In re Gabino F.A. Duran

Ninth Circuit BAP doesn’t require a formal motion to dismiss with prejudice when a debtor files a voluntary motion to dismiss as of right under Section 1307(b).

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Case Type:
Case Status:
Bankruptcy Appellate Panel of the Ninth Circuit Nos. CC-20-1045-KTG (9th Circuit, Jul 27,2021) Published
The BAP, in affirming the bankruptcy court, held three things: 1) dismissals, even those brought under § 1307(b) requires a court to consider the § 349(a) possibility of dismissal with prejudice; 2) so long as due process and notice sufficient for denial of discharge and a hearing occur, no specific procedures must occur to dispute § 349(a) cause; 3) the party seeking the § 349(a) prejudice determination bears the burden of persuasion.
Procedural context:
The Debtor filed a motion to dismiss the Chapter 13 case under § 1307(b) asserting a dismissal of right, which if granted would have been a dismissal without prejudice. The Creditor opposed the Debtor's motion for dismissal without prejudice and requested the dismissal to be entered with prejudice, but the Creditor did not move for dismissal with prejudice under § 1307(c). The bankruptcy court analyzed § 349(a) cause and cited the four-part test precedent out of the 9th Circuit for the totality of the circumstances warranting dismissal with prejudice before dismissing with prejudice after finding egregious and inequitable bad faith plus manipulation and abuse of the Bankruptcy Code. The Debtor appealed.
The Debtor filed Chapter 12 bankruptcy twice, once in 2010 and again in 2012. The 2012 bankruptcy was converted to chapter 7 before the Debtor received a discharge. The Debtor then filed a Chapter 13 bankruptcy in 2018. A creditor with an unscheduled lawsuit against the Debtor (Creditor) objected and forced the Debtor to amend the schedules multiple times, revealing grossly understated assets, income, and multiple transfers. The Chapter 13 Trustee also objected as the Debtor failed to turn over tax returns and the plan as proposed was unfeasible. The bankruptcy court held a two-day evidentiary hearing on confirmation, with numerous arguments regarding the Debtor's good faith. At no time did the Creditor argue that for the case's conversion or dismissal. The bankruptcy court ordered briefing post-hearing regarding on the issue of good faith. The Creditor's brief asserted cause existed for the case to be dismissed with prejudice for bad faith, but no motion to convert or dismiss ever was filed. While the issue of confirmation was under advisement, the United States filed a proof of claim on federal tax debt exceeding $600,000, even though the schedules asserted no federal tax debt existed. The United States then filed its own objection to confirmation asserting that the Debtor exceeding debt limit guidelines, and that objection claimed the United States planned to move for conversion or dismissal, but that did not occur. Following the bankruptcy court's order to deal with the federal tax claim, the Debtor admitted that the amount was likely valid and he exceeded the debt limits. The Debtor then moved to dismiss his bankruptcy case.
The Hons. Klein, Taylor, and Gan

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