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However, mortgagees, landlords, as well as other creditors and parties-in-interest have a powerful weapon in their arsenal – a motion to dismiss or for stay relief based on the bankruptcy having been filed in bad faith.īACKGROUND: Bankruptcy can help the honest but unfortunate debtor. KK TAKEAWAY: A “bad faith” bankruptcy filing can be a powerful weapon in the hands of an unscrupulous debtor. Consulting with an experienced New York bankruptcy lawyer will help you avoid those mistakes.įor answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.AugShare Combatting “Bad Faith” Bankruptcy Filings If you are considering filing bankruptcy, it’s unlikely you’ve done anything that will motivate a court to dismiss your case with prejudice, but if you file without a lawyer, there’s a chance that your case will be dismissed for technical mistakes that aren’t worth making. This process is expensive and the burden on the debtor is very high. If the debtor wishes to challenge the court’s determination that some debts should forever be nondischargeable, then the debtor’s best hope is to appeal the decision to a federal district court. If a bankruptcy court dismisses a debtor’s case with prejudice and sets a time bar for refiling, then the honest debtor’s best option is to tough it out and refile after the time period has elapsed. Examples include defrauding the court, filing multiple concurrent cases, hiding assets, or hindering creditors. The Bankruptcy Code does not specify what “for cause” means, but it’s generally interpreted as any behavior by the debtor that abuses the bankruptcy system. When, then, is a dismissal “with prejudice” allowed?īack in section 349(a), the Bankruptcy Code can grants bankruptcy courts broad powers to punish debtors “for cause.” In these situations, which contrast with dismissals without prejudice, the bankruptcy court may limit a debtor’s right to file bankruptcy until a later date, or it can bar the discharge of debts in later bankruptcies. So, to recap, if a bankruptcy court dismisses a case without prejudice, then there are no penalties, unless the debtor is a nuisance to the court or engaging in serial bankruptcy. The idea here is to prevent a form of serial bankruptcy in which debtors file and dismiss their cases to ensure a foreclosure on their properties is never executed.
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Reason number two is circumstances in which the debtor voluntarily dismissed the case after a creditor filed a motion to lift the automatic stay. Here, the Bankruptcy Code appears to be giving bankruptcy judges a way to avoid dismissing these kinds of cases with prejudice, or it’s trying to standardize the punishment for some forms of debtor misconduct. Reason number one is if the debtor “willfully failed to abide by court orders or failed to appear before the court to properly prosecute the case,” and the court dismissed the case. It sets a time bar, 180 days, on debtors whose cases have been dismissed without prejudice for one of two reasons. Now, there is an exception to this limitation spelled out in section 109(g) of the Bankruptcy Code. This limitation is what New York bankruptcy lawyers refer to when they characterize dismissals as “without prejudice.” That is, a debtor can refile the case without any penalty.
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Section 349(a) of the Bankruptcy Code prevents a dismissal from interfering with a debtor’s future rights to discharge debts or refile bankruptcy in the future. A few months ago, I wrote about when a chapter 7 bankruptcy case can be dismissed, and I touched on dismissals that are with or without “prejudice.” Today I’ll clarify what this means for New York bankruptcy debtors.