490 B.R. 607
Bankr. D.N.M.2012Background
- Debtors Dr. Robert H. Quinn, Jr. and Stephanie S. Quinn filed Chapter 7 on January 11, 2012 seeking discharge of about $700,000 of unsecured debt amid substantial real estate liabilities.
- UST sought dismissal for “cause” under 11 U.S.C. § 707(a) or, in the alternative, conversion to Chapter 11; final evidentiary hearing held December 5, 2012.
- Court recognized lack of good faith as a potential basis for “cause” under § 707(a) but limited it by two principles to prevent improper value judgments about relief.
- Debtors’ schedules disclosed substantial assets and non-consumer debt; pre- and post-petition conduct included pre-petition debt management attempts and lifestyle elements alleged to be lavish.
- Court found that, viewed in totality, the combination of factors did not rise to “egregious” bad faith necessary for dismissal and declined conversion to Chapter 11.
- The decision notes that § 707(a) grounds are nonexclusive and that bad faith may be considered within a flexible, case-by-case “totality of the circumstances” approach.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether lack of good faith can justify dismissal under § 707(a). | UST asserts lack of good faith can be cause for dismissal. | Quinns argue no good-faith requirement exists for Chapter 7 relief. | Yes, but only in egregious cases and within a flexible, case-specific standard. |
| Whether the evidence supports dismissal for cause under § 707(a) given debtors’ financial position and conduct. | UST contends factors like high income and lavish lifestyle show bad faith. | Debtors’ income and lifestyle not enough to constitute cause when coupled with lack of egregious misconduct. | Not sufficient to dismiss for cause under § 707(a) in this case. |
| Whether the case should be converted to Chapter 11 under § 706(b) as an alternative. | UST seeks conversion to maximize creditors’ recovery. | Debtors’ case not suitable for conversion; dismissal avoided. | Court denied conversion; not appropriate to compel Chapter 11. |
Key Cases Cited
- Padilla v. U.S. Trustee, 212 F.3d 1184 (9th Cir. 2000) (lack of good faith as basis for dismissal under § 707(a))
- In re Zick, 931 F.2d 1124 (6th Cir. 1991) (greatly influential on the good faith/dismissal standard under § 707(a))
- Huckfeldt, 39 F.3d 829 (8th Cir. 1994) (dismissal for lack of good faith and its limits under § 707(a))
- In re Lombardo, 370 B.R. 506 (Bankr.E.D.N.Y. 2007) (multifactor test for bad-faith filing under § 707(a))
- In re Keobapha, 279 B.R. 49 (Bankr.D. Conn. 2002) (fourteen-factor test for bad-faith filing under § 707(a))