500 B.R. 739
Bankr. D. Md.2013Background
- Debtor Wayne J. Carter filed four bankruptcy cases since 2007 (2007, 2009, 2012, 2013), repeatedly on the eve of foreclosure sales by Industrial Bank (the Bank).
- In prior cases the Debtor failed to file or confirm a plan, failed to file accurate monthly operating reports, was delinquent on quarterly UST fees and child support, and exceeded Chapter 13 debt limits in 2009.
- In the 2012 case the court found Debtor gambled estate funds (quantified as over $6,500), misreported income, and had inadequate income to fund a feasible plan; the case was dismissed and reconsideration denied.
- Less than five weeks after denial of reconsideration, Debtor filed the 2013 Chapter 11 case; the Bank and the UST moved to dismiss as a bad-faith, serial filing.
- At the 2013 hearing Debtor testified (without documentary support) that new contracts would enable plan confirmation; the court found this insufficient given his record, prior findings, criminal guilty plea for providing false loan information, and unaddressed gambling with estate funds.
Issues
| Issue | Bank/UST Argument | Debtor Argument | Held |
|---|---|---|---|
| Whether the 2013 Chapter 11 should be dismissed as a bad-faith filing | Case is a serial, bad-faith filing; prior findings show abuse and misconduct warrant dismissal | Petition filed in good faith; new contracts make reorganization possible | Dismissed for bad faith |
| Whether Debtor’s gambling with estate funds shows subjective bad faith | Gambling with estate funds and failure to account shows breach of fiduciary duty and intent to abuse Chapter 11 | Debtor did not rebut or account for the gambling allegations | Gambling was decisive evidence of subjective bad faith |
| Whether multiple prior dismissals and foreclosure-timing make the filing abusive | Repeated filings on eve of foreclosure after prior dismissals show purposeful delay and harm to creditors | Filing on eve of foreclosure alone is not per se bad faith; this case is different | Serial eve-of-foreclosure filings contributed to finding of bad faith |
| Whether objectively feasible reorganization exists | Prior evidentiary findings (insufficient income, negative cash flow, unpaid child support and taxes) make reorganization unrealistic; burden shifted to Debtor to prove feasibility | Debtor’s uncorroborated testimony of new contracts insufficient to rebut prior findings | Court concluded objective futility (or that subjective bad faith alone justified dismissal) |
Key Cases Cited
- Carolin Corp. v. Miller, 886 F.2d 693 (4th Cir. 1989) (establishes two‑part test for bad‑faith dismissal: subjective bad faith and objective futility).
- In re Premier Automotive Services, Inc., 492 F.3d 274 (4th Cir. 2007) (addresses realistic possibility of effective reorganization under the objective futility inquiry).
- In re Delray Assoc. Ltd. P’ship, 212 B.R. 511 (Bankr. D. Md. 1997) (discusses dismissal of serial chapter 11 filings and court’s equitable power to dismiss in bad‑faith serial filing contexts).