6.01.2006

S.D. Fla. Bankruptcy Court Notes Split Re Whether Bad Faith is Cause to Dismiss a Chapter 7 Bankruptcy

Per In re Farkas, --- B.R. ----, 2006 WL 1441049 (Bkrtcy.S.D.Fla., March 9 2006):

It appears that the Circuits continue to be split on the issue of bad faith and whether it constitutes cause to dismiss a chapter 7 bankruptcy. Compare U.S. v. Pedigo, 329 B.R. 47 (S.D.Ind.2005) (holding that the list contained in 11.U.S.C. § 707(a) is not exhaustive such that bad faith may constitute “cause” for dismissal in a chapter 7 bankruptcy) and In re Linehan, 326 B.R. 474 (Bankr.Mass.2005) (finding that a debtor's bad faith generally does not constitute “cause” for dismissal of a chapter 7 case).

This Court continues to find the reasoning set forth in In re RIS Inv. Group, Inc., 298 B.R. 848, 852 (Bankr.S.D.Fla.2003), to be sound: [w]hat distinguishes Chapter 11 and Chapter 13 from Chapter 7 is the language of the Bankruptcy Code itself and the post-filing relationship between the debtor and his creditors. In re Padilla, 222 F.3d at 1193. Chapter 11 and 13 specifically delineate a good faith requirement for proposed payment plans. Id. (citing 11 U.S.C 1129(a)(3) and 11 U.S.C. § 1325(a)(3)) Chapter 7 makes no mention of a good faith requirement. Further, the relationship between the debtor and creditor in Chapter 11 and Chapter 13 is significantly different than their relationship in Chapter 7. Chapter 11 and 13 debtors are allowed to continue possession of their assets and alter their contractual relationships with their creditors. Chapter 7, on the other hand, ends the creditor-debtor relationship when the debtor metaphorically “throws in the towel.” So long as the debtor is willing to surrender all of its assets, regardless of whether debtor's motive was grounded in good faith, the debtor is entitled to Chapter 7 protection. Id. (citing Katie Thein Kimlinger and William P. Wassweiler, The Good Faith Fable of 11 U.S.C. § 707(a); How Bankruptcy Courts Have Invented a Good Faith Filing Requirement for Chapter 7 Debtors, 13 Bankr.Dev. J. 61, 65 (1996)).

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