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Legislative Update Finding a Loophole in the Means Test without Collusion Will Chapter 7 Involuntaries Be on the Rise

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This month's Update continues the series of articles examining BAPCPA in detail.

A centerpiece of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) is the means test, set forth in revised §707(b)1 of the Code.2 Although the mathematical formula used to perform the means test is outside the scope of discussion here, it is clear that it will be more difficult for a chapter 7 debtor to avoid either conversion to chapter 11 or 13 or an outright dismissal. There is, however, at least at first blush, a possible loophole in the wording of the statutes. This loophole could lead to an effective end-run around the means test as well as other requirements for credit counseling3 and education.4 The consumer debtor could proceed in chapter 7 through to discharge under §727 of the Code. The chapter 7 discharge could be granted—even if the debtor's income and debt would otherwise presumptively require conversion or dismissal under the means test, and even if the debtor fails to comply with new credit counseling and educational requirements. The vehicle for accomplishing this is an involuntary bankruptcy petition.

This article will examine issues under BAPCPA relating to involuntary chapter 7 petitions filed against individual debtors with primarily consumer debts. For purposes of the following analysis and discussion, it is assumed that the debtor is generally not paying his debts as they become due and that the petitioning creditors have claims that are not subject to bona fide disputes as to liability or amount so as not to run afoul of §§303(b)(1) and (h) of the Code. It is further assumed that (1) the debtor has not timely controverted the involuntary petition, (2) an order for relief has been entered and (3) the debtor does not otherwise violate the provisions of §§727(a)(1) through (10) and (12) of the revised Code. Stated in other words, our debtor is an honest individual who seeks a fresh start in the least-expensive and most expeditious way possible.

Revised Code and Voluntary Bankruptcies

While the revised Code under BAPCPA contains new requirements and restrictions for individuals seeking to become debtors under chapter 7, at least for the most part, these additional requirements and restrictions only apply to debtors who file voluntary petitions. Revised §109(h)(1) applies to debtors under all chapters and states:

Subject to paragraphs (2) and (3), and notwithstanding any other provision of this section, an individual may not be a debtor under this title unless such individual has, within the 180-day period preceding the date of filing of the petition by such individual (emphasis added), received from an approved nonprofit budget and credit counseling agency described in §111(a) an individual or group briefing (including a briefing conducted by telephone or on the Internet) that outlined the opportunities for credit counseling and assisted such individual in performing a related budget analysis.
Revised §707(b)(1) of the Code contains an additional restriction for individuals seeking to qualify as chapter 7 debtors under BAPCPA:
After notice and hearing, the court, on its own motion or on a motion by the U.S. Trustee, trustee (or bankruptcy administrator, if any), or any party in interest, may dismiss a case filed by an individual debtor (emphasis added) under this chapter whose debts are primarily consumer debts, or with the debtor's consent, convert such case under chapter 11 or 13 of this title, if it finds that the granting of relief would be an abuse of the provisions of this chapter....
New §707(b)(2) effectively provides for a presumption that abuse under chapter 7 as referred to in revised Code §707(b)(1) exists if the debtor fails to meet strict requirements relating to his income and debt—i.e., if the debtor fails to pass the "means test."

The provisions of §727(a) of the Code relating to discharge remain largely unchanged except for newly added §727(a)(11), which provides that the court shall grant the debtor a discharge, unless "after filing the petition, the debtor (emphasis added) failed to complete an instructional course concerning personal financial management described in §111...."

Each of the above newly added or revised Code provisions has two things in common. First, each contains additional restrictions or requirements limiting the ability of individuals to qualify for a chapter 7 discharge. Second, and more to the point here, the additional restrictions or requirements are worded so as to only apply to individuals who file voluntary bankruptcy petitions. The revised Code, with respect to individual chapter 7 debtors who have had involuntary petitions filed against them, is silent about the above restrictions. Does this lead to the conclusion that dismissal for abuse under §707(b) is unavailable in the case of an involuntary chapter 7 proceeding? General principles of statutory construction may support such a conclusion.

Principles of Statutory Construction: Dismissal Under §707(b) Unavailable

Suppose, for whatever reason, an involuntary petition under chapter 7 is filed against an individual with primarily consumer debts, and the individual does not timely controvert the petition. Based on the wording of the above statutes, the case should not be subject to dismissal for abuse5 as set forth in revised Code §707(b), nor should the debtor otherwise be required to complete the credit counseling or educational requirements set forth in revised Code §§109(h)(1) and 727(a)(11) as conditions to a chapter 7 discharge. This conclusion is warranted under at least two principles of statutory construction.

The best argument to support this conclusion is that the plain meaning of the language in the revised Code requires the court to allow the debtor to remain in chapter 7. The provisions regarding the means test, credit counseling and education only apply to debtors who file voluntary petitions—not debtors who are served with involuntary petitions. As stated by the U.S. Supreme Court in Lamie v. U.S. Trustee, 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004), citing Hartford Underwriters Ins. Co. v. Union Planters Bank NA, 530 U.S. 1, 6, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000), "[i]t is well established that 'when the statute's language is plain, the sole function of the courts—at least where the disposition required by the text is not absurd—is to enforce it according to its terms.'" The mere fact that Congress may not have foreseen all the consequences of a statutory enactment is not sufficient reason for refusing to give effect to its plain meaning. In other words, that would be an insufficient reason to find that the text of a statute is "absurd." See In re Zodhi, 234 B.R. 371, 381 (Bankr. M.D. La. 1999), citing Union Bank v. Wolas, 502 U.S. 151, 157, 112 S.Ct. 527, 116 L.Ed.2d 514 (1991). A result will be deemed to be absurd only "if it is 'unthinkable' or 'bizarre[,]'...or 'demonstrably at odds with the intentions of its drafters.' It is not absurd if it is merely 'personally disagreeable'...or 'mischievous' or 'objectionable.'" In re Spradlin, 231 B.R. 254, 260 (Bankr. E.D. Mich. 1999), citing Public Citizen v. Dept. of Justice, 491 U.S. 440, 109 S.Ct. 2558, 105 L.Ed.2d 377 (1989).

Another argument is the doctrine of expressio unius est exclusio alterius. The term has been defined as being a canon of construction holding that to express or include one thing implies the exclusion of the other, or of the alternative. For example, the rule that "each citizen is entitled to vote" implies that noncitizens are not entitled to vote. See Black's Law Dictionary (8th ed. 2004). In In re Hen House Interstate Inc., 177 F.3d 719 (8th Cir. 1999), aff'd., Hartford Underwriters Ins. Co. v. Union Planters Bank NA, 528 U.S. 985, 120 S.Ct. 444, 145 L.Ed.2d 361 (1999), after conversion of a case from chapter 11 to 7, the debtor's workers' compensation insurer brought an adversary proceeding against a secured creditor seeking a surcharge of its collateral to secure payment of its chapter 11 administrative claim for unpaid premiums. The Eighth Circuit ruled that §506(c) of the Code only allows trustees to seek to surcharge collateral in such situations, and that if Congress intended to allow a party such as the claimant to have standing to surcharge, it would have expressly said so. Id. at 723, fn. 4. The doctrine has also been applied by the U.S. Supreme Court in Leatherman v. Tarrant County Narcotics Intelligence and Coordination Unit, et al., 507 U.S. 163, 168, 113 S.Ct. 1160, 122 L.Ed.2d 517 (1993), and TRW Inc. v. Andrews, 534 U.S. 19, 28, 122 S.Ct. 441, 151 L.Ed.2d 339 (2001).

Collectively, the above rules of statutory construction can lead to the conclusion that dismissal or conversion for abuse under §707(b) will be unavailable against involuntary debtors. While §707(b) dismissal or conversion may be unavailable, there is authority to support dismissals for "cause" under §707(a) of the Code, depending on the facts of each case.6

Dismissal for Cause Under §707(a): Kingston Square and Related Cases

The parties who stand the most to gain from dismissing the case under the fact pattern presented here will likely be nonpetitioning creditors. However, in most situations, the remedy available for nonpetitioning creditors in an involuntary chapter 7 case is a motion to dismiss for cause under §707(a) of the Code. Nonpetitioning creditors are generally precluded from opposing involuntary petitions, although there are exceptions. See §303(d) of the Code; In re MacFarlane Webster Assoc., 121 B.R. 694, 700 (Bankr. S.D.N.Y. 1990); In re Wester-leigh Development Corp., 141 B.R. 38 (Bankr. S.D.N.Y. 1992).7

There is a limited set of cases where courts have collectively considered (1) motions to dismiss cases commenced by involuntary petitions (2) after an order for relief has been entered and (3) that involve alleged collusion between the debtor and the petitioning creditors. Given the advantages that may inure to involuntary chapter 7 debtors with primarily consumer debts under BAPCPA (as opposed to those debtors who file voluntary petitions), there is potential in the future for such collusion when BAPCPA becomes fully effective.

In re Kingston Square Associates et al., 214 B.R. 713 (Bankr. S.D.N.Y. 1997), probably provides the most comprehensive authority on this topic. Kingston Square also discusses in detail several other reported cases that involved alleged collusion between the debtor and petitioning creditors. In Kingston Square, a group of debtor entities owning real property entered into financing arrangements that contained mechanisms to preclude the debtors from filing voluntary bankruptcy petitions. The governing documents contained "bankruptcy remote provisions" that effectively made a voluntary bankruptcy unavailable to a defaulting borrower without the consent of the mortgagee's designee. Subsequently, the debtors defaulted on their mortgages and the mortgagees foreclosed. While the debtors desired to file voluntary chapter 11 petitions, they were precluded from doing so pursuant to the bankruptcy remote provisions. To get around this roadblock, the debtors engaged counsel to solicit creditors to file involuntary chapter 11 petitions. After orders for relief were entered, the debtors' mortgagees moved to dismiss the cases for cause, alleging that the involuntary petitions were filed in bad faith.8

The movants relied on F.D.I.C. v. Cortez, 96 F.3d 50, 51 (2d Cir. 1996),9 which held a collusive filing of a bankruptcy case to be a fraud upon the jurisdiction of the bankruptcy court and susceptible to immediate dismissal. However, Cortez involved a situation where the debtor colluded with her stepfather and induced him to file the involuntary petition. This was done to get around a 12-month prohibition entered by a bankruptcy court in a different venue.

The Kingston Square court then discusses Matter of Winn, 49 B.R. 237, 239 (Bankr. M.D. Fla. 1985). Winn recognized that "there are two components to collusion: (1) the secret acts of at least two people and (2) the wrongful purpose." Kingston Square continues:

The Winn court also developed a two-part test to determine whether an involuntary filing should be dismissed as collusive: First, there must appear to be concerted action between the debtor and the petitioning creditors, and second, these parties must fraudulently invoke the jurisdiction of the court. 49 B.R. at 239.10
214 B.R. at 725.11

Kingston Square also discusses a case cited by the respondent debtors that is relevant here. In In re Sky Group Int'l. Inc., 108 B.R. 86, 90 (Bankr. W.D. Pa. 1989), a creditor of a debtor who faced an impending foreclosure asked the debtor for a list of its creditors. The debtor had told the creditor that if the sale were to proceed, the creditor would get nothing. After receiving the list, the creditor, along with others, joined in an involuntary chapter 7 petition and stayed the sale. The bankruptcy court found no wrongdoing. In doing so, it further found that the debtor did not "induce" or "orchestrate" the filing.12

Conversely, the Kingston Square court concluded that its debtors orchestrated the involuntary bankruptcy filings. 214 B.R. at 732. Despite acknowledging that the debtors performed "an end run around the bylaw provision that restricted [them] from filing voluntary petitions," the court ruled that this was not in and of itself fraudulent. Id. at 735. It concluded by finding that the decision to orchestrate the involuntary bankruptcy filings was motivated by an intention to preserve value for the debtors' estates and their creditors, and that as a result, the petitions would not be dismissed. Id. at 736. In spite of the finding that the debtors orchestrated the involuntary bankruptcy filings, the court concluded that there was no proof of collusion. Id. at 737.13

The Kingston Square court's reliance on the two-pronged inquiry set forth in Winn is important here. Using the court's analysis, one must first ask whether the debtor acted in concert with a petitioning creditor or creditors. Second, it must be determined if there was a wrongful purpose—whether there was a fraudulent attempt to invoke the jurisdiction of the court. A motion to dismiss for cause under §707(a) of the Code based on a collusive filing should only be granted if both prongs of the test are met.14 The first prong is a factual inquiry. The second prong appears to be a mixed question of fact and law. The section that follows will discuss various acceptable and unacceptable purposes for filing voluntary and involuntary bankruptcies. This is especially relevant when considering the second prong of the Winn analysis.

Proper and Improper Purposes for Filing Bankruptcies

"Congress made it a central purpose of the Bankruptcy Code to give debtors a fresh start in life and a clear field for future effort unburdened by the existence of old debts." In re Stoltz, 315 F.3d 80, 94 (2nd Cir. 2002), citing In re Bogdanovich, 292 F.3d 104, 107 (2nd Cir. 2002). A primary purpose of bankruptcy is to relieve an honest debtor from the weight of oppressive indebtedness and grant him a fresh start. In re Archambault, 174 B.R. 923, 934, citing Local Loan Co. v. Hunt, 292 U.S. 234, 54 S.Ct. 695, 78 L.Ed. 1230 (1934), and In re Krohn, 886 F.2d 123 (6th Cir.1989). Congress has called the "fresh start" the essence of modern bankruptcy law. The fresh start has been recognized by courts as one of the primary purposes of bankruptcy law. In re Sullivan, 195 B.R. 649, 654 (Bankr. W.D. Tex. 1996).

A central theme of the Code "is to provide a procedure by which certain insolvent debtors can reorder their affairs, make peace with their creditors, and enjoy a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt." In re 801 South Wells Street Limited Partnership, 192 B.R. 718, 725 (Bankr. N.D. Ill. 1996),15 citing Grogan v. Garner, 498 U.S. 279, 286, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). It has been said that the purpose of a chapter 7 case is to liquidate the debtor's nonexempt assets and distribute the proceeds to his creditors. In re Tucker, 174 B.R. 732, 742 (Bankr. N.D. Ill. 1994).

The courts have enumerated several acceptable purposes for filing an involuntary petition. A general purpose for involuntary bankruptcies is to provide a method for creditors to protect their rights against debtors who are not meeting their debts. In re All Media Properties Inc., 5 B.R. 126, 137 (Bankr. S.D. Tex. 1980). A creditor's concern for protecting itself against other creditors obtaining a disproportionate share of the debtor's assets is a proper purpose. General Trading Inc. v. Yale Materials Handling Corp., 119 F.3d 1485, 1502 (11th Cir. 1997). Whenever there is a threatened depletion of assets or unequal treatment of similarly situated creditors, bankruptcy policy dictates that the creditor be able to compel liquidation or reorganization of a debtor's estate through an involuntary bankruptcy petition. In re Manhatten Industries Inc., 224 B.R. 195, 200 (Bankr. M.D. Fla. 1997) citing 1 Norton Bankr. L. & Prac. 2d §21:10 (1997). Other legitimate reasons for filing an involuntary bankruptcy petition include invocation of bankruptcy court protection to protect the debtor's creditors along with the investigation, accounting for and protection of the debtor's assets. In re Apache Trading Group Inc., 229 B.R. 891, 894 (Bankr. S.D. Fla. 1999).

Filing an involuntary petition to gain a strategic advantage, as opposed to protecting one's interest relative to other creditors, constitutes an improper purpose. In re Cannon Express Corp., 280 B.R. 450, 455 (Bankr. W.D. Ark. 2002), citing In re Silverman, 230 B.R. 46, 53 (Bankr. D. N.J. 1998). Evidence of an improper purpose also includes a lack of concern about alleged fraudulent transfers made on the part of the debtor, dissatisfaction with state court proceedings and, in the case of an involuntary petition filed by a single creditor, failure to investigate whether the debtor had more than 12 creditors. In re Smith, 243 B.R. 169, 196-201 (Bankr. N.D. Ga. 1999). Other cases involving malice or ill will toward the debtor are generally irrelevant here.

Analysis and Conclusion

The applicable sections of the Code in BAPCPA, §§109(h)(1), 707(b) and 727 (a)(11), along with general principles of statutory interpretation, lead to the conclusion that chapter 7 debtors whose cases are initiated by an involuntary bankruptcy petition will not be subject to newly enacted restrictions and requirements regarding credit counseling, means testing and education. Accordingly, involuntary cases should not be subject to dismissal for abuse under §707(b)—irrespective of the debtor's income and debt. Furthermore, if no proceedings have been brought to dismiss for cause under §707(a) of the Code,16 then the debtor should be entitled to remain in chapter 7. This is a favorable result for many debtors who otherwise would be required to convert to chapter 11 or 13, or worse yet, face dismissal.

Given the foregoing apparent loopholes in the revised Code, there is an opportunity for mischief in the nature of collusion to occur. Debtors may have an incentive to induce or orchestrate the filing of involuntary petitions against themselves. Under such circumstances, grounds for dismissal for cause under §707(a) of the Code may exist. In order to determine whether or not an involuntary case filed against a debtor with primarily consumer debts should be dismissed for cause as a collusive filing, the two-pronged inquiry made by the court in Winn and examined by the court in Kingston Associates should be applied. First, a factual inquiry should be made to determine whether or not the debtor and petitioning creditors acted in concert to facilitate the filing of the involuntary petition. If they did not, it probably can be said that there was no collusion giving rise to cause to dismiss under §707(a).17 Suppose, however, the debtor did act in concert with petitioning creditors and help orchestrate the filing of an involuntary petition against him. In such case, we need to determine whether or not the petition was filed for an improper purpose.

The cases under BAPCPA are not yet developed. Therefore, we do not know whether courts will examine the purposes of debtors alone in such situations, the purposes of the petitioning creditors alone, or collectively consider the purposes of all involved. With regard to debtors, we do not know how courts will react to debtors' stated purposes of moving on with their lives to get a fresh start—even if it means liquidating all of their nonexempt assets.18 We do not know whether courts will be sympathetic to admissions by debtors that they sought to obtain a chapter 7 discharge that would otherwise be unavailable under the means test as applied in voluntary cases. While that would effectively circumvent congressional intent for enacting BAPCPA, it is suggested that such a statement of purpose on the part of a debtor should not be dismissed outright without considering the purposes of petitioning creditors that filed the bankruptcy. Certainly, the stated purpose of a fresh start by an honest debtor who is forthcoming before the court should not be dismissed outright as an improper purpose for inducing a bankruptcy filing. See In re Archambault, In re Sullivan and In re Stoltz, supra, and cases cited therein.

Suppose the debtor was involved in state court litigation with one creditor who was in line, upon entry of a judgment in his favor and execution thereon, to obtain a disproportionate share of the debtor's nonexempt assets. This could be a legitimate reason for the other creditors to join in an involuntary proceeding as an attempt to equalize distribution. See General Trading Inc. and In re Manhatten Industries Inc., supra. Other legitimate reasons, such as protecting the debtor's assets, could be determined on a case-by-case basis. Since the situation presented here involves a debtor that would merely like to remain in chapter 7 (as opposed to fraudulently invoking jurisdiction of the bankruptcy court), and since BAPCPA provisions at issue here were enacted to protect creditors, it is suggested that the purposes of the petitioning creditors should be paramount—not those of the debtor.19 If legitimate purposes for filing the involuntary petition exist, and if the assumptions set forth in the beginning of this article are otherwise in place, the debtor very well may be allowed to remain in chapter 7. Furthermore, a chapter 7 discharge could be granted without consideration of whether the debtor qualifies under the means test, and even if the debtor fails to satisfy requirements relating to credit counseling and education. This result could occur even if the debtor induced or helped orchestrate the involuntary bankruptcy. After all, BAPCPA was enacted to protect creditors. Should creditors with legitimate purposes for joining in an involuntary bankruptcy be penalized merely because their eyes were opened by the debtor? At the end of the day, the real battle might very well lie between the competing equities of the petitioning and nonpetitioning creditors.

There is one caveat, however. Petitioning creditors are forewarned to be careful. A good rule of thumb is that a court will look to whether or not a reasonable person similarly situated with the petitioning creditor would have joined in the petition. If there is bad faith or other improper motivation, the petitioning creditor's attorney could be subjected to sanctions under Rule 11. See In re Caucus Distributors Inc., 106 B.R. 890, 924 (Bankr. E.D. Va. 1989). In addition, new §707 (b)(4)(C) of the Code contains heightened standards for attorneys that are more in line with Rule 11. Whether or not adventurous debtors who orchestrate the filing of involuntary petitions against themselves could be subjected to sanctions is a matter for consideration at a future date. Furthermore, §707(b)(4)(B) of the revised Code provides authority for the court to impose sanctions on debtors attorneys. The referenced Code section does not limit the term "attorney for the debtor" to mean attorney for a debtor that filed a voluntary petition. Therefore, to the extent that attorneys counsel debtors to perform acts that may be deemed to be collusive, it is possible that the attorneys could be sanctioned.

Giving due regard to the foregoing caveat, BAPCPA was not enacted to allow one creditor of a debtor to obtain a strategic advantage in state court or otherwise over other creditors. Maybe a debtor will see this happening and bring it to the attention of his other creditors who then decide to file an involuntary petition against the debtor—with his blessings. Or maybe his creditors on their own file an involuntary chapter 7 petition, with legitimate purposes for doing so, and the debtor decides not to contest. Maybe "pre-packaged" chapter 7 involuntaries will be in vogue. Perhaps this is the proverbial loophole to the means test and other requirements and restrictions set forth in BAPCPA.


1 Revised §704(b)(2) exempts the conversion or dismissal provisions for debtors whose income levels fall below certain median income levels. If a debtor's income falls below this level, it is unnecessary to even consider whether or not he passes the means test. For purposes of discussion, we will assume that all debtors under consideration here have income levels that exceed the referenced median levels. Return to article

2 The "Code" as stated here shall refer to the U.S. Bankruptcy Code under Title 11 of the U.S. Code. When revisions to Code under the Bankruptcy Reform Act are discussed, the subject Code sections shall be referred to as the "revised Code." Return to article

3 See revised Code §109(h)(1), infra. Return to article

4 See revised Code §727(a)(11), infra. Return to article

5 Abuse under revised §707(b)(1) is presumed if the debtor fails the means test under §707(b)(2). Return to article

6 However, the §707(a) procedure is more cumbersome than that employed under §707(b). Under revised Code §704(b), the determination of abuse under §707(b) is made by the U.S. Trustee, who then would be responsible for filing a motion to dismiss if appropriate (although revised §707(b)(1) allows other interested parties or the court to file such a motion as well). The motion to dismiss under §707(a) is a contested matter under Fed. R. Bankr. P. 9014. See Rule 1017(d). The court also has the power to move to dismiss sua sponte under §105(a). Return to article

7 Cf., In re Corto, infra. In Corto, an unreported case, the district court affirmed a bankruptcy decision dismissing an involuntary petition on the motion of a creditor. The district court stated that allegations of abuse are among the types of issues that must be resolved before an order for relief can be entered. Corto relied on Fed. R. Bankr. P. 2018(a), which gives the court the right to permit a party to intervene with respect to any matter. Return to article

8 While the movants relied on §1112(b) of the Code, the facts and rules of law applied are analogous here. Return to article

9 See Kingston Square Assoc., 214 B.R. at 723. Return to article

10 The Winn court determined that the involuntary petition was actually conceived by the debtor—an individual who had a voluntary petition previously dismissed on the ground that it was filed in bad faith. Since the filing of the involuntary petition was related to the dispute in the previously dismissed case, the involuntary case was dismissed as well. Furthermore, the petitioning creditors were friends of the debtor. 49 B.R. at 240. Return to article

11 A third case with similar facts to Cortez and Winn, In re Corto, 1995 WL 643372 (W.D.N.Y. 1995), is also discussed in Kingston Square. In Corto, the petitioning creditors included the debtor's mother and son. As in Cortez and Winn, the involuntary proceeding was commenced only after a 180-day bar from refiling was entered in an order of dismissal of a voluntary case filed by the debtor. Return to article

12 The court also denied the movant's request to dismiss under §305(a)(1) of the Code on the alleged ground that dismissal would be serve the interests of the debtor and its creditors. 108 B.R. at 90-91. Return to article

13 A case that arose after Kingston Square, In re Valdez, 250 B.R. 386 (D. Ore. 1999), is more in line with the facts set forth in Cortez, Winn and Corto. The Valdez debtor had his chapter 13 case dismissed. Days later, his former attorney in the chapter 13 proceeding filed an involuntary chapter 7 for the improper purpose of attempting to litigate a tax dispute in a bankruptcy forum. Return to article

14 Although in Winn, the court found that bad faith alone on the part of the debtor was a sufficient ground for dismissal, even if the first prong was not proven. Return to article

15 The 801 South Wells court continues by citing United States v. Goodstein, 883 F.2d 1362, 1370 (7th Cir. 1989), in support of the proposition that the "'fresh start' objective is counterbalanced by the Code's policy of ensuing equal and equitable treatment of all creditors." 192 B.R. at 725. Return to article

16 Working with the assumptions set forth in the introduction of this article—that the debtor is generally not paying his debts as they became due, that the petitioning creditors claims are not subject to a bona fide dispute as to liability or amount, and that the debtor has not otherwise run afoul of the provisions of §727 (a)(1) through (10) and (12). Return to article

17 It is suggested that the reader refer back to In re Sky Group Int'l. Inc., supra, for further analysis of this issue. However, even if there is no collusion, if there are other indications of bad faith on the part of the debtor, as in Winn, cause for dismissal may nevertheless exist. Return to article

18 Although such stated objectives are proper purposes for filing a voluntary bankruptcy as stated by the courts in 801 South Wells, Grogan v. Garner and In re Tucker, supra. Return to article

19 Indeed, in In re Amanat, 321 B.R. 30, 36 (Bankr. S.D.N.Y. 2005), the court held that if it could be shown that a putative debtor induced a petitioning creditor to file an involuntary petition against him, the debtor would be estopped from later denying the creditor's capacity to be a petitioning creditor. In effect, the court was considering the capacity and purposes of the petitioning creditor for filing the involuntary petition, and ignoring the purposes of the putative debtor for inducing the filing. Return to article

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Thursday, September 1, 2005

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