• Ben Heston

Do you have an absolute right to dismiss your Chapter 13 Bankruptcy

The Supreme Court hinted upon whether the right to dismiss is absolute in a recent case, Marrama v. Citizens Bank. I The issue in Marrama was whether a debtor had an absolute right to convert from chapter 7 to chapter 13.The debtor concealed assets from the trustee and creditors. When he moved to convert to chapter 13, the chapter 7 trustee and creditors objected.

The Supreme Court rejected the bad faith exception to the statute, but ultimately found in favor of the trustee and creditor. The Court referenced the broad powers provided by § 105 as clearly giving the bankruptcy court the authority to deny the debtor the relief requested, despite the language of § 706, when doing so would only prolong an inevitable later dismissal. Given the Court’s decision in Marrama, courts later applied this reasoning to chapter 13 dismissals. The debtor in Jacobsen concealed a variety of assets,and the chapter 13 trustee moved to convert to chapter 7.

The lower courts held for the trustee,rejecting Jacobsen’s argument that he had an absolute right to dismiss.The case made its way to the Fifth Circuit,and the Fifth Circuit,basing its reasoning on Marrama,agreed.Seigel iv questions any limitation on a debtor’s absolute right to dismiss in chapter 13.There,after pursuing extensive litigation against a debtor,the chapter 7 trustee,through order of the bankruptcy court,charged his fees against debtor’s homestead exemption.

The Supreme Court rejected this expansion of powers in light of the explicit provision in the Bankruptcy Code providing for exemptions.At most,Marrama’s dictum suggests that in some circumstances a bankruptcy court may be authorized to dispense with futile procedural niceties in order to reach more expeditiously an end result required by the Code.Marrama most certainly did not endorse,even in dictum,the view that equitable considerations permit a bankruptcy court to contravene express provisions of the Code.Although the various circuit cases held that the debtor’s right to dismiss is not absolute,it is questionable whether those cases remain good law in light of Seigel.

At the,meeting of creditors Jane Doe,by and through counsel,signed a form stating the bankruptcy estate had an interest in the lawsuit settlement,and before the personal injury suit could be settled there had to be court approval.The trustee files a motion asking that the percentage paid to unsecured creditors be raised to 100% and/or the case be converted to chapter 7,or the court deny discharge.However,chapter 7 is a bad idea for this debtor due to tax and student loan obligations.The judge supports the trustee during pre-trial conference,indicating that he agrees the chapter 13 estate has an interest in those funds and all sanctions are on the table.

The court noted that the chapter 13 was voluntary and the debtor could dismiss the case,but there would be no protections against garnishments,judgement,foreclosures,etc.,and the debtor would,more than likely,be barred for two years from filing a new chapter 13 case due to bad faith.

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