DISHONEST CHAPTER 13 DEBTOR RIGHT TO DISMISS CASE NOT ABSOLUTE

Part 1

Normally, Chapter 13 debtors can get out of or dismiss their Chapter 13 cases almost as a matter of right. On the other hand, Chapter 7 debtors cannot ordinarily have their Chapter 7 cases dismissed. Once you have filed a Chapter 7 case and have gone through the initial 341a meeting of creditors, you cannot just change your mind and get out of the Chapter 7 case. For example, debtor files a Chapter 7 case without disclosing that he has $50,000 in a CD account. The trustee discovers later that debtor has a $50,000 CD. Debtor is not able to exempt the $50,000. The trustee tells the debtor to turnover the $50,000 to him so he can pay some creditors. Debtor changes his mind about filing for bankruptcy because he does not want to lose the $50,000. Can he dismiss his Chapter 7 case? NO. The trustee will file a motion asking the court for an order to have the bank turnover the CD to him and the debtor will not be able to oppose the motion successfully. Debtor will end up losing his CD. But in a Chapter 13 case, debtor can most probably have his case dismissed and save his CD if there was no bad faith by debtor.

What is meant by debtor “bad faith” which will prevent debtor from being able to dismiss his Chapter 13 case?

In Re Kotche, the debtor moved to dismiss her Chapter 13 case at the confirmation hearing. The U.S. Trustee objected to confirmation and objected to dismissal of the case and asked that the court convert the case to Chapter 7. In other words, debtor wanted to get out of bankruptcy by dismissing her Chapter 13 case but the US Trustee wants the court to keep debtor in bankruptcy by converting her Chapter 13 case to a Chapter 7 case against her will! It’s like dragging her by the hair and forcing her to stay in bankruptcy even if she does not want to. The court denied confirmation of debtor’s plan, and scheduled a hearing to consider the competing motions.

continuing...