National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

Dismissal

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7th Circuit Overrules Precedent and Dismisses Direct Appeal for Failure to File Timely Petition

Rule 8006(g) states a mandatory requirement that a party seeking direct appeal file a petition in support. Failure to do so, if properly invoked by the opposing party, is cause for dismissal. In re Wade, No. 18-2564 (7th Cir. June 14, 2019).

This case came to the Seventh Circuit on certification of direct appeal by the bankruptcy court to address the scope of section 362(c)(3)(A), which, in the case of successive petitions, lifts the automatic stay after 30 days concerning the property of the debtor. The Wades’ previous attorney, Kreisler Law, P.C., filed a lien against Ms. Wade’s residence while the Wades’ second bankruptcy was pending and the Wades sought sanctions for violation of the automatic stay. The bankruptcy court determined that the stay was no longer in effect when the lien was filed and denied the motion for sanctions. Recognizing, however, that courts have disagreed as to the meaning of the phrase “concerning the debtor,” in section 362(c)(3)(A), the bankruptcy court certified the Wades’ appeal to the Seventh Circuit.

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District Court Affirms Chapter 13 Debtor’s Absolute Right to Dismiss Despite Bad Faith, Refuses to Extend Marrama

Noting a split in authority, the District Court for the Northern District of New York found that a Chapter 13 debtor has the absolute right to dismiss her bankruptcy.

On April 21, 2015, the Debtor filed a voluntary Chapter 13 bankruptcy petition. She claimed as exempt an inherited Individual Retirement Account (“inherited IRA”) worth about $800,000. One of her creditors was Endurance American Insurance Company (“Endurance”). At Endurance’s request, the bankruptcy court entered an interim preservation order that limited the debtor’s ability to withdraw funds from the inherited IRA. On March 19, 2018, the Debtor filed a request for voluntary dismissal of her bankruptcy case under 11 U.S.C. § 1307(b). The bankruptcy granted the motion on the same day.

Thereafter, it was discovered that the Debtor had quietly depleted the funds in the inherited IRA and other accounts during the bankruptcy.

Endurance then filed a motion to reconsider or vacate the dismissal of the Debtor’s bankruptcy, to convert the case to a Chapter 7 proceeding, and to hold the Debtor in contempt for violating the IRA preservation order.

After a two-day hearing, the Bankruptcy Court found that Debtor had violated the interim preservation order but denied Endurance’s motion to reconsider or vacate the dismissal order relying upon a Second Circuit case, Barbieri v. RAJ Acquisition Corp., 199 F.3d 616 (2d Cir. 1999), which held that debtors, bad faith or no, enjoyed an absolute right to voluntarily dismiss a chapter 13 petition under § 1307(b).

Endurance raised the issue of whether the Supreme Court’s decision in Marrama v. Citizens Bank, 549 U.S. 365 (2007) overruled the Barbieri decision. The Bankruptcy Court concluded that Barbieri remained in good law after Marrama. The issue was then addressed on appeal by the district court.

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Obligation to Return Funds to Debtor upon Dismissal Preempts State Levy Law

The chapter 13 trustee had no choice but to return post-petition funds to the debtor upon pre-confirmation dismissal of his bankruptcy despite state law permitting the Division of Child Support to levy against any person holding the debtor’s funds. Commonwealth of Va., Dept. of Soc’l Serv. v. Webb, No. 17-2328 (4th Cir. Nov. 19, 2018).

Chapter 13 debtor, Barry Webb, paid $3,000 to the chapter 13 trustee while his bankruptcy was pending confirmation. After he was unable to establish a confirmable plan, his bankruptcy was dismissed and the Virginia Department of Social Services, Division of Child Support, presented the trustee with an Order to Withhold the funds for payment to the Division. The bankruptcy court found that the Code required the trustee to return the funds to the debtor. The district court affirmed. [Read more…] about Obligation to Return Funds to Debtor upon Dismissal Preempts State Levy Law

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Local Rule for Dismissal without Hearing Is Inconsistent with Code

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. [Read more…] about Local Rule for Dismissal without Hearing Is Inconsistent with Code

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Direct Mortgage Payments Not “Payments under the Plan” for Discharge Purposes

Payments made directly by the debtor to the mortgagee are not “payments under the plan,” within the meaning of section 1328 and the debtor’s failure to make those payments are not cause for dismissal without discharge. In re Gibson, No. 12-81186 (Bankr. C.D. Ill. March 5, 2018).

Bryan and Holly Gibson made all payments in accordance with their five-year chapter 13 plan, and the trustee filed the notice of payment completion. Mortgage creditor, PNC, agreed that the Gibsons were current on their first mortgage and had paid the arrearage on the second mortgage through the trustee. However, it chose that moment to complain that, as of the beginning of the plan, the debtors had made none of the post-petition direct payments on their second mortgage. On the basis of that default, the trustee moved to dismiss under section 1307(c)(6). [Read more…] about Direct Mortgage Payments Not “Payments under the Plan” for Discharge Purposes

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Undisbursed Funds Go To Debtor upon Dismissal

Post-confirmation wages that are undisbursed upon dismissal of the debtor’s Chapter 13 case must be returned to the debtor without distribution to the debtor’s attorney, the trustee, or creditors. In re Edwards, 2015 Bankr. LEXIS 3195, No. 13-30230 (Bankr. S.D. Ill. September 22, 2015). [Read more…] about Undisbursed Funds Go To Debtor upon Dismissal