The U.S. Sixth District Court of Appeals recently ruled that 11 USC Section 1307 (b) requires a bankruptcy court to dismiss a Chapter 13 bankruptcy petition upon petition by a debtor, even if the debtor filed in bad faith.
A copy of the statement in Regarding Ronald Smith is available at: Link to comment.
In 2004, a debtor received a $ 528,500 loan to buy a home. About a year later, the debtor defaulted on the loan, which resulted in the mortgagee ordering the property to be foreclosed on August 7, 2007.
To prevent the foreclosure sale from continuing, the debtor has filed for Chapter 13 bankruptcy, thereby triggering the automatic suspension under 11 USC Section 362 (a). The debtor dismissed his Chapter 13 case after the August 7, 2007 foreclosure auction date had passed.
In 2017, the mortgage holder rescheduled to foreclose the property and the debtor re-filed for Chapter 13 bankruptcy. After the foreclosure sale date of the property passed, the debtor rejected his Chapter 13 application.
In early 2019, the appeal bank bought the loan and then set the foreclosure sale of the property on February 19, 2019. The day before the foreclosure sale, the debtor re-filed a third Chapter 13 motion for an automatic suspension that prevents the foreclosure sale. move forward. The debtor dismissed his Chapter 13 petition six days later, which the bankruptcy court granted.
In June 2019, the bankruptcy court: (1) granted the bank’s motion to overturn the termination under the Fed. R.Civ. P. 60 (b); and (2) separately lifted the automatic suspension that would have prevented the property from being foreclosed.
The debtor appealed to the district court and requested that the re-establishment of his application under Chapter 13 be suspended by the bankruptcy court. The district court rejected the debtor’s request for suspension, but certified the injunction “the question of whether the reinstatement of the [debtor’s Chapter 13 petition] was illegal. “
The Sixth District gave the debtor permission to file the immediate complaint.
In the appeal proceedings, the Sixth District was commissioned to determine “the legality of the re-establishment order of the bankruptcy court of June 2019” [debtor’s] Chapter 13 Case. “As you may recall, 11 USC § 1307 (b) (” Section 1307 “) provides that”[o]n the debtor’s request at any time if the case has not been converted [from a case under Chapter 7, 11, or 12], the court will dismiss a case under this chapter. “
Analyzing Section 1307, the Sixth District found that “the court is dismissing a Chapter 13 case” upon a debtor’s petition for dismissal.
In response, the bank argued that the dictum of Marrama v Massachusetts Citizens Bank, 549 US 365 (2007) enables a bankruptcy court to deny a debtor’s motion to dismiss a Chapter 13 case if the debtor filed their motion in bad faith.
However, the Sixth District dismissed the bank’s argument, stating that the United States Supreme Court had the Marrama Dictum in Law v. seal, 571 US 415 (2014) and declares that “[a]t most, Marramas The dictum suggests that, under certain circumstances, an insolvency court can be authorized to dispense with pointless procedural subtleties in order to achieve a final result required by the code more quickly. ” I would. at 426.
In finding that Section 1307 “is not a mere procedural niceness,” the Sixth Court had the bank’s confidence Marrama.
Next, the bank argued that the Fed. R.Civ. P. 60 (b) (3) allows the bankruptcy court to set aside Chapter 13 rejection of the debtor’s motion. However, the Sixth District disagreed, stating that Section 1307 requires a bankruptcy court to dismiss a Chapter 13 case at the request of a debtor and “[Section 1307’s] The order would be meaningless if a bankruptcy court was then subject to its termination [Fed. R. Civ. P. 60(b)]. “
As a result, the court ruled that the district court had misused its discretion in finding that the bankruptcy court could reopen the debtor’s Chapter 13 case under the Fed. R.Civ. P. 60 (b).
Accordingly, the Sixth District reversed the District Court’s order to deny the debtor’s request for suspension and further referred the matter with an instruction that the bankruptcy court must reject the debtor’s Chapter 13 request.