By: Shane Walsh
St. John’s Law Student
American Bankruptcy Institute Law Review
A person who files for bankruptcy may not simply change his mind and have his bankruptcy case dismissed. In In re Segal, the bankruptcy court denied a debtor’s request to dismiss his voluntary chapter 7 case because the debtor acted in bad faith, dismissal would prejudice his creditors, and the debtor would be unable to “secure a fresh start outside of bankruptcy.”[1] In this instance, the debtor filed a chapter 7 petition to avoid the imminent foreclosure sale of his apartment.[2] Four months after the chapter 7 petition was filed, the debtor filed a motion to dismiss arguing that the lack of his signature on the original petition was a “fatal defect to the filing.”[3] The court, however, denied the request, finding that the debtor filed the motion to dismiss after obtaining the benefit of the automatic stay to the detriment of his creditors.[4]
Under Section 707(a), a chapter 7 case may be dismissed for cause.[5] Section 707(a) contains an “illustrative, not exhaustive” list of cause and includes unreasonable delay by the debtor that is prejudicial to creditors.[6] Because the list is not exhaustive, a court will determine whether or not a chapter 7 case should be dismissed on a case-by-case basis.[7] The bankruptcy court in In re Bruckman stated that creditors are prejudiced when “a motion to dismiss is brought after the passage of a considerable amount of time” in order to forestall collection of debts.[8] Courts have also considered whether a debtor is acting in good faith when determining if a voluntary chapter 7 case can be dismissed under Section 707(a).[9] A court may find that a debtor is acting in bad faith when he enjoys the benefits of the automatic stay without fulfilling any of his obligations under the Bankruptcy Code.[10] It is in the bankruptcy court’s discretion to determine whether dismissal of a voluntary chapter 7 case is in the best interest of the debtor.[11] The debtor has the burden to prove that dismissal will not prejudice creditors.[12]
In re Segal illustrated how it would be unreasonable for the bankruptcy court to simply dismiss a voluntary chapter 7 case because the debtor has decided that he or she no longer wants to be in bankruptcy.[13] Although this case did not establish precedent, it displayed how individuals cannot enjoy the benefits of bankruptcy without fulfilling their obligations to his or her creditors.[14] Bankruptcy is intended to provide debtors with “a fresh start,” but it does not ignore the interests of creditors. Indeed, in determining whether or not to dismiss a voluntary chapter 7 case, a bankruptcy court will assess the best interests of the debtor and creditors.[15] This case-by-case evaluation helps ensure that cases meant to be in the bankruptcy court remain there.
[1] In re Segal, 527 B.R. 85, 88 (Bankr. E.D.N.Y. 2015).
[2] Id. at 88–89.
[3] Id. at 90.
[4] Id. at 95.
[5] See id. at 90.
[6] See William L. Norton, Jr., Norton Bankruptcy Law and Practice 79-8 (Thomson Reuters, 3d ed. 2015).
[7] See id.
[8] See In re Bruckman, 413 B.R. 46, 50 (Bankr. E.D.N.Y. 2009) (finding that debtor fraudulently conveyed property prior to filing chapter 7 petition and would be unable to pay creditors outside of bankruptcy).
[9] See William L. Norton, Jr., Norton Bankruptcy Law and Practice 79-9 (Thomson Reuters, 3d ed. 2015).
[10] See Willis v. Rice (In re Willis), 345 B.R. 647, 650 (8th Cir. BAP 2006) (holding that debtor was equitably estopped from having her case dismissed because she waited ten weeks to inform court original Petition lacked her signature).
[11] In re Segal, 527 B.R. 85, 90 (Bankr. E.D.N.Y. 2015).
[12] See id. at 94.
[13] See generally id.
[14] See id. at 95.
[15] See generally id.