Court May Deny Voluntary Dismissal of a Chapter 7 Bankruptcy Petition Where Creditors May Be Prejudiced By The Dismissal

Written by Adam Peck Category: Nursing Homes January 23rd, 2013 3 min read

Section 707(a) of the Bankruptcy Code provides that the court may dismiss a Chapter 7 case “only for cause.” 11 U.S.C. § 707(a). This provision stands in meaningful and marked contrast to the liberal voluntary dismissal provision applicable to Chapter 13 cases, which states that “[o]n request of the debtor at any time…the court shall dismiss a case under this chapter.” 11 U.S.C. § 1307(b). In the view of most courts, including this one, a Chapter 7 debtor may not “automatically” dismiss a case on request under § 707(a). In re MacDonald, 73 B.R. 254, 256 (Bankr. N.D. Ohio 1987). Courts have denied a debtor’s request to voluntarily dismiss a Chapter 7 case where creditors have been or will be prejudiced by the dismissal. See, e.g., MacDonald, 73 B.R. at 256; In re Banks, 35 B.R. 59, 60-61 (Bankr. D. Md. 1983). Courts have also denied a debtor’s request to voluntarily dismiss a case when property has been or will be obtained by the Trustee that will satisfy at least part of the debtor’s obligations. See e.g., In re Klein, 39 B.R. 530 (Bankr. E.D. N.Y. 1984) (debtor’s reason for dismissal was settlement of pending lawsuit, which court rejected); In re Blackmon, 3 B.R. 167 (Bankr. S.D. Ohio 1980). As the court noted in Blackmon, a debtor who chooses to place oneself in bankruptcy may not always choose to terminate the proceedings, even if unforseen consequences arise. Id. at 169. And so it is here.

Numerous courts have denied a debtor’s voluntary motion to dismiss a Chapter 7 case when she intends to re-file and list post-petition debts, finding that such action cause prejudice to creditors. E.g., In re Hopkins, 261 B.R. 822 (Bankr. E.D. Pa. 2001); In re McCullough, 229 B.R. 374, 377 (Bankr. E.D. Va. 1999); In re Sheets, 174 B.R. 254, 256 (Bankr. N.D. Ohio 1994). As another judge of this court aptly explained,

The Bankruptcy Code contemplates that a singular point in time, the date of filing of the bankruptcy petition, is to be used to define the bankruptcy estate and the debts that are to be discharged. Simply put, it has to stop sometime. There will always be additional debts, and Congress has chosen to only allow the benefits of a Chapter 7 discharge once every six [n.b. now 8] years. Allowing debtor to add additional creditors undermines the fundamental precept of the bankruptcy system.
In re Sheets, 174 B.R. at 256.

In particular, in a case on point with this one, the debtors in Compton sought to voluntarily dismiss and re-file their Chapter 7 case so as to list a creditor in the new case whose claim arose from a post-petition automobile accident. Compton, 161 B.R. at 637. That is what occurred in this case due to a third-party driver of Debtor’s motor vehicle having been in an accident involving personal injury Amber Hauck-Tucker. The court in Compton persuasively denied the requested voluntary dismissal as an effort to circumvent the significance of the bankruptcy petition date, the meaning of “claim” and the statutory limitations on the availability of Chapter 7 relief. There is no basis shown in the record upon which the outcome of Debtor’s Motion should be any different than the Compton case.

The court found that post-petition creditors will be prejudiced and that Debtor has not shown cause for dismissal of this case.

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Written by Adam Peck

Expertise: Personal Injury

Adam J. Peck, ESQ is a principal with Peck Law Group, APC. In 2008, Mr. Adam Peck received his Juris Doctorate from Whittier Law School where he graduated Cum Laude. His practice is primarily dedicated to representing Elders, Dependent Adults, along with their loved ones and family members, who have suffered horrific personal injuries.