For an individual debtor who misbehaves badly, the bankruptcy court may both deny discharge and dismiss immediately thereafter, according to the First Circuit. Consequently, the sanction of denial of discharge will stick with the debtor even though dismissal would have the same immediate effect.
The appeals court explained that a “bankruptcy judge is not a supplicant, whose lawful orders have no more force than mere importunings. Where . . . a debtor disregards such orders without adequate justification, he must be prepared to suffer the consequences . . . resulting here — the denial of a discharge — [which] was well within the universe of permissible responses to the debtor’s feckless course of conduct.”
The April 27 opinion by Circuit Judge Bruce M. Selya notably includes a clever judicial pun.
Misbehavior in Boston
The individual debtor owned several real estate properties with more than $2 million in debt. His first chapter 13 petition was dismissed within a month for failure to file required documents. Two months into his second chapter 13 filing, the debtor converted the case to chapter 11. Four months later, the U.S. Trustee moved for conversion to chapter 7 for failure to file a plan by the deadline.
After the debtor failed to comply with three orders to file documents or appear at hearings, Bankruptcy Judge Frank J. Bailey issued warnings and eventually dismissed the case immediately after denying discharge under Section 727(a)(6)(A) for failure to obey lawful orders.
The Bankruptcy Appellate Panel affirmed, and so did the First Circuit.
Technical Arguments Don’t Hold Water
The debtor argued (unsuccessfully) that the bankruptcy court should have dismissed automatically under Section 521(i)(1) when he failed to file required documents by the deadlines.
The debtor’s argument had some cogency based on the language of the statute. If an individual in chapter 7 or 13 “fails to file all of the information required under subsection (a)(1) within 45 days after the date of the filing of the petition,” Section 521(i)(1) provides that “the case shall be automatically dismissed effective on the 46th day after the date of the filing of the petition.” [Emphasis added.]
However, the First Circuit had already rejected the “mechanical approach” and followed the Sixth and Ninth Circuits by holding that the court has at least three options when a debtor misses document-filing deadlines: (1) dismiss; (2) decline to dismiss if a good-faith exception applies; or (3) decide in its discretion that the documents were not required. Segarra-Miranda v. Acosta-Rivera (In re Acosta-Rivera), 557 F.3d 8, 13 (1st Cir. 2009).
Judge Selya said that the three alternatives were not an exhaustive list. Acosta-Rivera allowed the court to waive the filing of documents if dismissal would further the debtor’s “abusive conduct.” Id. at 14.
Without “serious question,” Judge Selya ruled that “the circumstances here are consistent with the bankruptcy court’s exercise of its discretion to deny a discharge instead of dismissing the debtor’s petition without prejudice.”
The debtor also based his second (unsuccessful) argument on statutory language. He lobbied for a rule that the judge could not deny discharge sua sponte because Section 727(c)(1) provides that the “trustee, a creditor, or the United States trustee may object to the granting of a discharge under subsection (a) of this section.”
Judge Selya declined to “handcuff” the bankruptcy court in a manner that “Congress never intended.” Section 105(a) and its legislative history, he said, “support[] the bankruptcy court’s exercise of its sua sponte authority.”
Next, Judge Selya found “abundant” evidence of “willful” failure to obey court orders, assuming that willfulness is even required by Section 727(a)(6). He characterized the debtor as having “stonewalled no fewer than three lawful orders of the bankruptcy court without any legitimate justification . . . despite receiving pointed warnings . . . .”
Finally, the debtor alleged that he had been denied due process. In a pun that might escape the casual reader, Judge Selya said the argument was “the same old whine in new bottles.”
Finding constitutionally sufficient notice and the debtor’s admission that he had received all three orders that he disregarded, Judge Selya upheld dismissal and denial of discharge.
For an individual debtor who misbehaves badly, the bankruptcy court may both deny discharge and dismiss immediately thereafter, according to the First Circuit. Consequently, the sanction of denial of discharge will stick with the debtor even though dismissal would have the same immediate effect.
The appeals court explained that a “bankruptcy judge is not a supplicant, whose lawful orders have no more force than mere importunings. Where . . . a debtor disregards such orders without adequate justification, he must be prepared to suffer the consequences . . . resulting here — the denial of a discharge — [which] was well within the universe of permissible responses to the debtor’s feckless course of conduct.”
The April 27 opinion by Circuit Judge Bruce M. Selya notably includes a clever judicial pun.
Misbehavior in Boston
The individual debtor owned several real estate properties with more than $2 million in debt. His first chapter 13 petition was dismissed within a month for failure to file required documents. Two months into his second chapter 13 filing, the debtor converted the case to chapter 11. Four months later, the U.S. Trustee moved for conversion to chapter 7 for failure to file a plan by the deadline.
After the debtor failed to comply with three orders to file documents or appear at hearings, Bankruptcy Judge Frank J. Bailey issued warnings and eventually dismissed the case immediately after denying discharge under Section 727(a)(6)(A) for failure to obey lawful orders.
The Bankruptcy Appellate Panel affirmed, and so did the First Circuit.