Can a Debtor in a Chapter 13 voluntarily dismiss their case?


Suppose you file a chapter 13 bankruptcy petition and then decide that you would rather not follow through with it. Could you voluntarily dismiss your own case? The provision that would allow you to voluntarily dismiss your chapter 13 case is found under §1307(b) of the U.S. Bankruptcy Code.

Is the right to dismiss your own chapter 13 case an absolute right? No, it is not an absolute right, it is subject to one condition, that the debtor's bankruptcy case was not converted from a chapter 7, 11 or a 12 to a chapter 13 bankruptcy case. Thus, if the debtor files a chapter 13 case, they can request it at any time that their case be dismissed.

Recently on June 9, 2021, a 6th Circuit case, U.S. Bank N.A. (In Re Smith) dealt specifically with §1307(b) of the U.S. Bankruptcy Code. The Court addressed whether §1307(b) is a mandatory provision, or can the Bankruptcy Court use its equitable powers under §105(a) to deny the Debtor's motion to dismiss their case, if the Debtor filed their petition in bad faith. Also, the Court discussed the notion of whether under Federal Civil Rule 60(b)(3), which is incorporated under bankruptcy rule 9024, could a Bankruptcy Court vacate its chapter 13 dismissal order.

The debtor, it was argued, was to have engaged in bad faith on a 2019 chapter 13 petition filing, due to his current actions, and his past conduct as a repeat filer in 2007 and 2017. Whereby, the debtor would file a chapter 13 bankruptcy petition just prior to a scheduled foreclosure sale, of which the debtor would also always voluntarily dismiss his case after the foreclosure sale date had been cancelled.

The Court stated that §1307(b) is a mandatory provision, and that once the debtor makes that request, the Court is commanded to dismiss that case. Further, the Court rejected the argument that a Bankruptcy Court could disregard any of the bankruptcy code's provisions under its equitable powers of §105(a), when the results would create unfairness to the creditor. Page 5 The Court cited the Supreme Court case of Law v. Siegel, 571 U.S. 415 (2014), by stating the use of §105(a) "must and can only be exercised within the confines of the Bankruptcy Code." Id. at 421 Page 5

Finally, the Court address Rule 60(b)(3) and cited United States v. Chavis (In re Chavis), 47 F.3d 818, 822 (6th Cir. 1995) that "any conflict between the Bankruptcy Code and the Bankruptcy Rules must be settled in favor of the Code." Page 5. Thus, §1307(b)'s mandatory provision "would be meaningless if bankruptcy courts could then vacate its dismissal under Rule 60(b)" Page 5

So yes, under §1307(b) of the bankruptcy code, a debtor who files a chapter 13 can have their chapter 13 case dismissed with no questions asked.

If you're thinking about pursuing a personal bankruptcy to get a fresh start from your financial burdens, you can schedule for your free initial bankruptcy consultation by calling 989-891-9780 or by scheduling online at www.gwkpllc.com


Featured Posts

Recent Posts