Case No. 06-53481-MBM.United States Bankruptcy Court, E.D. Michigan, Southern Division.
November 15, 2006
ORDER OF DISMISSAL
MARCI McIVOR, Bankruptcy Judge
On January 13, 2006, Debtors filed a Chapter 13 bankruptcy petition (Case No. 06-40415). On January 27, 2006, creditor SST, Inc/Bank One filed a Motion for Relief from the Automatic Stay which was granted on February 15, 2006. On May 2, 2006, Debtors filed a Request for Voluntary Dismissal of the case, and on May 4, 2006, this Court entered an order dismissing Debtors’ Chapter 13 case.
On September 25, 2006, Debtors filed a second Chapter 13 bankruptcy petition. On September 29, 2006, Debtors filed a Motion to Extend the Automatic Stay. The Chapter 13 Trustee filed a response objecting to Debtors’ Motion to Extend the Automatic Stay. The Chapter 13 Trustee also filed a Motion to Dismiss pursuant to 11 U.S.C. § 109(g). Under that section, a second petition must be dismissed when it is filed within 180 days of a prior voluntary dismissal in a case where a creditor had filed a motion for relief from stay.
At hearing on October 24, 2006, the Court denied the Debtors’ Motion to Extend the Automatic Stay and dismissed Debtors’ case. The Court relied on In re Andersson, 209 B.R. 76 (6th Cir. BAP 1997); In re Steel, 319 B.R. 518 (Bankr. E.D. Mich. 2005); and In re Ragan, case no. 04-63779 (Bankr. E.D. Mich.). In each of those cases, the court
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held that pursuant to 11 U.S.C. § 109(g)(2), if a debtor requests and obtains a voluntary dismissal of its bankruptcy case following the filing of a request for relief from the automatic stay, a debtor is barred from refiling a new petition for 180 days, regardless of the circumstances surrounding the motion for relief from the stay.
At the conclusion of the hearing, Debtors’ Counsel requested that the Court enter an order striking, rather than dismissing, the bankruptcy petition. Debtors’ counsel argued that, in light of the enactment of 11 U.S.C. § 362(c)(3) and (4), which deprive debtors of the benefit of the stay if a subsequent case is filed within one (1) year of the dismissal of a debtor’s first case, the impact of a dismissal is extremely harsh. The Court took the matter under advisement.
The issue of whether a second petition, filed after a debtor’s first petition is dismissed pursuant to § 109(g),[1] should be dismissed or stricken (as void ab initio), was addressed by the court in In re Flores, 291 B.R. 44 (Bankr. S.D.N.Y. 2003). In Flores, the Chapter 13 debtor moved to set aside a mortgage foreclosure sale conducted one day after he had filed his latest bankruptcy petition. The new case was filed less than 180 days following the dismissal of a prior case, which had been dismissed with prejudice for 180 days pursuant to 11 U.S.C. § 109(g) on the grounds that debtor and filed to comply with orders of the court. The mortgage creditor argued that the
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mortgage foreclosure sale did not violate the automatic stay because the most recent filed case was void ab initio. The court rejected the creditor’s argument. The court stated:
[N]othing in Section 109 provides or even intimates that a filing by a party who may not be a debtor under that section is a `nullity’ or `void ab initio’. Such a filing may be subject of peremptory dismissal or even sanctions in a proper case, but these or any other consequences of a filing by a party who may not be a debtor under section 109 must be determined by the court in accordance with the due process rules and procedures provided by the Bankruptcy Code and Rules, in order to protect the rights and interests of both the debtor and all creditors . . .
Flores at 54. After discussing cases in which courts had ruled that some filings might be void ab initio, the court rejected those cases, noting:
The better rule appears to this Court to be to recognize that a petition filed with the bankruptcy court is a petition, and the case thereby commenced is a case, unless and until the bankruptcy court determines that the debtor did not have the right to be a debtor, in which case the court can dismiss the case and fashion such other relief as may be necessary to protect the rights of secured or other creditors.
Flores at 62.
This court agrees with the reasoning set forth in the Flores
case. Once a petition is filed, a case is commenced, and the case remains pending until a determination by the bankruptcy court that the debtor is ineligible for relief. If the debtor is determined to be ineligible, the court must dismiss the case. There is no authority in the code or the bankruptcy rules to “strike a case”. While an Order of Dismissal does produce a harsh result in the instant case, the court finds no authority to rule otherwise. The court notes that a bright line rule as to how cases will be treated after a prior dismissal under
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11 U.S.C. § 109(g) protects both debtors and creditors; once a case is filed, a creditor cannot proceed without a determination by the court, that the debtor is ineligible for relief.
The ruling of the court is consistent with the case law that has developed following the enactment of 11 U.S.C. § 109(h)(1). That section, enacted as part of the Bankruptcy Abuse and Prevention Act of 2005 states:
Subject to paragraphs (2) and (3), and notwithstanding any other provision of this section, an individual may not be a debtor under this title unless such individual has, during the 180-day period preceding the date of filing of the petition by such individual, received from an approved nonprofit budget and credit counseling agency described in section 111(a) an individual or group briefing (including a briefing conducted by telephone or on the Internet) that outlined the opportunities for available credit counseling and assisted such individual in performing a related budget analysis.
Since the enactment of BAPCPA, the debtors’ bar has argued that a dismissal for failure to comply with § 109(h)(1) is not really a dismissal because the debtor was never eligible to file. According to this argument, such filings should be stricken, and the case deemed to have never been filed. A minority of courts have accepted this argument, holding: (1) no case was “commenced” by the filing of a voluntary petition when the debtor did not qualify as a debtor under 11 U.S.C. § 109; and (2) Congress did not intend for debtor protections under BAPCPA to be limited in a future bankruptcy filing where the debtor’s failure to comply with § 109(h) was done out of ignorance. See, In re Elmendorf, 345 B.R. 486 (Bankr. S.D.N.Y. 2006); In re Salazar, 339 B.R. 622 (Bankr. S.D. Tex. 2006); In re Hubbard, 333 B.R. 377
(Bankr. S.D. Tex 2005).
The vast majority of courts however, have rejected the argument that a
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bankruptcy petition filed by a debtor who fails to comply with 11 U.S.C. § 109(h), may be stricken rather than dismissed. See, In re Seaman, 340 B.R. 698 (Bankr. E.D.N.Y., 2006).[2] These cases hold that dismissal avoids uncertainty as well as substantive procedural pitfalls, and that “striking a petition” renders the language of § 362(b) superfluous.
This Court agrees with the decisions which hold that the appropriate remedy for non-compliance with the requirements of 11 U.S.C. § 109 is dismissal of the filing. The Court can find no basis in the language of the Code for “striking” a petition. If a debtor fails to comply with any provision in the Bankruptcy Code, whether it is because the debtor is determined to be ineligible for relief under 11 U.S.C. § 109(g) or 11 U.S.C. § 109(h), or the debtor fails to comply with any requirement (good faith, feasability of proposed plan), the appropriate remedy is dismissal. Any other result encourages non-compliance with the law by debtors and creditors. If a filing is not a “case” and the filing can be “stricken”, a debtor suffers no adverse consequences for failing to obtain credit counseling, or in the case of § 109(g), filing a case within 180 days after the voluntary dismissal of a prior case following the filing a motion for the relief from stay. If creditors are allowed to decide whether a filing is a “case”, which triggers the automatic stay, based on the creditors analysis of debtor eligibility, creditors may foreclose after a bankruptcy filing without a determination by the court that the stay is not in effect.
This Court adopts the reasoning of the courts which hold that the appropriate
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result for failure to comply with 11 U.S.C. § 109 is dismissal of the case, therefore:
IT IS HEREBY ORDERED that Debtors’ case is dismissed.
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