Bad Faith Bankruptcy Filing

In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) became law.  The purpose of the BAPCPA was to make it more difficult for consumers to file bankruptcy.  There are several provisions in the BAPCPA which deal with bad faith bankruptcy filings. 

Abuse Standard

Prior to enactment of the BAPCPA, under certain circumstances, a case could be dismissed for “substantial abuse”.  Under the BAPCPA, a case may now be dismissed for “abuse”.  In Chapter 7 cases, there is a presumption of abuse if the debtor fails the means test.  Even in instances where the debtor satisfies the means test or successfully rebuts the presumption of abuse, the bankruptcy court has the discretion to dismiss the case if: 

• The petition was filed in bad faith; or
• The totality of the circumstances of the debtor’s financial situation demonstrates abuse. 

What is a Bad Faith Bankruptcy Filing?

If it appears that the debtor has engaged in conduct meant to hinder his creditors’ collection efforts or to otherwise harm his creditors, he may be found to have filed bankruptcy in bad faith.  A case is presumed to have been filed in bad faith as to all creditors if any of the following is true: 

• More than one case involving the debtor was filed in the year preceding the current case;
• A case dismissed in the preceding year was dismissed because the debtor failed to file required documents without substantial cause;
• The debtor failed to make adequate protection payments as ordered by the court;
• The debtor failed to comply with the terms of a confirmed Chapter 13 plan; and
• The debtor’s circumstances have not substantially changed as to give rise to a reasonable expectation that the debtor will successfully complete a Chapter 7 case and receive a discharge or have his Chapter 13 plan confirmed and fully perform the confirmed plan. 

A case may be deemed to have been filed in bad faith as to a particular creditor if that creditor’s request for relief from the automatic stay in a prior case was pending at the time the case was dismissed or had been resolved with an order terminating, conditioning, limiting, or otherwise modifying the day. 

Penalties for Bad Faith Bankruptcy Filings

If a debtor is found to have filed a bankruptcy case in bad faith, he may be subject to a variety of penalties, depending on the circumstances and facts of his case.  The harshest of these penalties is dismissal of his case with prejudice.  When a bankruptcy case is dismissed with prejudice, the debtor is prohibited from re-filing for at least 180 days. 

Other penalties include: 

• Expiration of the automatic stay after 30 days as to all creditors;
• Termination of the stay as to a particular debt or creditor;
• No automatic stay at the time case is filed. 

Getting Legal Help

Because the penalties for bad faith filings can be very harsh, you should never use the protections of the bankruptcy laws to manipulate or cheat your creditors.  It’s best to consult with a qualified bankruptcy attorney to explore other options if you have no intention of going through with a bankruptcy.