In a recent case out of the Southern District of Florida, the Court outlined the standard for dismissal of an individual’s Chapter 7 case based on the Debtor’s pre-petition bad faith behavior.
The statutory language of § 707(a) outlines the three nonexclusive bases a chapter 7 case may be dismissed for “cause,” including unreasonable delay by the debtor that is prejudicial to creditors, nonpayment of any fees or charges required under chapter 123 of title 28, and, upon motion by the United States Trustee, failure of a debtor in a voluntary case to timely file the information required under § 521(a)(1).
In the event that those three examples do not apply, the court must consider whether “cause” exists based on record evidence introduced in the case. The controlling authority in the Eleventh Circuit as to what constitutes “cause” for dismissal is In re Piazza, 719 F.3d 1253 (11th Cir. 2013). In Piazza, the Eleventh Circuit held that “the power to dismiss a bankruptcy case ‘for cause’ in § 707(a) includes the power to involuntarily dismiss a Chapter 7 case based on prepetition bad faith” and “a totality-of-the-circumstances approach is the correct legal standard for determining bad faith under § 707(a). Id. at 1261, 1271. The Piazza court explained that “[t]he totality-of-the-circumstances inquiry looks for ‘atypical’ conduct . . . that falls short of the ‘honest and forthright invocation of the Bankruptcy Code’s protections.’” Id. A court evaluating whether bad faith has occurred is required to examine whether a debtor’s intentional acts or omissions to act “constitute a misuse or abuse of the provisions, purpose, or spirit of the Bankruptcy Code.” Id. at 1272.
The most important takeaway from this recent case is to be prepared and present evidence at the evidentiary hearing supporting your motion for dismissal based on “cause”. Lack of record evidence establishing the bases outlined in § 707(a) or prepetition bad faith rising to the level of “cause” will certainly result in denial of your motion to dismiss.
Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP. Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation. You can contact Heather at 561-804-4419 or hries@foxrothschild.com.