A centerpiece of the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005 (BAPCPA) is the means
test, set forth in revised §707(b)<a href="#1" name="1a">1</a> of the Code.<a href="#2" name="2a">2</a> Although the mathematical formula used to
perform the means test is outside the scope of discussion here, it is
clear that it will be more difficult for a chapter 7 debtor to avoid
either conversion to chapter 11 or 13 or an outright dismissal. There
is, however, at least at first blush, a possible loophole in the wording

of the statutes. This loophole could lead to an effective end-run around

the means test as well as other requirements for credit
counseling<a href="#3" name="3a">3</a> and
education.<a href="#4" name="4a">4</a> The
consumer debtor could proceed in chapter 7 through to discharge under
§727 of the Code. The chapter 7 discharge could be
granted—even if the debtor's income and debt would otherwise
presumptively require conversion or dismissal under the means test, and
even if the debtor fails to comply with new credit counseling and
educational requirements. The vehicle for accomplishing this is an
involuntary bankruptcy petition.

This article will examine issues under BAPCPA relating to involuntary

chapter 7 petitions filed against individual debtors with primarily
consumer debts. For purposes of the following analysis and discussion,
it is assumed that the debtor is generally not paying his debts as they
become due and that the petitioning creditors have claims that are not
subject to bona fide disputes as to liability or amount so as not

to run afoul of §§303(b)(1) and (h) of the Code. It is further

assumed that (1) the debtor has not timely controverted the involuntary
petition, (2) an order for relief has been entered and (3) the debtor
does not otherwise violate the provisions of §§727(a)(1)
through (10) and (12) of the revised Code. Stated in other words, our
debtor is an honest individual who seeks a fresh start in the
least-expensive and most expeditious way possible.

<h4>Revised Code and Voluntary Bankruptcies</h4>

While the revised Code under BAPCPA contains new requirements and
restrictions for individuals seeking to become debtors under chapter 7,
at least for the most part, these additional requirements and
restrictions only apply to debtors who file voluntary petitions. Revised

§109(h)(1) applies to debtors under all chapters and states:

<blockquote>
Subject to paragraphs (2) and (3), and notwithstanding any other
provision of this section, an individual may not be a debtor under this
title unless such individual has, within the 180-day period preceding
the date of filing of the petition by such individual (emphasis
added), received from an approved nonprofit budget and credit counseling

agency described in §111(a) an individual or group briefing
(including a briefing conducted by telephone or on the Internet) that
outlined the opportunities for credit counseling and assisted such
individual in performing a related budget analysis.
</blockquote>

Revised §707(b)(1) of the Code contains an additional restriction
for individuals seeking to qualify as chapter 7 debtors under BAPCPA:

After notice and hearing, the court, on its own motion or on a motion by

the U.S. Trustee, trustee (or bankruptcy administrator, if any), or any
party in interest, may dismiss a case filed by an individual
debtor (emphasis added) under this chapter whose debts are primarily

consumer debts, or with the debtor's consent, convert such case under
chapter 11 or 13 of this title, if it finds that the granting of relief
would be an abuse of the provisions of this chapter....
</blockquote>

New §707(b)(2) effectively provides for a presumption that abuse
under chapter 7 as referred to in revised Code §707(b)(1) exists if

the debtor fails to meet strict requirements relating to his income and
debt—i.e., if the debtor fails to pass the "means test."

The provisions of §727(a) of the Code relating to discharge
remain largely unchanged except for newly added §727(a)(11), which
provides that the court shall grant the debtor a discharge, unless
"after filing the petition, the debtor (emphasis added) failed to

complete an instructional course concerning personal financial
management described in §111...."

Each of the above newly added or revised Code provisions has two
things in common. First, each contains additional restrictions or
requirements limiting the ability of individuals to qualify for a
chapter 7 discharge. Second, and more to the point here, the additional
restrictions or requirements are worded so as to only apply to
individuals who file voluntary bankruptcy petitions. The revised
Code, with respect to individual chapter 7 debtors who have had
involuntary petitions filed against them, is silent about the above
restrictions. Does this lead to the conclusion that dismissal for abuse
under §707(b) is unavailable in the case of an involuntary chapter
7 proceeding? General principles of statutory construction may support
such a conclusion.

<h4>Principles of Statutory Construction: Dismissal Under §707(b)
Unavailable</h4>

Suppose, for whatever reason, an involuntary petition under chapter 7

is filed against an individual with primarily consumer debts, and the
individual does not timely controvert the petition. Based on the wording

of the above statutes, the case should not be subject to dismissal for
abuse<a href="#5" name="5a">5</a> as set forth

in revised Code §707(b), nor should the debtor otherwise be
required to complete the credit counseling or educational requirements
set forth in revised Code §§109(h)(1) and 727(a)(11) as
conditions to a chapter 7 discharge. This conclusion is warranted under
at least two principles of statutory construction.

The best argument to support this conclusion is that the plain
meaning of the language in the revised Code requires the court to allow
the debtor to remain in chapter 7. The provisions regarding the means
test, credit counseling and education only apply to debtors who file
voluntary petitions—not debtors who are served with involuntary
petitions. As stated by the U.S. Supreme Court in Lamie v. U.S.
Trustee, 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004),

citing Hartford Underwriters Ins. Co. v. Union Planters Bank NA,
530 U.S. 1, 6, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000), "[i]t is well
established that 'when the statute's language is plain, the sole
function of the courts—at least where the disposition required by
the text is not absurd—is to enforce it according to its terms.'"
The mere fact that Congress may not have foreseen all the consequences
of a statutory enactment is not sufficient reason for refusing to give
effect to its plain meaning. In other words, that would be an
insufficient reason to find that the text of a statute is "absurd."
See In re Zodhi, 234 B.R. 371, 381 (Bankr. M.D. La. 1999),

citing Union Bank v. Wolas, 502 U.S. 151, 157, 112 S.Ct. 527, 116

L.Ed.2d 514 (1991). A result will be deemed to be absurd only "if it is
'unthinkable' or 'bizarre[,]'...or 'demonstrably at odds with the
intentions of its drafters.' It is not absurd if it is merely
'personally disagreeable'...or 'mischievous' or 'objectionable.'" In
re Spradlin, 231 B.R. 254, 260 (Bankr. E.D. Mich. 1999), citing
Public Citizen v. Dept. of Justice, 491 U.S. 440, 109 S.Ct. 2558,
105 L.Ed.2d 377 (1989).

Another argument is the doctrine of expressio unius est exclusio
alterius. The term has been defined as being a canon of construction

holding that to express or include one thing implies the exclusion of
the other, or of the alternative. For example, the rule that "each
citizen is entitled to vote" implies that noncitizens are not entitled
to vote. See Black's Law Dictionary (8th ed. 2004). In In re
Hen House Interstate Inc., 177 F.3d 719 (8th Cir. 1999), aff'd.,
Hartford Underwriters Ins. Co. v. Union Planters Bank NA, 528 U.S.
985, 120 S.Ct. 444, 145 L.Ed.2d 361 (1999), after conversion of a case
from chapter 11 to 7, the debtor's workers' compensation insurer brought

an adversary proceeding against a secured creditor seeking a surcharge
of its collateral to secure payment of its chapter 11 administrative
claim for unpaid premiums. The Eighth Circuit ruled that §506(c) of

the Code only allows trustees to seek to surcharge collateral in such
situations, and that if Congress intended to allow a party such as the
claimant to have standing to surcharge, it would have expressly said so.

Id. at 723, fn. 4. The doctrine has also been applied by the U.S.

Supreme Court in Leatherman v. Tarrant County Narcotics Intelligence
and Coordination Unit, et al., 507 U.S. 163, 168, 113 S.Ct. 1160,
122 L.Ed.2d 517 (1993), and TRW Inc. v. Andrews, 534 U.S. 19, 28,

122 S.Ct. 441, 151 L.Ed.2d 339 (2001).

Collectively, the above rules of statutory construction can lead to
the conclusion that dismissal or conversion for abuse under §707(b)

will be unavailable against involuntary debtors. While §707(b)
dismissal or conversion may be unavailable, there is authority to
support dismissals for "cause" under §707(a) of the Code, depending

on the facts of each case.<a href="#6" name="6a">6</a>

<h4>Dismissal for Cause Under §707(a): Kingston Square and
Related Cases</h4>

The parties who stand the most to gain from dismissing the case under

the fact pattern presented here will likely be nonpetitioning creditors.

However, in most situations, the remedy available for nonpetitioning
creditors in an involuntary chapter 7 case is a motion to dismiss for
cause under §707(a) of the Code. Nonpetitioning creditors are
generally precluded from opposing involuntary petitions, although there
are exceptions. See §303(d) of the Code; In re MacFarlane

Webster Assoc., 121 B.R. 694, 700 (Bankr. S.D.N.Y. 1990); In re
Wester-leigh Development Corp., 141 B.R. 38 (Bankr. S.D.N.Y.
1992).<a href="#7" name="7a">7</a>

There is a limited set of cases where courts have collectively
considered (1) motions to dismiss cases commenced by involuntary
petitions (2) after an order for relief has been entered and (3) that
involve alleged collusion between the debtor and the petitioning
creditors. Given the advantages that may inure to involuntary chapter 7
debtors with primarily consumer debts under BAPCPA (as opposed to those
debtors who file voluntary petitions), there is potential in the future
for such collusion when BAPCPA becomes fully effective.

In re Kingston Square Associates et al., 214 B.R. 713 (Bankr.
S.D.N.Y. 1997), probably provides the most comprehensive authority on
this topic. Kingston Square also discusses in detail several
other reported cases that involved alleged collusion between the debtor
and petitioning creditors. In Kingston Square, a group of debtor
entities owning real property entered into financing arrangements that
contained mechanisms to preclude the debtors from filing voluntary
bankruptcy petitions. The governing documents contained "bankruptcy
remote provisions" that effectively made a voluntary bankruptcy
unavailable to a defaulting borrower without the consent of the
mortgagee's designee. Subsequently, the debtors defaulted on their
mortgages and the mortgagees foreclosed. While the debtors desired to
file voluntary chapter 11 petitions, they were precluded from doing so
pursuant to the bankruptcy remote provisions. To get around this
roadblock, the debtors engaged counsel to solicit creditors to file
involuntary chapter 11 petitions. After orders for relief were entered,
the debtors' mortgagees moved to dismiss the cases for cause, alleging
that the involuntary petitions were filed in bad faith.<a href="#8" name="8a">8</a>

The movants relied on F.D.I.C. v. Cortez, 96 F.3d 50, 51 (2d
Cir. 1996),<a href="#9" name="9a">9</a> which
held a collusive filing of a bankruptcy case to be a fraud upon the
jurisdiction of the bankruptcy court and susceptible to immediate
dismissal. However, Cortez involved a situation where the debtor
colluded with her stepfather and induced him to file the involuntary
petition. This was done to get around a 12-month prohibition entered by
a bankruptcy court in a different venue.

The Kingston Square court then discusses Matter of
Winn, 49 B.R. 237, 239 (Bankr. M.D. Fla. 1985). Winn

recognized that "there are two components to collusion: (1) the secret
acts of at least two people and (2) the wrongful purpose." Kingston
Square continues:

<blockquote>
The Winn court also developed a two-part test to determine
whether an involuntary filing should be dismissed as collusive: First,
there must appear to be concerted action between the debtor and the
petitioning creditors, and second, these parties must fraudulently
invoke the jurisdiction of the court. 49 B.R. at 239.<a href="#10" name="10a">10</a>
</blockquote>

214 B.R. at 725.<a href="#11" name="11a">11</a>

Kingston Square also discusses a case cited by the respondent
debtors that is relevant here. In In re Sky Group Int'l. Inc.,
108 B.R. 86, 90 (Bankr. W.D. Pa. 1989), a creditor of a debtor who faced

an impending foreclosure asked the debtor for a list of its creditors.
The debtor had told the creditor that if the sale were to proceed, the
creditor would get nothing. After receiving the list, the creditor,
along with others, joined in an involuntary chapter 7 petition and
stayed the sale. The bankruptcy court found no wrongdoing. In doing so,
it further found that the debtor did not "induce" or "orchestrate" the
filing.<a href="#12" name="12a">12</a>

Conversely, the Kingston Square court concluded that its
debtors orchestrated the involuntary bankruptcy filings. 214 B.R. at
732. Despite acknowledging that the debtors performed "an end run around

the bylaw provision that restricted [them] from filing voluntary
petitions," the court ruled that this was not in and of itself
fraudulent. Id. at 735. It concluded by finding that the decision

to orchestrate the involuntary bankruptcy filings was motivated by an
intention to preserve value for the debtors' estates and their
creditors, and that as a result, the petitions would not be dismissed.
Id. at 736. In spite of the finding that the debtors orchestrated

the involuntary bankruptcy filings, the court concluded that there was
no proof of collusion. Id. at 737.<a href="#13" name="13a">13</a>

The Kingston Square court's reliance on the two-pronged
inquiry set forth in Winn is important here. Using the court's
analysis, one must first ask whether the debtor acted in concert with a
petitioning creditor or creditors. Second, it must be determined if
there was a wrongful purpose—whether there was a fraudulent attempt

to invoke the jurisdiction of the court. A motion to dismiss for cause
under §707(a) of the Code based on a collusive filing should only
be granted if both prongs of the test are met.<a href="#14" name="14a">14</a> The first prong is a factual inquiry.
The second prong appears to be a mixed question of fact and law. The
section that follows will discuss various acceptable and unacceptable
purposes for filing voluntary and involuntary bankruptcies. This is
especially relevant when considering the second prong of the Winn

analysis.

<h4>Proper and Improper Purposes for Filing Bankruptcies</h4>

"Congress made it a central purpose of the Bankruptcy Code to give
debtors a fresh start in life and a clear field for future effort
unburdened by the existence of old debts." In re Stoltz, 315 F.3d

80, 94 (2nd Cir. 2002), citing In re Bogdanovich, 292 F.3d 104,
107 (2nd Cir. 2002). A primary purpose of bankruptcy is to relieve an
honest debtor from the weight of oppressive indebtedness and grant him a

fresh start. In re Archambault, 174 B.R. 923, 934, citing
Local Loan Co. v. Hunt, 292 U.S. 234, 54 S.Ct. 695, 78 L.Ed. 1230
(1934), and In re Krohn, 886 F.2d 123 (6th Cir.1989). Congress
has called the "fresh start" the essence of modern bankruptcy law. The
fresh start has been recognized by courts as one of the primary purposes

of bankruptcy law. In re Sullivan, 195 B.R. 649, 654 (Bankr. W.D.

Tex. 1996).

A central theme of the Code "is to provide a procedure by which
certain insolvent debtors can reorder their affairs, make peace with
their creditors, and enjoy a new opportunity in life and a clear field
for future effort, unhampered by the pressure and discouragement of
preexisting debt." In re 801 South Wells Street Limited
Partnership, 192 B.R. 718, 725 (Bankr. N.D. Ill.
1996),<a href="#15" name="15a">15</a>
citing Grogan v. Garner, 498 U.S. 279, 286, 111 S.Ct. 654, 112
L.Ed.2d 755 (1991). It has been said that the purpose of a chapter 7
case is to liquidate the debtor's nonexempt assets and distribute the
proceeds to his creditors. In re Tucker, 174 B.R. 732, 742
(Bankr. N.D. Ill. 1994).

The courts have enumerated several acceptable purposes for filing an
involuntary petition. A general purpose for involuntary bankruptcies is
to provide a method for creditors to protect their rights against
debtors who are not meeting their debts. In re All Media Properties
Inc., 5 B.R. 126, 137 (Bankr. S.D. Tex. 1980). A creditor's concern
for protecting itself against other creditors obtaining a
disproportionate share of the debtor's assets is a proper purpose.
General Trading Inc. v. Yale Materials Handling Corp., 119 F.3d
1485, 1502 (11th Cir. 1997). Whenever there is a threatened depletion of

assets or unequal treatment of similarly situated creditors, bankruptcy
policy dictates that the creditor be able to compel liquidation or
reorganization of a debtor's estate through an involuntary bankruptcy
petition. In re Manhatten Industries Inc., 224 B.R. 195, 200
(Bankr. M.D. Fla. 1997) citing 1 Norton Bankr. L. &

Prac. 2d §21:10 (1997). Other legitimate reasons for filing an
involuntary bankruptcy petition include invocation of bankruptcy court
protection to protect the debtor's creditors along with the
investigation, accounting for and protection of the debtor's assets.
In re Apache Trading Group Inc., 229 B.R. 891, 894 (Bankr. S.D.
Fla. 1999).

Filing an involuntary petition to gain a strategic advantage, as
opposed to protecting one's interest relative to other creditors,
constitutes an improper purpose. In re Cannon Express Corp., 280
B.R. 450, 455 (Bankr. W.D. Ark. 2002), citing In re Silverman,
230 B.R. 46, 53 (Bankr. D. N.J. 1998). Evidence of an improper purpose
also includes a lack of concern about alleged fraudulent transfers made
on the part of the debtor, dissatisfaction with state court proceedings
and, in the case of an involuntary petition filed by a single creditor,
failure to investigate whether the debtor had more than 12 creditors.
In re Smith, 243 B.R. 169, 196-201 (Bankr. N.D. Ga. 1999). Other
cases involving malice or ill will toward the debtor are generally
irrelevant here.

<h4>Analysis and Conclusion</h4>

The applicable sections of the Code in BAPCPA, §§109(h)(1),

707(b) and 727 (a)(11), along with general principles of statutory
interpretation, lead to the conclusion that chapter 7 debtors whose
cases are initiated by an involuntary bankruptcy petition will not be
subject to newly enacted restrictions and requirements regarding credit
counseling, means testing and education. Accordingly, involuntary cases
should not be subject to dismissal for abuse under
§707(b)—irrespective of the debtor's income and debt.
Furthermore, if no proceedings have been brought to dismiss for cause
under §707(a) of the Code,<a href="#16" name="16a">16</a> then the debtor should be entitled to
remain in chapter 7. This is a favorable result for many debtors who
otherwise would be required to convert to chapter 11 or 13, or worse
yet, face dismissal.

Given the foregoing apparent loopholes in the revised Code, there is
an opportunity for mischief in the nature of collusion to occur. Debtors

may have an incentive to induce or orchestrate the filing of involuntary

petitions against themselves. Under such circumstances, grounds for
dismissal for cause under §707(a) of the Code may exist. In order
to determine whether or not an involuntary case filed against a debtor
with primarily consumer debts should be dismissed for cause as a
collusive filing, the two-pronged inquiry made by the court in
Winn and examined by the court in Kingston Associates
should be applied. First, a factual inquiry should be made to determine
whether or not the debtor and petitioning creditors acted in concert to
facilitate the filing of the involuntary petition. If they did not, it
probably can be said that there was no collusion giving rise to cause to

dismiss under §707(a).<a href="#17" name="17a">17</a> Suppose, however, the debtor did act in
concert with petitioning creditors and help orchestrate the filing of an

involuntary petition against him. In such case, we need to determine
whether or not the petition was filed for an improper purpose.

The cases under BAPCPA are not yet developed. Therefore, we do not
know whether courts will examine the purposes of debtors alone in such
situations, the purposes of the petitioning creditors alone, or
collectively consider the purposes of all involved. With regard to
debtors, we do not know how courts will react to debtors' stated
purposes of moving on with their lives to get a fresh start—even if

it means liquidating all of their nonexempt assets.<a href="#18" name="18a">18</a> We do not know whether courts

will be sympathetic to admissions by debtors that they sought to obtain
a chapter 7 discharge that would otherwise be unavailable under the
means test as applied in voluntary cases. While that would effectively
circumvent congressional intent for enacting BAPCPA, it is suggested
that such a statement of purpose on the part of a debtor should not be
dismissed outright without considering the purposes of petitioning
creditors that filed the bankruptcy. Certainly, the stated purpose of a
fresh start by an honest debtor who is forthcoming before the court
should not be dismissed outright as an improper purpose for inducing a
bankruptcy filing. See In re Archambault, In re Sullivan

and In re Stoltz, supra, and cases cited therein.

Suppose the debtor was involved in state court litigation with one
creditor who was in line, upon entry of a judgment in his favor and
execution thereon, to obtain a disproportionate share of the debtor's
nonexempt assets. This could be a legitimate reason for the other
creditors to join in an involuntary proceeding as an attempt to equalize

distribution. See General Trading Inc. and In re Manhatten
Industries Inc., supra. Other legitimate reasons, such as protecting

the debtor's assets, could be determined on a case-by-case basis. Since
the situation presented here involves a debtor that would merely like to

remain in chapter 7 (as opposed to fraudulently invoking jurisdiction of

the bankruptcy court), and since BAPCPA provisions at issue here were
enacted to protect creditors, it is suggested that the purposes of the
petitioning creditors should be paramount—not those of the
debtor.<a href="#19" name="19a">19</a> If
legitimate purposes for filing the involuntary petition exist, and if
the assumptions set forth in the beginning of this article are otherwise

in place, the debtor very well may be allowed to remain in chapter 7.
Furthermore, a chapter 7 discharge could be granted without
consideration of whether the debtor qualifies under the means test, and
even if the debtor fails to satisfy requirements relating to credit
counseling and education. This result could occur even if the debtor
induced or helped orchestrate the involuntary bankruptcy. After all,
BAPCPA was enacted to protect creditors. Should creditors with
legitimate purposes for joining in an involuntary bankruptcy be
penalized merely because their eyes were opened by the debtor? At the
end of the day, the real battle might very well lie between the
competing equities of the petitioning and nonpetitioning creditors.

There is one caveat, however. Petitioning creditors are forewarned to

be careful. A good rule of thumb is that a court will look to whether or

not a reasonable person similarly situated with the petitioning creditor

would have joined in the petition. If there is bad faith or other
improper motivation, the petitioning creditor's attorney could be
subjected to sanctions under Rule 11. See In re Caucus Distributors
Inc., 106 B.R. 890, 924 (Bankr. E.D. Va. 1989). In addition, new
§707 (b)(4)(C) of the Code contains heightened standards for
attorneys that are more in line with Rule 11. Whether or not adventurous

debtors who orchestrate the filing of involuntary petitions against
themselves could be subjected to sanctions is a matter for consideration

at a future date. Furthermore, §707(b)(4)(B) of the revised Code
provides authority for the court to impose sanctions on debtors
attorneys. The referenced Code section does not limit the term "attorney

for the debtor" to mean attorney for a debtor that filed a voluntary
petition. Therefore, to the extent that attorneys counsel debtors to
perform acts that may be deemed to be collusive, it is possible that the

attorneys could be sanctioned.

Giving due regard to the foregoing caveat, BAPCPA was not enacted to
allow one creditor of a debtor to obtain a strategic advantage in state
court or otherwise over other creditors. Maybe a debtor will see this
happening and bring it to the attention of his other creditors who then
decide to file an involuntary petition against the debtor—with his
blessings. Or maybe his creditors on their own file an involuntary
chapter 7 petition, with legitimate purposes for doing so, and the
debtor decides not to contest. Maybe "pre-packaged" chapter 7
involuntaries will be in vogue. Perhaps this is the proverbial loophole
to the means test and other requirements and restrictions set forth in
BAPCPA.

<hr>
<h3>Footnotes</h3>

<a name="1">1</a> Revised §704(b)(2)
exempts the conversion or dismissal provisions for debtors whose income
levels fall below certain median income levels. If a debtor's income
falls below this level, it is unnecessary to even consider whether or
not he passes the means test. For purposes of discussion, we will assume

that all debtors under consideration here have income levels that exceed

the referenced median levels. <a href="#1a">Return to article</a>

<a name="2">2</a> The "Code" as stated here

shall refer to the U.S. Bankruptcy Code under Title 11 of the U.S. Code.

When revisions to Code under the Bankruptcy Reform Act are discussed,
the subject Code sections shall be referred to as the "revised Code." <a href="#2a">Return to article</a>

<a name="3">3</a> See revised Code
§109(h)(1), infra. <a href="#3a">Return to article</a>

<a name="4">4</a> See revised Code
§727(a)(11), infra. <a href="#4a">Return to article</a>

<a name="5">5</a> Abuse under revised
§707(b)(1) is presumed if the debtor fails the means test under
§707(b)(2). <a href="#5a">Return to article</a>

<a name="6">6</a> However, the §707(a)

procedure is more cumbersome than that employed under §707(b).
Under revised Code §704(b), the determination of abuse under
§707(b) is made by the U.S. Trustee, who then would be responsible
for filing a motion to dismiss if appropriate (although revised
§707(b)(1) allows other interested parties or the court to file
such a motion as well). The motion to dismiss under §707(a) is a
contested matter under Fed. R. Bankr. P. 9014. See Rule 1017(d).
The court also has the power to move to dismiss sua sponte under
§105(a). <a href="#6a">Return to article</a>

<a name="7">7</a> Cf., In re Corto,
infra. In Corto, an unreported case, the district court
affirmed a bankruptcy decision dismissing an involuntary petition on the

motion of a creditor. The district court stated that allegations of
abuse are among the types of issues that must be resolved before an
order for relief can be entered. Corto relied on Fed. R. Bankr.
P. 2018(a), which gives the court the right to permit a party to
intervene with respect to any matter. <a href="#7a">Return to
article</a>

<a name="8">8</a> While the movants relied
on §1112(b) of the Code, the facts and rules of law applied are
analogous here. <a href="#8a">Return to article</a>

<a name="9">9</a> See Kingston Square
Assoc., 214 B.R. at 723. <a href="#9a">Return to article</a>

<a name="10">10</a> The Winn court
determined that the involuntary petition was actually conceived by the
debtor—an individual who had a voluntary petition previously
dismissed on the ground that it was filed in bad faith. Since the filing

of the involuntary petition was related to the dispute in the previously

dismissed case, the involuntary case was dismissed as well. Furthermore,

the petitioning creditors were friends of the debtor. 49 B.R. at 240. <a href="#10a">Return to article</a>

<a name="11">11</a> A third case with
similar facts to Cortez and Winn, In re Corto, 1995 WL
643372 (W.D.N.Y. 1995), is also discussed in Kingston Square. In
Corto, the petitioning creditors included the debtor's mother and

son. As in Cortez and Winn, the involuntary proceeding was

commenced only after a 180-day bar from refiling was entered in an order

of dismissal of a voluntary case filed by the debtor. <a href="#11a">Return to article</a>

<a name="12">12</a> The court also denied
the movant's request to dismiss under §305(a)(1) of the Code on the

alleged ground that dismissal would be serve the interests of the debtor

and its creditors. 108 B.R. at 90-91. <a href="#12a">Return to
article</a>

<a name="13">13</a> A case that arose after

Kingston Square, In re Valdez, 250 B.R. 386 (D. Ore. 1999), is
more in line with the facts set forth in Cortez, Winn and
Corto. The Valdez debtor had his chapter 13 case
dismissed. Days later, his former attorney in the chapter 13 proceeding
filed an involuntary chapter 7 for the improper purpose of attempting to

litigate a tax dispute in a bankruptcy forum. <a href="#13a">Return to
article</a>

<a name="14">14</a> Although in
Winn, the court found that bad faith alone on the part of the
debtor was a sufficient ground for dismissal, even if the first prong
was not proven. <a href="#14a">Return to article</a>

<a name="15">15</a> The 801 South
Wells court continues by citing United States v. Goodstein,

883 F.2d 1362, 1370 (7th Cir. 1989), in support of the proposition that
the "'fresh start' objective is counterbalanced by the Code's policy of
ensuing equal and equitable treatment of all creditors." 192 B.R. at
725. <a href="#15a">Return to article</a>

<a name="16">16</a> Working with the
assumptions set forth in the introduction of this article—that the
debtor is generally not paying his debts as they became due, that the
petitioning creditors claims are not subject to a bona fide dispute as
to liability or amount, and that the debtor has not otherwise run afoul
of the provisions of §727 (a)(1) through (10) and (12). <a href="#16a">Return to article</a>

<a name="17">17</a> It is suggested that
the reader refer back to In re Sky Group Int'l. Inc., supra, for
further analysis of this issue. However, even if there is no collusion,
if there are other indications of bad faith on the part of the debtor,
as in Winn, cause for dismissal may nevertheless exist. <a href="#17a">Return to article</a>

<a name="18">18</a> Although such stated
objectives are proper purposes for filing a voluntary bankruptcy as
stated by the courts in 801 South Wells, Grogan v. Garner and
In re Tucker, supra. <a href="#18a">Return to article</a>

<a name="19">19</a> Indeed, in In re
Amanat, 321 B.R. 30, 36 (Bankr. S.D.N.Y. 2005), the court held that
if it could be shown that a putative debtor induced a petitioning
creditor to file an involuntary petition against him, the debtor would
be estopped from later denying the creditor's capacity to be a
petitioning creditor. In effect, the court was considering the capacity
and purposes of the petitioning creditor for filing the involuntary
petition, and ignoring the purposes of the putative debtor for inducing
the filing. <a href="#19a">Return to article</a>

Journal Authors

Daniel Morman

Journal Date

Thursday, September 1, 2005 - 12:00

Bankruptcy Rule

2005

none