Bankruptcy

Absolute Right to Dismiss a 13? That?s What It Says

By Wendell Sherk, Missouri Attorney

Modern bankruptcy is largely a voluntary idea, a relief for those in need.  The matching right to drop out of a case is less well recognized.

This is true even in Chapter 13 where the right to dismiss your own case seems absolute.  On the other hand, many courts have concluded the right to dismiss does not overcome a creditor or trustee’s motion to convert a case to Chapter 7.  Typically these cases conclude that a consumer’s “bad faith” in filing Chapter 13 can prevent dismissal and require conversion.

Judge Eugene Wedoff in Chicago recently decided one of these contentious issues, concluding that courts do not have the right to amend the law by placing a”good faith” exception to the right to dismiss your case (versus granting a trustee’s motion to convert).  Although such a limitation exists for dismissals of, or conversions from, Chapter 7 — the Code itself says the court “shall” dismiss a Chapter 13 at the debtor’s request, if it has not been converted from another chapter.

The reality is that all these cases are defined by “hard” facts, where someone seems to be trying to get away with something.  An undisclosed asset creditors could get in Chapter 7, for example.  So courts feel driven to make the situation “fair” by forcing the debtor to do the right thing, legally.

The conflict shows the tunnel-vision that sometimes creeps into bankruptcy court.  Judges sometimes feel they must stop a debtor “escaping” the process because creditors won’t get paid then.

The irony of course is that outside bankruptcy is rarely a sanctuary from those creditors.   If those creditors wanted the benefits of the bankruptcy process in collecting their debts, there is an “involuntary bankruptcy” process available to them as well.  So when courts try to “fix” these problems they need to remember — Congress might have already fixed it.

Full post as published by Bankruptcy Law Network on August 25, 2010 (boomark / email).