Local Rule for Dismissal without Hearing Is Inconsistent with Code

Posted by NCBRC - June 7, 2018

The Code requires notice and a hearing before a bankruptcy court dismisses a debtor’s chapter 13 case and a contrary Local Rule is invalid. No v. Gorman (In re No), No. 17-1679 (4th Cir. May 24, 2018).

Sarah Hyunsoon No filed for chapter 13 bankruptcy and filed a proposed plan but failed to attend the meeting of creditors or make the first payment under the plan as required under section 1326 and Local Rule 3070-1(C). The trustee, Thomas Gorman, certified to the court that by failing to commence payments under the plan, Ms. No had failed to comply with the Local Rule and that her case was therefore subject to dismissal. Although the bankruptcy court scheduled a hearing on the motion, it dismissed Ms. No’s case prior to the hearing. The district court affirmed.

Finding that the Local Rule conflicted with section 1307’s notice and hearing requirement, the Fourth Circuit reversed.

Section 1307(c)(4) provides that a bankruptcy may, “on request of a party in interest or the United States trustee and after notice and a hearing, . . . dismiss a case under this chapter . . . for cause, including . . . failure to commence making timely payments under section 1326 of this title.” The circuit court found the plain language of this provision was unmistakable: Ms. No was entitled to a hearing before her case was dismissed. The court rejected the trustee’s argument that a hearing was not required because the bankruptcy court dismissed the case upon its own authority rather than in response to a motion by the trustee. The trustee’s certification of noncompliance with the Local Rule constituted a “request” triggering application of section 1307(c)(4). The court concluded that the Local Rule was invalid insofar as it was inconsistent with the Code and it reversed and remanded.

No 4th Cir opinion May 2018

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