Voluntary Dismissal Under 1307(b) over Objection by Creditor

Posted by NCBRC - February 4, 2021

The debtor was permitted to voluntarily dismiss her chapter 13 case under section 1307(b) despite the judgment creditor’s objections and a technical error, where, even if a good faith component is read into the statute, the creditor failed to provide evidence of bad faith and was otherwise provided due process. Murphy v. Marinari (In re Marinari), No. 19-3642 (3rd Cir. Jan. 19, 2021) (unpublished).

The judgment creditor filed a claim and an adversary proceeding in the debtor’s chapter 13 case. The debtor filed an “application” to voluntarily dismiss her bankruptcy case under section 1307(b). When the bankruptcy court dismissed the case over the creditor’s objection, the creditor appealed. The district court affirmed.

On appeal to the Third Circuit, the creditor argued that the bankruptcy court erred in dismissing the debtor’s case because the debtor acted in bad faith. Citing In re Ross, 858 F.3d 779, 784 (3d Cir. 2017), the court noted that it was unclear whether a debtor has an absolute right to dismiss under section 1307(b) or whether there is a good faith component to the provision. In either case, however, the court found that the creditor failed to allege or present evidence of the “extraordinary” or “atypical” conduct necessary to show bad faith in the bankruptcy context.

The creditor next objected to the debtor’s failure to file a motion to dismiss in accordance with Rules 1017(f)(2) and 9013, but instead, filed an “application” which the court treated as a motion. The court rejected this argument, finding that the creditor failed to object to the form in the bankruptcy court and was given fair notice and an opportunity to oppose the dismissal at the time.

The court likewise rejected the creditor’s contention that the bankruptcy court should not have granted the dismissal while his motions for sanctions and conversion to chapter 7 were pending. The court found the bankruptcy court had already resolved the motion for sanctions prior to the hearing on the motion to dismiss. Furthermore, the creditor failed to request an evidentiary hearing on his motions at the time the court was addressing the motion to dismiss.

Finally, the creditor argued that the bankruptcy court erred by placing “meaningless” and “unconstitutional” conditions on the debtor’s dismissal, and by failing to place “additional appropriate conditions” on the debtor. Specifically, the bankruptcy conditioned dismissal on the understanding that if the debtor filed for bankruptcy again within two years, the adversary proceeding would continue, and if the debtor did not refile, the creditor could pursue collection in the ordinary course. The circuit court found that the creditor’s belated request for additional conditions was too vague for the bankruptcy court to act upon them. Furthermore, in the absence of a finding of bad faith on the part of the debtor, additional conditions would have been inappropriate.

The court affirmed.

Marinari 3rd Cir Jan 2021



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