Cite as: Keith M. Lundin, Lundin On Chapter 13, § 152.7, at ¶ ____, LundinOnChapter13.com (last visited __________).
There are too many reported decisions dismissing Chapter 13 cases on the court’s own “motion.”1
Dismissal of a Chapter 13 case by the court without a request from a creditor, the Chapter 13 trustee or the U.S. trustee is at best awkward and can be a procedural and substantive nightmare.2 Although 11 U.S.C. § 105 probably permits bankruptcy judges to initiate dismissal when “necessary or appropriate to enforce or implement court orders or rules or to prevent an abuse of process,”3 the procedure is almost inevitably corrupted. Section 305 of the Code has also been cited as authority for dismissal of a Chapter 13 case on the initiative of the bankruptcy judge,4 but § 305 would require that “the interests of creditors and the debtor would be better served by such dismissal.”5
The reported decisions do not indicate that bankruptcy judges file motions, although it is clear from Bankruptcy Rule 1017(f) that dismissal for cause under § 1307(c) “shall be requested by motion” under Bankruptcy Rule 9014. It is not clear to whom or by whom notice is given of a hearing for sua sponte dismissal. The reported decisions demonstrate that often the debtor has no notice that the bankruptcy judge intends to prosecute a motion to dismiss; the debtor does not know the cause the bankruptcy judge will assert and debtor’s counsel has no opportunity to prepare appropriate evidence to answer the court’s concerns.6
It is not clear how a creditor or other party in interest appears in opposition to the court’s initiative. In some jurisdictions, action by the court to dismiss the case takes the form of a “show cause” order requiring the debtor to appear and explain why the case should not be dismissed.7 Other creditors would certainly be parties in interest to such a hearing—especially, for example, a creditor that has been granted relief from the stay and does not want the case dismissed.8 But the chances are great that the show-cause order was not noticed to all creditors. And if by happenstance the creditor knows to appear at the court’s hearing on dismissal, creditor’s counsel is in the awkward position of litigating against the bankruptcy judge—sometimes on the same side as the debtor; other times in opposition to both the debtor and the court.
A few reported decisions recognize statutory and procedural limits on sua sponte dismissal of Chapter 13 cases. Soon after the enactment of the 1978 Code, in dicta in a footnote in Tenney v. Terry (In re Terry),9 the U.S. Court of Appeals for the Eighth Circuit stated, “As we read § 1307, a court cannot order dismissal or conversion on its own motion.”10
Nearly 20 years later, the Bankruptcy Appellate Panel for the Eighth Circuit in Minkes v. LaBarge (In re Minkes),11 gave this account of the holding in Terry and the subsequent enactment of § 105 of the Bankruptcy Code:
[In] Tenney v. Terry (In re Terry), 630 F.2d 634, 636 n.5 (8th Cir. 1980) . . . the Eighth Circuit held that the court could not sua sponte dismiss a Chapter 13 case following denial of confirmation of a plan. Subsequent to Terry, Congress amended § 105 to provide that the requirement of a request of a party in interest can be obviated and the court may proceed sua sponte to enter orders to “enforce or implement court orders or rules, or to prevent an abuse of process.” See 11 U.S.C. § 105(a). Section 105(a) does not dispense with the requirement of notice and a hearing, however.12
In Minkes, the bankruptcy court sua sponte dismissed a Chapter 13 case because the pro se debtor’s plan was “incomplete and incomprehensible.” The Eighth Circuit BAP explained that this dismissal was procedurally defective and was not supported by § 105(a):
The bankruptcy court proceeded sua sponte without the request of a party in interest or the United States Trustee, and the court was not enforcing or implementing court orders or rules or preventing an abuse of process. No notice was given to the debtor of the deficiencies with his plan, with an opportunity to either argue that the plan was not deficient or to correct the plan to meet the perceived problems.13
Minkes is a sound caution about the use of sua sponte powers to dismiss Chapter 13 cases. Section 105(a) is not carte blanche for independent action by bankruptcy judges to dismiss Chapter 13 cases. That the plan does not comply with the requirements for confirmation may be grounds to deny confirmation and/or to dismiss the case upon the motion of the Chapter 13 trustee, the U.S. trustee or a creditor; but § 105(a) will not support sua sponte dismissal of a Chapter 13 case based on failure of a condition for confirmation. Even when the Chapter 13 case threatens the implementation of court orders or rules or presents an abuse of process for purposes of § 105(a), sua sponte dismissal is not appropriate without notice to the debtor, the Chapter 13 trustee, the U.S. trustee and all creditors.
There are enough other interests at risk that bankruptcy courts should rarely, if ever, be the proponent of a motion to dismiss a Chapter 13 case. Sua sponte action confuses the rights and responsibilities of the true parties. Bankruptcy courts that routinely “show cause” Chapter 13 cases for dismissal without a motion by a party in interest discourage creditor diligence and distort the role of the bankruptcy judge as a judicial officer who decides, not creates, controversies. The Chapter 13 trustee, the U.S. trustee and creditors can be trusted to police Chapter 13 cases and to seek dismissals under § 1307(c) when and on terms that are appropriate.14
1 See In re Gore, 60 B.R. 869 (E.D. Mo. 1986) (Court affirms sua sponte dismissal of debtor’s third Chapter 13 petition; finding of bad faith is not clearly erroneous.); In re Fleury, 294 B.R. 1, 5 (Bankr. D. Mass. 2003) (“Although the statute does not specifically allow a court to dismiss a case on its own motion, courts now recognize that a court’s sua sponte dismissal is permitted through the 1986 amendments of 11 U.S.C. § 105.”); In re Pennino, 291 B.R. 842 (Bankr. W.D. Ark.) (Bankruptcy court dismisses debtor’s sixth Chapter 13 case pursuant to § 305 based on finding that sole purpose of the Chapter 13 case is delay while the debtor litigates a RICO action with respect to the Goddard Hotel in Hot Springs, Arkansas.), aff’d, 299 B.R. 536 (B.A.P. 8th Cir. 2003); In re Williams, No. 02-31639, 2002 WL 1477634 (Bankr. W.D.N.C. May 31, 2002) (unpublished) (On the court’s own motion, fourth Chapter 13 case is dismissed with an injunction prohibiting the debtor from filing in any U.S. bankruptcy court for one year.); In re Dent, 275 B.R. 625 (Bankr. M.D. Ala. 2002) (On bankruptcy court’s order to show cause, Chapter 13 case is dismissed with prejudice to refiling for 180 days and debtor’s attorney is sanctioned $500 for violations of Bankruptcy Rule 9011 when second case was filed less than two months after dismissal of prior case, debtor failed to commence making payments in both cases, second petition failed to reveal prior case and statement of financial affairs in second case failed to reveal prepetition repossession of car that debtor’s attorney claimed caused the hasty second filing.); In re W.F.C. Real Estate Trust #1, 236 B.R. 90 (Bankr. S.D. Fla. 1999) (Bankruptcy court sua sponte dismisses Chapter 13 case on ground that a trust cannot be a debtor under Chapter 13.); In re Falotico, 231 B.R. 35, 42 (Bankr. D.N.J. 1999) (Sua sponte dismissal with prejudice that no automatic stay will arise upon any future filing: debtor filed three Chapter 13 cases to stop a foreclosure, failed to pay taxes and to repair property with the result that mortgage holder is now unsecured, plan would pay next to nothing and debtor’s dealings with mortgage holder lacked good faith. “The court recognizes that dismissal of the instant case was not sought by Wilshire and that the debtor has not had formal notice of the court’s intent to dismiss his case. However, 11 U.S.C. § 105(a) provides . . . ample authority for its sua sponte dismissal of the case.”); In re Greene, 127 B.R. 805 (Bankr. N.D. Ohio 1991) (1986 amendments to § 105 make it “crystal clear” that the bankruptcy court has sua sponte authority to dismiss a Chapter 13 case. Case was dismissed without prejudice where debtor missed the 15-day time limits imposed by Bankruptcy Rules 3015 and 1007(c) by nine days, counsel offered no excuse for missing the deadlines, and counsel offered no assurance that counsel or debtor would meet future deadline.); In re Dilley, 125 B.R. 189, 198 (Bankr. N.D. Ohio 1991) (Nothing in the Code precludes sua sponte action to dismiss an abusive Chapter 13 case. Section 349(a) “appears to contemplate sua sponte action. Section 105(a) expressly provides for sua sponte action by the court.”); In re Fricker, 116 B.R. 431, 442 (Bankr. E.D. Pa. 1990) (“Although no interested party had filed a motion to dismiss this case, we have little doubt that, in light of the 1984 amendments to 11 U.S.C. § 105(a), we are empowered to dismiss a bankruptcy case sua sponte. . . . The instant case presents the rare instance where this extraordinary power . . . must be exercised if the sanctity of our orders and the requirements of the Bankruptcy Code are to merit respect. . . . The debtors by their counsel have proceeded in such a fashion as to convince us that they had filed and proceeded in this case in a convoluted and dilatory manner solely to further delay.”); In re Dyke, 58 B.R. 714 (Bankr. N.D. Ill. 1986) (involving sua sponte dismissal of second of debtor’s two pending Chapter 13 cases on “bad-faith” and “abuse of bankruptcy” grounds); In re Brooks, 51 B.R. 741 (Bankr. S.D. Fla. 1985) (Apparently on court’s motion, court dismisses case with prejudice to the filing of any bankruptcy case within a year where debtor could not reasonably cure the default on the only scheduled debt, a home mortgage.); In re Lewis, 51 B.R. 353 (Bankr. E.D.N.Y. 1985) (Apparently on court’s motion, court dismisses case where debtor fraudulently filed petition using her mother’s name in order to stay the foreclosure of real property legally titled in her mother and then moved to amend the caption of the petition to reveal the real debtor.).
2 See discussion of sua sponte conversion in § 312.2 [ Conversion Sua Sponte ] § 141.5 Conversion Sua Sponte.
3 See Hammers v. IRS (In re Hammers), 988 F.2d 32, 34–35 (5th Cir. 1993) (“While the Code does not expressly prescribe for sua sponte dismissal . . . the 1986 amendment to section 105(a) accommodates such a result.”); In re Fleury, 294 B.R. 1 (Bankr. D. Mass. 2003) (Sua sponte dismissal of a Chapter 13 case is not specifically authorized by the Bankruptcy Code, but it is permitted through the 1986 amendments of 11 U.S.C. § 105.).
4 See In re Pennino, 291 B.R. 842, 843–45 (Bankr. W.D. Ark. 2003) (“Section 305 . . . permits a court to dismiss a pending case regardless of the debtor’s eligibility for relief. . . . [A]bstention under 11 U.S.C. § 305 is appropriate. Not only is reorganization remote and patently not feasible, there is no valid purpose under these facts for a chapter 13 reorganization.”), aff’d, 299 B.R. 536 (B.A.P. 8th Cir. 2003).
5 11 U.S.C. § 305(a)(1) (emphasis added).
6 See § 332.1 [ Procedure, Timing and Form ] § 152.1 Procedure, Timing and Form. See, e.g., Muessel v. Pappalardo (In re Muessel), 292 B.R. 712, 717–18 (B.A.P. 1st Cir. 2003) (“The Bankruptcy Code requires ‘notice and a hearing’ before a Chapter 13 case may be dismissed. . . . The Bankruptcy Rules contemplate that dismissal by the bankruptcy court shall only occur after the parties, including the debtor, are notified of the reasons for dismissal and the date of the hearing. See Fed. R. Bankr. P. 1017(f). . . . [T]he bankruptcy court sua sponte dismissed the Debtor’s Chapter 13 case on alternate grounds without notice or a meaningful opportunity for the Debtor to be heard on those grounds. The bankruptcy court’s actions violated the Debtor’s fundamental rights to procedural due process and the express requirements of the Bankruptcy Code.”); Minkes v. LaBarge (In re Minkes), 237 B.R. 476, 478 (B.A.P. 8th Cir. 1999) (Bankruptcy court inappropriately dismissed Chapter 13 case sua sponte. “No notice was given to the debtor of the deficiencies with his plan, with an opportunity to either argue that the plan was not deficient or to correct the plan to meet the perceived problems.”); In re Falotico, 231 B.R. 35, 42 (Bankr. D.N.J. 1999) (“The court recognizes that . . . the debtor has not had formal notice of the court’s intent to dismiss his case. However, 11 U.S.C. § 105(a) provides . . . ample authority for its sua sponte dismissal of the case.”).
7 See, e.g., In re Head, 223 B.R. 648, 651 (Bankr. W.D.N.Y. 1998) (Based on a sua sponte “order to show cause” bankruptcy court dismisses Chapter 13 cases filed by nonresidents when it appears the cases were filed by “names” resident in Canada who were seeking to use the United States bankruptcy laws to manage their liability to Lloyd’s of London. “Counsel for the Debtors called attention to the international character of these cases even before he filed them. He did so in the course of seeking guidance from the Clerk’s office regarding local procedures, practices and customs. Consequently, when the cases were filed they were brought directly to the attention of this writer, as Chief Judge. It was immediately evident that the ‘residence’ addresses provided for some of the Debtors could not possibly be permanent residences, and it was evident from certain of the schedules and statements that the Debtors lived, worked and in most instances, owned substantial assets in Canada, though the schedules seemed conspicuously incomplete. Under 11 U.S.C. § 105(d), the Court issues a sua sponte ‘Order to Show Cause’ directing the Debtors and counsel to appear before the Court for the purpose of addressing these apparent deficiencies and for the issuance of further appropriate orders.”).
8 See §§ 331.1 [ Strategic Considerations: Consequences of Voluntary Dismissal ] § 151.3 Strategic Considerations: Consequences of Voluntary Dismissal and 336.1 [ Strategic Considerations ] § 152.6 Strategic Considerations.
9 630 F.2d 634 (8th Cir. 1980).
10 630 F.2d at 636 n.5.
11 237 B.R. 476 (B.A.P. 8th Cir. 1999).
12 237 B.R. at 478 n.2.
13 237 B.R. at 478. Accord Muessel v. Pappalardo (In re Muessel), 292 B.R. 712 (B.A.P. 1st Cir. 2003) (Bankruptcy court’s sua sponte dismissal of Chapter 13 case on alternative ground without notice or opportunity to be heard violated procedural due process.); In re Lewis, 227 B.R. 886, 890 n.7 (Bankr. W.D. Ark. 1998) (In a note, “[i]n light of the overwhelming evidence of bad faith, the Court directed that the case be dismissed. 11 U.S.C. § 1307, however, permits dismissal only upon request of a party in interest and after notice and hearing. The Court does not have the authority to sua sponte direct dismissal of a chapter 13 case without notice and hearing when the determination regarding dismissal is based on a determination of the merits of a chapter 13 plan. [Tenney v. Terry (In re Terry),] 630 F.2d 634 (8th Cir. 1980) . . . . See In re Meints, 222 B.R. 870 (D. Neb. 1998) (bankruptcy court has authority to dismiss chapter 13 case sua sponte for grounds other than those going to merits of the plan).”).
14 See In re Conley, 105 B.R. 116 (S.D. Fla. 1989) (When the parties filed a stipulation for dismissal of a Chapter 13 case without prejudice, it was held to be inappropriate for the bankruptcy court on its own motion to enter an order of dismissal with prejudice to the filing of a bankruptcy case within one year.).