)
der §707(b)(3)(B). [See In fe Maya (BC SD CA 2007) 374 BR 750,754 (applying pre-BAPCPA case law to conclude ability to pay can support case dismissal under post-BAPCPA §707(b) (3)); In re Pak (BC ND CA 2006) 343 BR 239, 243 (noting it would be "counterintuitive" to construe the phrase "totality of circumstances" used pre-BAPCPA differently post-BAPCPA)] 3) [5:2229] Debtor's ability to pay creditors as paramount factor: Courts in the Ninth Circuit
(Text cont'd on p. 5(11)-51)

5(11)-50.2

Rev.#12010

[5:2229.1-5:2231] generally agree that a debtor's ability to pay creditors out of future disposable income is itself sufficient to support a finding of abuse under §707(b)(3)(B). [In re Maya, supra, 374 BR at 754; see In re Lamug (BC ND CA 2009) 403 BR 47, 54-55 (collecting cases)] a) [5:2229.1] Postpetition events rei· evant: For purposes of §707(b)(3)(B), the totality of the debtor's financial situation can include postpetition events. [See In re Lamug, supra, 403 BR at 53; In re Maya, supra, 374 BR at 754 (collecting cases)] b) [5:2230] "Means test" calculation not dispositive; actual income considered: Courts are free to examine the debtor's actual income (as opposed to the income stated on the "means test" form) under the §707(b)(3)(B)''totalityof the circumstances" test. [In re Lamug, supra, 403 BR at 55"Debtors' actual current and future income and expenses, intentions, and resulting ability or inability to pay are crucial to an assessment of Debtors' 'financial situation"'; In re Baeza (BC ED CA 2008) 398 BR 692, 697-698-dismissal analysis under §707(b)(3)(B) not tied to or limited by "means test"formula; In re Pak, supra, 343 BR at 246-247-debtor's actual and anticipated future income must be considered under §707(b)(3)(B) dismissal motion] 1/ [5:2230.1] Includes income resulting from collateral surrendered postpetition: Actual income for purposes of §707(b)(3)(B) includes additional income available to the debtor because the debtor intends to (and does) surrender collateral to secured creditors postpetition. [In re Maya, supra, 374 BR at 754-755; In re Lamug, supra, 403 BR at 55-56] c) [5:2231] Reasonableness of debtor's mortgage payments? Courts disagree whether the ''totality of the circumstances" test includes evaluating whether the debtor's mortgage payments are "too high" or "extravagant" when compared to the IRS housing standards (used in the "means test" analysis; see 1I5:347). 5(11)-51

~
I

Rev.#12009

[5:2232 - 5:2233]
One view holds that because Congress did not "cap" the amount of secured debt debtors can deduct for a primary residence under the means test, it would be inconsistent for courts to establish an arbitrary cap as part of the §707(b)(3)(B) "abuse"test. [In re Johnson (BC SO CA 2008) 399 BR 72, 77-78; see also In re Seeburger (BC NO OH 2008) 392 BR 735, 742-7 43-evidentiary value of IRS standards re reasonableness of debtor's mortgage expense is "minimal at best" under totality of circumstances test] Other courts, while conceding the IRS standards are not part of a §707(b)(3)(B) analysis "as a matter of purely statutory application," consider the standards a "pole for guidance" when evaluating whether the debtor's housing expenses (including mortgage payments) are excessive or extravagant. [In re Kaminski (BC NO OH 2008) 387 BR 190, 196-when debtor's housing allocation significantly exceeds the IRS allowance, "a viable justification for the necessity and reasonableness of that housing ex-) pense should be offered"; In re Talley (BC WO WA 2008) 389 BR 741,744-745housing expense 3 times higher than IRS standard deemed unreasonable and supported abuse finding] d) [5:2232] Chapter 13 plan payment calculation required? It is unclear whether the §707(b)(3)(B) abuse analysis requires the court to actually calculate the amount a debtor would be requ ired to pay in a Chapter 13 case. [See In re Lamug, supra, 403 SR at 57-court need only determine general ability to pay debts to determine "abuse"; In re Pak, supra, 343 SR at 244247-court must calculate debtor's "projected disposable income" under hypothetical Chapter 13 case to make §707(b)(3)(B) determination]

4)

[5:2233] Debtor's eligibility for Chapter 13? Courts disagree whether a debtor's eligibility for Chapter 13 is relevant under the 'totality of the circumstances" abuse analysis. [See In re Maya, supra, 374 BR at 755 (yes); In re Lamug, supra, 403 BR at 57 (no); see also In re
Rev. #1 2009

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5(11)-52