In re Chovev
559 B.R. 339
Bankr. E.D.N.Y.2016Background
- Debtor (a New York dentist) filed a no-asset Chapter 7 after a malpractice judgment (~$274,000) that comprised ~74% of his unsecured debt; filing stayed collection efforts.
- Debtor reported household income ~$9,249/month and expenses ~$10,250/month (monthly deficit ~$1,001); most personal property was exempt; trustee reported no distribution.
- Creditor Josef Zloof moved to dismiss under 11 U.S.C. § 707(a) (and initially § 707(b)), alleging the case was filed in bad faith to avoid the malpractice judgment and that the debtor inflated expenses.
- Debtor opposed, arguing bad faith alone does not constitute cause under § 707(a) and that his debts are largely business-related so § 707(b) is inapplicable.
- Court held an evidentiary hearing, found record evidence insufficient to prove egregious bad faith or false oaths, and denied the motion to dismiss under § 707(a).
Issues
| Issue | Plaintiff's Argument (Zloof) | Defendant's Argument (Debtor) | Held |
|---|---|---|---|
| Whether "bad faith" can constitute "cause" to dismiss under § 707(a) | Bad faith filing (to thwart collection) is cause to dismiss under § 707(a) | Bad faith is not an independent ground in § 707(a); even if it is, only egregious bad faith suffices | Court avoided resolving the split; ruled that even applying a bad-faith inquiry, Zloof failed to prove it and denied dismissal |
| Whether filing to stop collection of a single large judgment is bad faith warranting dismissal | Filing solely to halt collection of the malpractice judgment demonstrates bad faith | Filing to halt collection is not per se bad faith; many debtors file for that reason | Filing to avoid a debt alone is insufficient; dismissal denied |
| Whether alleged inflated expenses/understated income on schedules establish cause | Schedule J inflation and misstated income demonstrate bad faith and should support dismissal | No convincing evidence of false oaths; such allegations are addressed by § 727, not § 707(a) | Court found record lacked proof of false oath; § 727 covers false oaths, so § 707(a) dismissal inappropriate |
| Whether debtor had ability to pay and failed to change lifestyle (can-pay) | Debtor had resources and did not materially change lifestyle, indicating bad faith | Ability to pay is addressed by § 707(b) (means test) for consumer debtors; § 707(a) is not a vehicle to force repayment | Legislative history and Code structure preclude dismissing under § 707(a) merely because debtor could pay; no evidence of lavish lifestyle; dismissal denied |
Key Cases Cited
- In re Krueger, 812 F.3d 365 (5th Cir. 2016) (bad-faith prepetition conduct can support dismissal under § 707(a))
- In re Piazza, 719 F.3d 1253 (11th Cir. 2013) (Chapter 7 dismissal for prepetition bad faith to avoid a large debt)
- In re Zick, 931 F.2d 1124 (6th Cir. 1991) (stringent bad-faith standard for § 707(a) dismissal)
- Huckfeldt v. Huckfeldt (In re Huckfeldt), 39 F.3d 829 (8th Cir. 1994) (prefer statutory "for cause" inquiry over a generalized bad-faith label)
- In re Sherman, 491 F.3d 948 (9th Cir. 2007) (two-part test: if specific Code provisions address the misconduct, § 707(a) is not the proper vehicle)
- In re Schwartz, 799 F.3d 760 (7th Cir. 2015) (cause to dismiss where debtors deliberately chose private consumption over paying creditors)