.jpg)
Can someone explain the rationale behind the "two party dispute" being a bad faith factor for filing?
Here is an excerpt from a brief I prepared recently that addresses this issue.
IV. GOOD FAITH MEASURED BY TOTALITY OF THE CIRCUMSTANCES
Objecting Creditor again argues that it would receive more through Debtorury" items resulting in less secured debt and higher disposable income.
In the Ninth Circuit, "good faith" does not encompass what income and how much income a debtor is devoting to his Plan. Id at 27. ("We agree with the Trustees contentions [good faith and disposable income tests serve two different purposes and must therefore be read separately], but disagree that it leads to the conclusion that the good faith inquiry can encompass consideration of what income, and how much income, a debtor is devoting to the proposed plan."). Therefore, Objecting Creditors arguments are misplaced.
Rather, the Welsh court looked to In re Leavitt, 171 F.3d 1224 for the Ninth Circuits analysis of good faith under the totality of the circumstances test:
See, e.g., In re Leavitt, 171 F.3d at 1224. In re Leavitt concerned "the appropriate standard of bad faith as `cause' to dismiss a Chapter 13 bankruptcy petition with prejudice." Id. at 1220 (footnote omitted). We held that "ad faith, as cause for the dismissal of a Chapter 13 petition with prejudice, involves the application of the `totality of the circumstances' test." Id. at 1224. In determining whether a petition was filed in bad faith, we instructed that the following factors should be considered:
(1) whether the debtor "misrepresented facts in his [petition or] plan, unfairly manipulated the Bankruptcy Code, or otherwise [filed] his Chapter 13 [petition or] plan in an inequitable manner," [Eisen v. Curry (In re Eisen),14 F.3d 469, 470 (9th Cir. 1994) (per curiam)] (citing In re Goeb, 675 F.2d 1386, 1391 (9th Cir. 1982));
(2) "the debtor's history of filings and dismissals," id. (citing In re Nash, 765 F.2d 1410, 1415 (9th Cir. 1985));
(3) whether "the debtor only intended to defeat state court litigation," id. (citing In re Chinichian, 784 F.2d 1440, 1445-46 (9th Cir. 1986)); and
(4) whether egregious behavior is present, [In re] Tomlin, 105 F.3d [933,] 937 [(4th Cir.1997)]; In re Bradley, 38 B.R. 425, 432 (Bankr.C.D.Cal.1984).In re Leavitt, 171 F.3d at 1224 (first, second and third alterations in original).
Id at 20, footnote 45. (Emphasis in bold).
Objecting creditor has offered no evidence supporting a finding of bad faith under any of the Leavitt courts factors.
Debtor herein did not misrepresent facts, nor did he manipulate the Bankruptcy Code or file in an inequitable manner. This is Debtors only bankruptcy fling and there are no allegations of egregious behavior. Finally, while Debtor acknowledges that this case was precipitated by Objecting Creditors attempt to garnish his wages, that fact alone does not support a finding of bad faith.
The "intent to frustrate collection of a state-court judgment" factor is derived from In re Chinichian, 784 F.2d 1440, 1445-46 (9th Cir. 1986) which involved debtors who filed a bankruptcy case to avoid a specific performance action regarding their bad faith cancellation of a pending escrow for the sale of real property. The Chinichian court found bad faith where the debtors Plan lacked a meaningful provision for the sale of the real property, the main creditor in the case only wanted specific performance and not damages, the main creditor had a speculative unsecured claim based upon the fact that it only wanted specific performance, and the debtors only purpose in filing the case was solely to defeat the pending action for specific performance. Id at 1445.
The behavior of the Chinichian debtors is clearly distinguishable from the behavior of Debtor before this Court. Debtor herein is not trying to defeat specific performance of a real property sale, he is merely trying to reorganize his financial affairs in light of aggressive collection efforts by a judgment creditor holding an attorneys fee award who was attempting to garnish his wages. The underlying litigation was taken on the advice of counsel and involved Debtors appeal of a lower court ruling in favor of his former employer that resulted from Debtors challenge to an injunction against being able to work at certain docks where he had traditionally worked. See ***** Decl. 4. Debtor incurred the obligations for his secured debt prior to becoming aware of the attorney
Where the court is instructed to take into account all of the factors in a totality of circumstances measure of good faith, and none of the factors weigh against the debtor, the court should deny Objecting Creditors objection and confirm Debtors Plan.
Peter M. Lively, J.D., M.B.A.
Law Office of Peter M. Lively * Personal Financial Law Center I
11268 Washington Boulevard, Suite 203, Culver City, California 90230-4647
Telephone: (310) 391-2400 * Toll Free: (800) 307-3328 * Fax: (310) 391-2462
On Friday, November 14, 2014 9:07 AM, "Holly Roark hollyroark22@gmail.com [cdcbaa]" wrote:
I do not understand why having a two party dispute is considered a bad faith factor for filing. What does it matter if the debtor has 100 creditors or one?
If a debtor is being sued in state court and he can't afford to litigate it, what's wrong with just filing BK if that's his only creditor? Isn't every bankruptcy that has prebankruptcy litigation filed "in order to defeat state court litigation" in some way?
Please opine because I do not comprehend why the two party dispute issue is a problem.
Holly Roark
Certified Bankruptcy Specialist*
and Sports Lawyer
holly@roarklawoffices.com **primary email address**
http://www.roarklawoffices.com/
Central District of California
Consumer Bankruptcy Attorney
1875 Century Park East, Suite 600
Los Angeles, CA 90067
T (310) 553-2600
F (310) 553-2601
*By State Bar of California Board of Legal
Specialization
**For a quicker response, email me at holly@roarklawoffices.com.
I only use gmail for my listservs, and am likely to miss private emails
directed to my gmail account.**
The post was migrated from Yahoo.