Three-Year Bar to Refiling in Chapter 13 Imposed for ‘Vexatious, Frivolous’ Litigation

Dismissal with prejudice is a hot topic in chapter 13 for courts throughout the country. Bankruptcy Judge Michelle V. Larson of Dallas dismissed a case for “cause” under Section 1307(c) and imposed a three-year bar to filing another bankruptcy petition.

Judge Larson said that the debtor had a “penchant for vexatious, frivolous litigation” employed “in an apparent effort to hinder the payment of her creditors.”

The debtor’s first chapter 13 case was dismissed after five months, and her second chapter 13 case lasted nine months before dismissal. She filed the third petition immediately after entry of a $25,000 judgment in state court.

In her September 30 opinion, Judge Larson recounted how the debtor had filed 26 appeals in her first two bankruptcies, including appeals from “virtually every order” in the second case. All appeals were dismissed after the debtor failed to pay the filing fees on being denied in forma pauperis status.

The debtor filed motions to recuse the bankruptcy judges in all three cases. The dockets in the first two cases each had more than 300 entries, where the debtor was “hindering the bankruptcy process with frivolous objections,” Judge Larson said.

The debtor’s third case was pro se from the outset. In the two others, she had counsel who withdrew within a few weeks. She proceeded thereafter pro se in those cases.

Judge Larson denied confirmation of the debtor’s plan in her third case because it was “patently unconfirmable” by failing “to comply with numerous provisions in the Bankruptcy Code.”

The debtor had “learned how to game the system to avoid paying off creditors and maintain two homes, while only paying for one,” Judge Larson said.

Joined by a secured lender, the trustee moved after denial of confirmation to dismiss with prejudice, coupled with a request for a five-year bar to another filing.

Judge Larson said that Section 1307(c) governs dismissal for “cause,” a term that has been interpreted by courts to include lack of good faith. Fraudulent intent is not required, she said. However, prepetition conduct in other cases is a valid consideration.

Judge Larson cited the Second Circuit for holding that the court has discretion to impose a bar to refiling following dismissal for cause. The “majority of courts,” she said, find discretion under Sections 105(a) and 349(a) to bar refiling for more than the 180 days specified in Section 109(a).

Finding facts to justify her exercise of discretion, Judge Larson cited the debtor’s “egregious behavior” and “outlandish reasons” to recuse the other two judges “for which there was no evidence.” The debtor’s strategy was “to prolong her ownership of two homes she likely cannot afford and put off any payment to creditors.”

Judge Larson found “cause” to dismiss under Section 1307(c) because the debtor “cannot be allowed to misuse the Bankruptcy Code to hinder payment to creditors.” Dismissal with prejudice and a bar to refiling was “exceedingly appropriate,” she said, because the debtor was making “a mockery of the bankruptcy process.”

For a pro se debtor, Judge Larson believed that a five-year bar to refiling would be “an extreme remedy.” Three years, she said, was the “proper remedy” for “her lenders and creditors to come to a resolution, even if [the debtor] chooses to continue to appeal and stay foreclosure(s) as she has done in the past.”

If the debtor wants to file another petition in less than three years, Judge Larson required that the debtor obtain permission first from the court. If she were to file without permission, Judge Larson said she would “consider additional sanctions.”