634 B.R. 647
Bankr. D.C.2021Background
- Debtor Tanner S. Campbell filed Chapter 7 on Jan. 16, 2019, primarily to discharge a $645,558.96 judgment obtained by MoSex Exhibit 1, LLC in New York and domesticated in D.C.
- MoSex moved to dismiss under 11 U.S.C. § 707(a) for cause (bad faith), arguing the petition aimed to avoid that single large non‑consumer judgment.
- Debtor is a high‑earning, Ivy League–educated professional with no dependents who reported a monthly surplus on his schedules.
- Prepetition, the Debtor made large, frequent ATM cash withdrawals (avg. ~$3,966.59/month over several years) with little or no records of disposition, and continued unexplained cash use postpetition.
- In the year before filing the Debtor repaid family members about $16,000 and borrowed additional funds from them; his schedules also listed student‑loan payments he admitted he had not been making.
- After a trial on Feb. 8, 2021, the bankruptcy court found the Debtor lacked candor, engaged in preferential insider payments and extravagant spending, and dismissed the case for bad faith under § 707(a).
Issues
| Issue | MoSex’s Argument | Campbell’s Argument | Held |
|---|---|---|---|
| Whether the Chapter 7 petition should be dismissed for bad faith under 11 U.S.C. § 707(a) | Petition was filed to avoid one major non‑consumer judgment; combined pre/post conduct shows bad faith | Filing was legitimate; expenditures and cash withdrawals were for business/personal needs and schedules reflected true surplus | Court: Dismissal granted — petition filed in bad faith |
| Prepetition transfers and insider payments | Debtor made preferential payments (~$16,000) to his mother and borrowed/repayed family funds instead of paying MoSex | Payments were repayments of family "bridge" loans | Court: Insider transfers and timing weigh in favor of bad faith |
| Accuracy and candor of schedules; unexplained cash withdrawals | Schedules misstated student‑loan payments and left ~$4k/month of ATM withdrawals unexplained; Debtor failed to account for funds | Cash withdrawals were for "various business and personal expenses"; poor recordkeeping explained lack of detail | Court: Lack of candor and unexplained withdrawals materially undermine credibility and support dismissal |
| Debtor’s ability to repay and lifestyle | Debtor had high income and scheduled surplus but maintained lavish lifestyle and did not attempt to pay MoSex | Debtor disputed inability to pay or characterized choices as legitimate personal/business spending | Court: Debtor had means to pay; choosing lifestyle/insider payments over creditor repayment supports bad faith and dismissal |
Key Cases Cited
- Marrama v. Citizens Bank, 549 U.S. 365 (2007) (bankruptcy relief limited to honest debtors; courts may dismiss for bad faith)
- Grogan v. Garner, 498 U.S. 279 (1991) (fresh start policy and requirement of honesty in bankruptcy filings)
- Piazza v. Nueterra Healthcare Physical Therapy, LLC (In re Piazza), 719 F.3d 1253 (11th Cir. 2013) (§ 707(a) ‘for cause’ includes dismissal for prepetition bad faith to avoid a single creditor)
- Zick, 931 F.2d 1124 (6th Cir. 1991) (bad‑faith dismissal appropriate in egregious cases involving misrepresented assets, lavish spending, or concealed income)
- Krueger v. Torres (In re Krueger), 812 F.3d 365 (5th Cir. 2016) (debtor’s bad faith can constitute cause for dismissal)
- Schwartz, 799 F.3d 760 (7th Cir. 2015) (treats bad‑faith dismissal as within § 707(a)’s ‘for cause’ authority)
- Perlin v. Hitachi Capital Am. Corp. (In re Perlin), 497 F.3d 364 (3d Cir. 2007) (affirming bad‑faith dismissal under § 707(a))