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Chapter 13 Case Dismissed Due to Failure to Disclose Prior Bankruptcy Filings, Other Acts Deemed in Bad Faith

By Self Storage (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia CommonsA bankruptcy court granted a Chapter 13 trustee’s motion to dismiss a debtor’s case and barred the debtor from further bankruptcy filings, in any district in the country, for a two-year period. In re Weik, No. 14-61298, mem. dec. (Bankr. D. Mont., Feb. 24, 2015). The trustee had argued that the debtor was ineligible for bankruptcy relief because of recent prior bankruptcy cases, 11 U.S.C. § 109(g)(1); that the debtor had abused the bankruptcy process; and that he was not seeking bankruptcy relief in good faith.

The debtor filed a Chapter 13 petition in approximately October 2014. According to the court’s ruling, he had previously filed at least nine bankruptcy petitions, mostly under Chapter 13:  five in Montana, two in Arizona, and two in Texas. Several of the cases had been dismissed by the court for delinquency in plan payments. A bankruptcy court dismissed the most recent prior case in April 2014 because of missed Chapter 13 plan payments.

At the hearing on the trustee’s motion to dismiss, the trustee called the manager of a self-storage business in Tucson, Arizona to testify. She stated that the debtor had entered into a month-to-month storage contract for three units at her facility in 2012 and continued to occupy all three units. He allegedly had not made a rent payment since January 2013, and as of January 2015 he owed more than $8,600. She testified that she had attempted to repossess his property under Arizona law, but the debtor filed each of his three most recent prior bankruptcy cases on the day she had scheduled a sale. The automatic stay prevented the auction each time.

In his Chapter 13 petition in the present case, the debtor did not list any prior bankruptcy cases. He only identified two creditors, a car dealership and a wireless telephone service provider. As a result, the self-storage business did not receive notice of the case. The debtor apparently also failed to include the state tax authority as a creditor. The trustee objected to the debtor’s Chapter 13 plan and moved to dismiss the case in November 2014.

The court sustained the trustee’s objection to the Chapter 13 plan and granted the motion to dismiss. A court may dismiss a case on the motion of the trustee or a party in interest “for cause,” including lack of good faith. 11 U.S.C. § 1307(c). The court drew on four factors indicating bad faith identified by the Ninth Circuit in In re Leavitt, 171 F.3d 1219, 1224 (9th Cir. 1999):

1. Misrepresentation of facts in the debtor’s petition or plan, or other misuse of the bankruptcy process;
2. Prior dismissed bankruptcy cases;
3. Intent to defeat or circumvent litigation in state court; or
4. Other “egregious behavior.”

The court held that the trustee had established the first factor, based on the debtor’s failure to disclose multiple facts in his petition. It further held that his history of bankruptcy filings satisfied the second factor, and that his apparent use of bankruptcy filings to avert the sale of his property in Arizona satisfied the third. Finally, it found that the totality of the circumstances constituted “egregious behavior” that merited a two-year ban on further bankruptcy filings.

Since 1997, bankruptcy lawyer Devin Sawdayi has helped individuals and families in the Los Angeles area rebuild their finances through the Chapter 7 and Chapter 13 bankruptcy processes. Contact us today online or at (310) 475-9399 to schedule a free and confidential consultation with an experienced and knowledgeable financial advocate.

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Photo credit: By Self Storage (Own work) [CC BY-SA 3.0], via Wikimedia Commons.