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Jared C. Walters, Trustee v. Jeanne A. Gallegos, et al.

Summarizing by David Treacy


Case Type:
Case Status:
NV-22-1014-FLB (9th Circuit, Oct 21,2022) Published
The BAP for the 9th Circuit affirmed the bankruptcy court (Bankr. D. Nev.) which granted the Debtor’s motion for voluntary dismissal pursuant to 11 U.S.C. § 1307(b). The BAP held that a Chapter 13 debtor’s right to dismiss the case is subject only to the limitation set forth in Section 1307(b) and is not subject to the debtor’s compliance with Chapter 13 eligibility requirements or to an implied exception for bad faith conduct or abuse of the bankruptcy process.
Procedural context:
The Debtor filed a motion for voluntary dismissal pursuant to 11 U.S.C. § 1307(b). Judgment creditor TICO Construction Company, Inc. (“TICO”) objected, arguing that the Debtor did not have an absolute right to dismiss his case because he was abusing the bankruptcy process by transferring all non-exempts assets to his ex-wife pursuant to an alleged “sham divorce”, and was also not eligible to be a chapter 13 debtor because the Debtor’s unsecured debts exceeded the statutory limit for a Chapter 13 case. Because the Debtor was not eligible for Chapter 13, TICO argued that the Debtor was not entitled to dismiss the case under Section 1307. Instead, TICO requested that the bankruptcy court convert the case to one under chapter 7. The bankruptcy court disagreed with TICO and dismissed the case. Although the Ninth Circuit had previously ruled that a Debtor’s right to dismiss a Chapter 13 case was subject to an implied exception for bad faith conduct or abuse of the bankruptcy process in Rosson v. Fitzgerald (In re Rosson), 545 F.3d 764, 772 (9th Cir. 2008), the BAP found that Rosson was overruled by Nichols v. Marana Stockyard & Livestock Market, Inc. (In re Nichols), 10 F.4th 956 (9th Cir. 2021) pursuant to the U.S. Supreme Court’s ruling in Law v. Siegel, 571 U.S. 415 (2014).
TICO obtained a state court judgment against the Debtor totaling $215,149.86 for breach of non-compete and non-disclosure obligations. After the judgment was entered and recorded against the Debtor’s property, the Debtor filed a Chapter 13 petition. Afterwards, TICO filed an adversary complaint seeking to have its debt declared nondischargeable under §§ 523(a)(4) and (6). TICO and the Debtor litigated several other matters, included the Debtor’s homestead exemption. Given all the controversies that ensued with TICO after the filing of the bankruptcy case, the Debtor claimed that he had had enough of the litigation and sought the dismiss the case.
FARIS, LAFFERTY, and BRAND, Bankruptcy Judges.

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