Leavers v. McLaughlin, 648 F.Supp.3d 671

Debtor Leopold A. McLaughlin III filed a pro se Chapter 7 petition on Feb. 4, 2020 and checked that he had received credit counseling but lacked the certificate. A certificate later filed Apr. 24, 2020 showed counseling occurred Apr. 21, 2020 — 77 days after filing.
Trustee Craig B. Leavers investigated and sought to recover an asset: McLaughlin's inheritance from his deceased mother's probate estate; Trustee employed counsel and pursued removal of the estate’s personal representative. Probate proceedings remain pending.
Two creditors filed proofs of claim (child support arrears and a utility); Trustee opposed dismissal, arguing creditors would be prejudiced and Trustee incurred administrative fees.
Debtor moved to withdraw and dismiss the bankruptcy on Oct. 7, 2021, claiming improved finances and a desire to resolve debts outside bankruptcy. The Bankruptcy Court granted dismissal on Feb. 1, 2022.
The Bankruptcy Court’s stated bases for dismissal: (1) dismissal would benefit the debtor and not prejudice creditors; and (2) the debtor was ineligible under 11 U.S.C. § 109(h) because the credit counseling certificate was untimely, and the court found no grounds to waive that requirement.
The District Court vacated and remanded, concluding the Bankruptcy Court erred in finding no creditor prejudice and made conclusory findings regarding waiver/estoppel of the § 109(h) counseling requirement.

Issue	Leavers' Argument	McLaughlin's Argument	Held
Whether dismissal under 11 U.S.C. § 707(a) was proper given creditor prejudice	Dismissal prejudices creditors because estate assets (the mother's inheritance) would be lost and creditors delayed collection for >1.5 years; Trustee incurred expenses	Dismissal would benefit debtor; debtor's circumstances improved and he can pay creditors outside bankruptcy	District Court: Bankruptcy Court erred in finding no creditor prejudice; remanded to Bankruptcy Court to reassess dismissal balancing creditors' prejudice and debtor benefit
Whether failure to comply with § 109(h) (credit counseling) required dismissal or could be excused by waiver/estoppel	§ 109(h) noncompliance can be waived or estoppel applied where debtor misleads or seeks tactical dismissal; court should consider waiver/estoppel	Debtor maintained the late certificate would have led to dismissal; argued nothing else	District Court: Bankruptcy Court's finding that no waiver/estoppel grounds exist was conclusory; remanded for fuller factual findings and analysis on waiver/estoppel of § 109(h) compliance

Janvey v. Romero, 883 F.3d 406 (4th Cir.) (standard of review and balancing under § 707(a))
Centro Tepeyac v. Montgomery Cnty., 722 F.3d 184 (4th Cir.) (abuse of discretion framework)
Klein v. PepsiCo, Inc., 845 F.2d 76 (4th Cir.) (clear-error standard explanation)
Behrmann v. Nat'l Heritage Found., 663 F.3d 704 (4th Cir.) (remand required when factual findings are insufficient for appellate review)
In re Blue, 4 B.R. 580 (Bankr. D. Md.) (balancing debtor benefit and creditor prejudice under § 707(a))
In re Herrera, 554 B.R. 262 (Bankr. D.N.M.) (creditor prejudice where assets available in bankruptcy would be lost on dismissal)
In re McCullough, 229 B.R. 374 (Bankr. E.D. Va.) (voluntary dismissal typically denied where legal prejudice to creditors exists)