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individual debtor as a bad-faith filing.
Holding: The Bankruptcy Court, Thomas J. Catliota, J., held that under totality of circumstances, individual Chapter 11 debtor commenced case with subjective bad faith, as abuse of reorganization process, warranting dismissal. This case was debtor's fourth in approximately six years, debtor filed this petition less than five weeks after denial of his motion to reconsider dismissal of his prior case, in his three prior Chapter 11 cases debtor never filed a plan or disclosure statement or made any progress toward reorganization, each prior case was dismissed on motion of a creditor or United States Trustee, this case was third successive case commenced by debtor on eve of a foreclosure sale initiated by bank, in his most recent case debtor used over $6,500 of estate funds to gamble in breach of his fiduciary duties to creditors and the estate, despite owing taxes and more than $90,000 in child-support arrears, and bank, whose collateral had decreased in value from $725,000 to $585,000, was harmed by debtor's successive and futile filings.
iii. In re Bovino, 496 B.R. 492 (Bankr. N.D. Ill. 2013)
Issue: Whether an individual Chapter 11 debtor's case should be dismissed for bad faith, when the debtor had few unsecured creditors and filed two bankruptcies within the previous year preceding the current petition.
Holding: The bankruptcy court held that the facts that the individual Chapter 11 debtor had few unsecured creditors and had filed two other bankruptcies in the year preceding his petition did not warrant dismissal of his case. The court found that dismissal for cause based on bad faith must be viewed by a totality of the circumstances. The court also relied on a fourteen factor test from In re Tekena USA, LLC, 419 B.R. 341 (Bankr. N.D. Ill. 2009). The factors included, among others: 1) "whether the debtor had few or no unsecured creditors," 2) "whether there had been a previous bankruptcy filing by debtor," 3) "whether petition was filed on the eve of foreclosure," 4) "whether case essentially involves resolution of a two-party dispute," 5) "whether petition was filed solely to create automatic stay," and 6) "whether petition effectively allows debtor to evade court orders." The court found that though the first two factors listed above weighed in favor of dismissal, previous bankruptcy petitions do not constitute "in itself . . . per se bad faith." Additionally, the court found the other factors favored the debtor because the petition was not filed on the eve of bankruptcy, other major creditors aside from the movant were involved in the case, the debtor was not evading court orders, and the debtor did not appear to file solely for stay protection. The court concluded that "[t]he Debtor's Chapter 11 filing does appear to serve a valid reorganization purpose, to become solvent while maintaining his interest in the three investment properties." Thus, the court held there were insufficient facts to warrant a bad faith determination for dismissal.
©2014 William L. Norton III
