Court: Bankruptcy Appellate Panel of the First Circuit; May 8, 2013; Us Bankruptcy; United States Bankruptcy Court
The bankruptcy court dismissed the chapter 13 case of married debtors Edwin Sepulveda Soto and Arlene Lisette Gonzalez Rivera due to their failure to provide required financial documentation, specifically income evidence and Puerto Rico tax returns for the years 2008-2011. After filing a joint petition on February 15, 2012, the debtors attended a creditors' meeting on March 28, 2012, but did not comply with the trustee's requests under 11 U.S.C. § 521(a)(1). Subsequent meetings were continued, yet the debtors repeatedly failed to appear or provide the necessary documents.
Despite filing amended plans that were objected to by Doral Bank and the IRS, the trustee recommended denying plan confirmation due to outstanding documentation. During a hearing on September 27, 2012, Doral Bank moved for case dismissal based on the debtors' ongoing non-compliance. The debtors contested the motion, claiming they had supplied payment advices to their attorney, who could not confirm if they were forwarded to the trustee and declined to testify. The court upheld the trustee's assertion of non-compliance and dismissed the case under § 521(i) for failure to file the required information. The ruling emphasized the lack of evidence supporting the debtors' claims and the automatic nature of the dismissal due to their omissions.
Debtors acknowledge Doral's status as a party in interest in their Chapter 13 case but contest Doral's standing to seek dismissal. They argue the bankruptcy court incorrectly dismissed their case under § 521(i), which permits any interested party to move for dismissal, asserting that the court should have applied § 1307(c)(9), which restricts dismissal for failure to file required information to the United States trustee and mandates prior notice and a hearing. Debtors claim § 1307 is more specific and supersedes § 521(i)(2). They further argue that they lacked adequate notice of Doral’s oral dismissal motion, which they characterize as a "surprise attack," that they complied with § 521(f)(1) by submitting tax returns and payment advices before the second creditors' meeting, and that the trustee's report indicates these documents were provided.
In contrast, the trustee argues that the debtors did not submit the necessary payment advices, pointing out their absence from the continued creditors' meeting. The trustee maintains that failure to provide the required documents under § 521(a)(1)(B)(iv) justifies automatic dismissal as stipulated in § 521(f)(1). The trustee also asserts that the debtors were informed of his report recommending denial of plan confirmation due to their income documentation deficiencies. Both the trustee and Doral argue that the bankruptcy court has the authority to dismiss under § 521(i), making the notice and hearing requirements of § 1307 inapplicable, and note that the debtors did not request an extension to submit the required information.
Regarding jurisdiction, a bankruptcy appellate panel must confirm its jurisdiction before addressing the case merits. An order dismissing a Chapter 13 case is a final, appealable order, establishing the panel's jurisdiction. The standard of review involves examining factual findings for clear error and legal conclusions de novo, with dismissals reviewed for abuse of discretion, defined by the failure to consider significant factors, reliance on improper factors, or substantial errors in evaluating proper factors.
Section 521 mandates that a debtor must file copies of all payment advices or evidence of payment received within 60 days prior to filing a bankruptcy petition unless the court directs otherwise (11 U.S.C. 521(a)(1)(B)(iv)). Debtors can fulfill this requirement by submitting payment advices or alternative evidence. General Order 05-06 from the U.S. Bankruptcy Court for the District of Puerto Rico specifies that this information should be provided to the trustee and creditors, not filed with the court. Noncompliance can lead to automatic dismissal of the case under 521(i)(1), which stipulates that if a debtor fails to file required information within 45 days, the case will be dismissed on the 46th day. Interested parties may request dismissal, which the court must grant within 7 days, but the court can extend the deadline for an additional 45 days if the debtor shows justification. Furthermore, if the trustee requests dismissal before the deadline, the court may choose not to dismiss if it finds the debtor acted in good faith and that case administration serves creditors' best interests.
The introduction of these provisions was part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), which expanded the filing requirements beyond just a list of creditors and schedules to include payment advices. Courts have faced challenges in implementing the 'automatic' dismissal concept since 521(i) lacks a clear procedural framework. There is a division among courts regarding how to interpret the automatic dismissal provision, with some asserting that it limits the bankruptcy court's discretion, mandating dismissal without the court's ability to choose otherwise.
Automatic dismissal of a bankruptcy case is mandated by 11 U.S.C. § 521(i)(1) after 45 days if required financial disclosures have not been filed, leading to a dismissal order under § 521(i)(2) within 5 days of a dismissal request. While some courts have allowed waivers of the disclosure requirement post-deadline, there is consensus that mere passage of time does not equate to automatic dismissal. The court in Spencer clarified that a case is not dismissed until the formal order is entered. One interpretation, as seen in In re Fawson, suggests that automatic dismissal is purely a function of time, viewing the entry of the dismissal order as a ministerial act.
In Acostar-Rivera, the First Circuit grappled with these interpretations, noting the stricter reading enhances the dismissal provision's impact but could inadvertently limit judicial discretion, potentially enabling abuse of the bankruptcy system. Conversely, a more flexible interpretation could allow debtors to exploit the dismissal process. The First Circuit ultimately endorsed a balanced approach, permitting limited judicial discretion under certain conditions, allowing courts to either dismiss the case, retain it if the good-faith exception applies, or decide that the missing information is non-essential.
Additionally, the court criticized the notion that the timing of the automatic dismissal implicitly restricts judicial authority, concluding that § 521 does not necessitate dismissal if the omitted information becomes irrelevant. Regarding notice and hearing requirements under § 521(f)(1), the First Circuit has not ruled, but other jurisdictions have differentiated it from other dismissal provisions, suggesting varied procedural implications.
Section 1307(c)(1) of the Bankruptcy Code permits a 'party in interest' to request dismissal of a case for cause, such as unreasonable delay by the debtor that prejudices creditors. Dismissals under this section require notice and a hearing, unlike dismissals under section 521(i)(1), which do not. Automatic dismissals, as per section 521(f)(2), can occur without notice or a hearing if the required information is not filed.
In the relevant case, the 45-day deadline established by section 521(i)(1) lapsed on April 1, 2012, well before the bankruptcy court's dismissal. The debtors failed to provide necessary payment advices to the trustee and did not seek to extend the deadline or present evidence of good faith efforts to supply the information. Their assertion regarding the trustee's report was unsupported, and they declined to testify when given the opportunity. The court dismissed the case based on these factors, and the trustee did not oppose dismissal.
The court found no abuse of discretion in dismissing the case, as the absence of a request to extend the deadline permitted dismissal at any time thereafter. The debtors' claim that section 1307(c)(9) requires notice and a hearing before dismissal was rejected. Courts have clarified that section 521(i)(1) is a more specific provision that mandates dismissal without a showing of cause when the deadline lapses, harmonizing it with section 1307(c) which deals with dismissals for cause.
The debtors' claim of lacking notice regarding their potential dismissal is undermined by their acknowledgment that the trustee informed them of their obligation to comply with section 521, including the submission of payment advices, during the initial 341 meeting. This awareness implies they were cognizant of the severe repercussions for non-compliance. The court concludes that sections 521(a) and 1307(c)(9) do not conflict, affirming that 521(i)(1) was the appropriate basis for the bankruptcy court's dismissal, which does not necessitate notice and a hearing. The dismissal order is upheld. Furthermore, the trustee's report from the first 341 meeting identifies several deficiencies in the debtors' financial disclosures, including incomplete asset disclosure and failure to report creditor payments made in the 90 days prior to filing. Doral holds three secured notes from the debtors, totaling over $294,000, and has filed a motion for relief from stay, which is under appeal. The report titled "Trustee's Amended Unfavorable Report of Plan Dated April 9, 2012" indicates that confirmation of the plan was recommended for denial. The debtors assert compliance with 521(e) regarding federal tax returns but contest the requirement for Puerto Rican returns, which the trustee states he did not receive. The bankruptcy court's dismissal relied solely on the debtors' failure to submit payment advices, supported by established practices in various bankruptcy courts.
