Case Dismissed! Not So Fast.
Dismissal Isn’t Mandatory, under 11 U.S.C. 109 (g)(2), if a New Filing Is Within 180 Days of a Voluntary Dismissal—says the Philadelphia Bankruptcy Court.
On a question where the courts are split, Chief Bankruptcy Judge Magdeline D. Coleman of Philadelphia decided that dismissal is not mandatory under Section 109(g)(2) if an individual voluntarily dismissed a prior case within six months of filing a new case.
The debtor had the appearance of a serial filer. He had filed a chapter 13 petition in 2016 and received a discharge in 2021. While the first case was pending, a creditor had filed a non-dischargeability suit that wasn’t resolved before the debtor filed a second chapter 13 petition in early 2022.
In the second case, two creditors filed motions to modify the automatic stay, which Judge Coleman granted. In the first, the creditor was permitted to continue the non-dischargeability suit in the first case. Subsequently, the debt was held to be nondischargeable.
In the second motion, a secured creditor wanted the stay lifted given the debtor’s failure to provide adequate protection. The second lift-stay motion was settled.
After both lift-stay motions were resolved, the debtor voluntarily dismissed the second chapter 13 case. Less than a month later, the debtor filed his third chapter 13 petition. The debtor stated that he had dismissed and refiled to take advantage of the larger debt limit that Congress had offered to chapter 13 debtors.
The same creditors who had lifted the stay in the second case filed a motion to dismiss the third case. They argued that the debtor was barred from filing under Section 109(g)(2). If an individual or a family farmer has voluntarily dismissed a previous case within the prior 180 days, the section bars the debtor from filing anew if “the debtor requested and obtained the voluntary dismissal of the case following the filing of a request for relief from the automatic stay.” [Emphasis added.]
Judge Coleman said that the courts are split, even within her own district. In 1999, a district judge adopted the so-called “temporal” approach and interpreted the word “following” to mean that the court must dismiss a subsequent case if it came after the filing of a lift-stay motion in the prior case, regardless of the reason why the debtor dismissed the prior case.
Judge Coleman cited a decision from her district 10 years later where the bankruptcy judge used the so-called “causal” approach, requiring dismissal of the new case if there was a causal connection between the lift-stay motion and the debtor’s voluntary dismissal of the prior case.
There being no binding authority from the Third Circuit, Judge Coleman opted for the causal approach. She decided that “a cramped reading of the word ‘following’ to mean ‘subsequent to’ strips §109(g)(2) of its intended purpose . . . to prevent debtors from using repetitive filings as a method of frustrating creditor[s’] efforts to recover what is owed them.”
According to Judge Coleman, the “temporal approach can lead to overly harsh results that do nothing to serve the statute’s purpose of preventing abusive bankruptcy filings.” To her way of thinking, “the better approach is to view ‘following’ to mean that a debtor’s voluntary dismissal of a prior case was ‘as a result of’ a stay relief motion.”
Judge Coleman found as fact that the debtor had not dismissed the second case “as a result of” either of the lift-stay motions. Furthermore, both had been resolved before the debtor voluntarily dismissed the second case.
Finding that the debtor had dismissed the second case to avail himself of the enlarged debt limit in the third case, Judge Coleman denied the motion to dismiss the third filing.
In re Higgins, 22-12021
Bankr. E.D. Pa. March 3, 2023
