Monday, June 22, 2009

B'cy Ct. Can Avoid the 45-Day Automatic Dismissal of Sec. 521(i) with an Order Entered AFTER the 45 Days, to Prevent a Ch. 7 Debtor's Abusive Conduct

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys,

Wirum v. Warren (In re Warren)

Ninth Circuit Court of Appeals, Case No. 07-17226
June 18, 2009

The Issue
BAPCPA more than tripled the verbiage of § 521 of the Bankruptcy Code, the section titled "Debtor's duties." One of the many added provisions, § 521(i)(1), states that if a debtor does not file a specified set of documents within 45 days of filing, "the case shall be automatically dismissed effective on the 46th day after the date of the filing of the petition." Under § 521(a)(1), most of the documents in that set are required to be filed "unless the court orders otherwise." Here the Ninth Circuit addressed "whether the bankruptcy court has the discretion to 'order[ ] otherwise' and thereby waive the § 521(a)(1) filing requirement by entering an order after the forty-five day filing deadline in § 521(i)(1) has passed."

The Decision
This is an issue of first impression in the Circuit, with only the First Circuit Court of Appeals having addressed it before. The Ninth Circuit here went against the majority of bankruptcy and district courts, but followed the First Circuit, in ruling that the bankruptcy court DOES have discretion to waive the filing deadline even after that deadline had passed. However, the bankruptcy court appears to have this discretion in only very select circumstances, and likely NOT when debtors' attorneys would want.

The Statute and Automatic Dismissal
§ 521(a)(1) and (i)(1) state in pertinent part:
(a) The debtor shall--
1) file--
A) a list of creditors; and
(B) unless the court orders otherwise--
[(i) through (vi): a list including schedules of assets, liabilities, income and expenses, statement of financial affairs, 60 days of pay stubs]
(i)(1) . . . if an individual debtor in a voluntary case under chapter 7 or 13 fails to file all of the information required under section (a)(1) within 45 days after the date of the filing of the petition, the case shall be automatically dismissed effective on the 46th day after the date of the filing of the petition. [Emphasis added.]
How could the Ninth Circuit, and before it the First Circuit, give the bankruptcy court discretion to address this deadline after the 45-day period in spite of the statute's language expressly mandating dismissal of the case on the 46th day? Indeed, in this case the bankruptcy court did not order waiver of the 45-day deadline until more than six months had passed since the date of filing. How was the case even still active then if the statute clearly seems to provide for automatic dismissal on the 46th day after filing?

The Facts
This is not a case where debtor sought to avoid dismissal, but the opposite: debtor moved to dismiss his Chapter 7 case about five months after its filing, to get out of a case he clearly no longer wanted to be in.

The debtor had filed the bankruptcy case apparently in reaction to a state court order to his bank to freeze his bank accounts and turn over $93,000 to satisfy a child support arrearage. When debtor failed to file all the necessary documents at the time of his original bankruptcy case filing, the bankruptcy court issued the usual 15-day order of potential dismissal, and then scheduled a hearing on his failure to file those documents within the 15 days. Before that hearing the Chapter 7 trustee requested that the case not be dismissed, in order to give her time to determine if there were any assets available for distribution to the creditors. (Although not revealed in the Ninth Circuit opinion, the trustee had learned from debtor's bank that it intended to satisfy the $93,000 obligation from debtor's account, and also that debtor had withdrawn about $90,000 from that bank account.) At the hearing, which occurred 37 days after the date of filing, the court granted this request not to dismiss. Debtor did not appear in spite of an order to do so to face sanctions for failing to file the bankruptcy documents.

Then months later, in response to debtor's subsequent motion to dismiss the case, the bankruptcy court first waived the document filing requirement and then denied debtor's motion to dismiss. Debtor appealed.

Throughout its analysis, the Court relies extensively on the First Circuit opinion referred to above, Segarra-Miranda v. Acosta-Rivera (In re Acosta-Rivera), 557 F.3d 8 (1st Cir. 2009), quoting or citing this February 2009 opinion no less than fourteen times.

The Ninth Circuit Court's analysis starts with its assertion that the statutes at issue, § 521(a)(1) and § 521(i)(1), are ambiguous as to "whether subsection (i)(1)'s forty-five day filing deadline limits the power of a court to 'order[ ] otherwise' and waive the (a)(1) filing requirement." This purported statutory ambiguity required the Court to look at the possible interpretations of the statute "in light of the purpose of the statute." The Court determined that Congress' core purpose in enacting BAPCPA was to prevent abusive bankruptcy filings. Abusive filings would be discouraged by allowing the bankruptcy court to "decline to dismiss the debtor's case if it determines the debtor is abusing and manipulating the bankruptcy system."

Accordingly, the Court found that both this Congressional intent and what it called the "authentic value of automatic dismissal" would be served by determining that the bankruptcy courts have the discretion not only 1) to dismiss the case, or 2) not to dismiss based on the statutory exceptions, but also 3) to "determine, in its discretion, that the missing information is not required or that denial of dismissal is necessary to prevent a debtor from abusing and manipulating the bankruptcy system."

The Court recognized that the majority of bankruptcy and district courts had decided to the contrary, that the automatic dismissal provision does NOT give bankruptcy courts discretion, especially after the 45-day deadline had passed, to avoid dismissing the case. But because "such a reading also would allow abusive and manipulative debtors to gain automatic dismissal and thereby encourage bankruptcy abuse," the Court simply "decline[d] to read § 521 in this manner."

The Holding
It held that "where a bankruptcy court reasonably determines that there is no continuing need for the information or waiver of the filing requirement is necessary 'to prevent automatic dismissal from furthering a debtor’s abusive conduct, the court has discretion to take such an action.' " [Quoting in part from Acosta-Rivera.]

Query #1: Does this Ninth Circuit opinion open the door to giving bankruptcy courts the discretion to extend this 45-day deadline on behalf of debtors, and particularly to do so AFTER that 45-day period has passed?
The Court does not address this directly, but its rationale and holding do not apply to debtors' extension requests, so the opinion does not give any support for such requests. The First Circuit in Acosta-Rivera was good enough to state clearly that it did "not decide today whether bankruptcy courts possess unfettered discretion to waive the disclosure requirements ex post." The Ninth Circuit made no such clarification, but its decision was similarly narrowly focused, and thus did not address, favorably or not, even in dicta, the question whether a debtor could avoid the automatic dismissal of § 521 (i)(1).

Query #2: Why did the Ninth Circuit Not Address a Critical Subsection?
In its interpretation of § 521(i)(1), the Ninth Circuit does not address the subsections immediately after, that is § 521(i)(2), (3), and (4). These are the statutory conditions and exceptions to the automatic dismissal of § 521(i)(1) so a careful review of them seems essential. § 521(i)(2) especially appears pertinent, stating that:
any party in interest may request the court to enter an order dismissing the case. If requested, the court shall enter an order of dismissal not later than 5 days after such request.
The debtor is a "party in interest," and so this provision seems to give no discretion to the court in dismissing the case upon debtor's request if the requisite documents are not timely filed.

This issue was certainly raised on appeal by debtor: a detailed statutory analysis of these three subsections was at the very heart of the district court opinion on appeal, Warren v. Wirum, 378 B.R. 640 (N.D. Cal. 2007). And yet this Ninth Circuit opinion overturning that district court opinion oddly made absolutely no mention of these clearly pertinent subsections. Even the First Circuit opinion relied on so heavily in this Ninth Circuit opinion addressed these subsections, explaining that these subsections "operate within their own statutory ambit and do not cabin the bankruptcy court's discretion in other areas." The Ninth Circuit opinion simply states in a conclusory footnote that "none of th[e] § 521(i)(1), (3), (4) exceptions apply in this case," without any reference whatsoever to § 521(i)(2) which seems clearly to apply . In my view, the Court's failure to address this diminishes its opinion's credibility and likely its longevity .

New Bulletins on this website will provide summaries of other opinions within the Ninth Circuit shortly after they are published. PLEASE EMAIL ME at IF YOU WOULD LIKE TO BE EMAILED A LINK TO SUCH FUTURE REPORTS.

by Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys
PLEASE NOTE that the writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.

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