No Second Chances Debtors Prohibited from Filing a Second Petition within 180 Days

By:  Brian J. Adelmann

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Recently, in In re Rivera,[1] the Bankruptcy Appellate Panel of the First Circuit held that the debtor was prohibited from filing a second bankruptcy case within 180 days of voluntarily dismissing his first case.[2]  The debtor filed his first chapter 13 bankruptcy case on the eve of foreclosure of real property that he owned, which was encumbered by a mortgage.[3]  The secured creditor moved for relief from the automatic stay on the grounds that the debtor failed to make post-petition mortgage payments.[4]  After the debtor failed to file a timely response to the motion, the bankruptcy court granted the secured creditor relief from stay.[5]  Subsequently, the debtor voluntarily dismissed his bankruptcy case.[6]  On the same day that he dismissed his first case, the debtor filed a new chapter 13 case.[7]  The bankruptcy court granted the creditor’s motion to dismiss the second petition pursuant to section 109(g)(2) of the Bankruptcy Code, which provides that no individual may be a debtor in a bankruptcy case if such individual voluntarily dismissed a bankruptcy case within the preceding 180 days.[8]  The Bankruptcy Appellate Panel of the First Circuit affirmed the bankruptcy court.[9]

In making its decision, the BAP focused on the application of section 109(g)(2).[10]  The BAP noted that Congress enacted section 109(g)(2) to prevent abusive repetitive bankruptcy filings by debtors to avoid the relief of an automatic stay.[11]  Although the language of section 109(g)(2) appears to be unambiguous, courts have adopted three approaches for applying the statute: (1) the mandatory approach, (2) the discretionary approach, and (3) the causal connection approach.[12]  Courts applying the mandatory approach consider the language of section 109(g)(2) to be unambiguous, and therefore, those courts hold that the statute requires that the court dismiss the case regardless of debtor’s motives in refilling.[13]  Next, under the discretionary approach, courts have discretion not to dismiss the case so long as “the creditor is not unfairly prejudiced, a dismissal would be absurd or illogical, or when the creditor (and not the debtor) acted in bad faith.”[14]  Finally, under the casual connection approach, courts interpret section 109(g)(2) as requiring that the court dismiss the second case if there is some relationship between a debtor’s request for a voluntary dismissal and a creditor’s request for relief from the automatic stay.[15]  Unlike other courts that have interpreted section 109(g)(2), the Rivera court did not adopt any of the particular approaches because the court found that the case clearly fell within section 109(g)(2) under any of the approaches.[16] 

Rivera demonstrates that a debtor cannot circumvent an order granting a creditor relief from the automatic stay by dismissing his bankruptcy case and filing a new case.  No matter which approach is applied, section 109(g)(2) will prevent a debtor from using a second filing as a way to overcome his failure to file a timely response to a secured creditor’s motion.[17]  As such, the Rivera decision underscores the need for debtors to actively participate in their bankruptcy cases.  Additionally, secured creditors can take some solace in the fact that courts will interpret 109(g)(2) in such a way that prevents a debtor from dismissing his case in an attempt to continually frustrate the creditor’s legitimate attempts to foreclose on its collateral.[18]