3rd Circuit: Bankruptcy Code Does Not Prohibit a Bankruptcy Court from issuing a Filing Injunction Against a Debtor who Requests Voluntary Dismissal under 11 U.S.C. § 1307(b)

3rd Circuit: Bankruptcy Code Does Not Prohibit a Bankruptcy Court from issuing a Filing Injunction Against a Debtor who Requests Voluntary Dismissal under 11 U.S.C. § 1307(b)

The Debtor appeals from a broad filing injunction issued against him by the Bankruptcy Court after he and his wife used the bankruptcy process to stave off the sheriff’s sale of their home. The Debtor argues that, as a matter of law, a bankruptcy court may never issue a filing injunction against a Chapter 13 debtor who requests voluntary dismissal under 11 U.S.C. § 1307(b) because doing so would undermine the debtor’s statutory rights.

The Appellant and his wife fell behind on their mortgage and the sheriff scheduled a foreclosure sale on their home. The day before the sheriff’s sale, the Appellant—acting alone, without his wife—filed the first of the couple’s three relevant Chapter 13 bankruptcy petitions.

The Debtor’s first petition triggered Chapter 13’s automatic stay and put a halt to the sheriff’s sale, but was dismissed about six months later after the Appellant failed to make required payments. AmeriChoice rescheduled the sheriff’s sale for August 27, 2014.

On the day of the rescheduled sale, the Appellant filed a second Chapter 13 petition—the one that led to this appeal— stalling the sale for a second time. The Bankruptcy Court quickly granted AmeriChoice relief from the automatic stay, and the sheriff’s sale was rescheduled yet again, this time for October 29, 2014. On that day, however, the Appellant’s wife filed her own Chapter 13 petition, delaying the sale of the couple’s property a third time. A  week later the court dismissed wife’s petition for failure to obtain required pre-petition credit counseling.

In Appellant’s second case, AmeriChoice filed a motion under 11 U.S.C. § 1307(c) to either convert Raymond’s case to Chapter 7 or dismiss it altogether due to what AmeriChoice saw as Appellant’s bad faith use of the bankruptcy process. The court set a hearing, but Appellant requested that his case be dismissed pursuant to § 1307(b) one day before the hearing.

The Appellant did not appear at the hearing on AmeriChoice’s motion. AmeriChoice did appear, and indicated that its preference would be for the Bankruptcy Court to convert Appellant’s case to Chapter 7; dismissal was its second choice. If the Bankruptcy Court decided to dismiss, AmeriChoice requested that the court also issue one of two proposed filing injunctions: a filing injunction “barring future filings [of both Appellant and his wife] for 180 days,” or a filing injunction “barring the use of the automatic stay in any future filings by either one of them.” The Bankruptcy Judge expressed due process concerns with the prospect of issuing an order that extended to Sandra because the hearing was held only in Appellant’s case and his wife had not been given notice. The Judge instead suggested that if AmeriChoice wanted a filing injunction entered against the wife, it should return to the wife’s case and request one there. Neither the Bankruptcy Judge nor AmeriChoice mentioned or discussed the Appellant’s request for dismissal at the hearing. Following the hearing, the Bankruptcy Court issued an Order dismissing Appellant’s case “with prejudice,” and further providing that “the Debtor is not permitted to file another bankruptcy case without express permission from this Court.”

AmeriChoice took the Bankruptcy Judge’s advice and a week later filed a motion in wife’s case, requesting that a filing injunction be entered against her as well. The Bankruptcy Judge granted the motion, but this time the order extended only to what AmeriChoice requested: wife was “enjoined from filing another bankruptcy for 180 days of the date of this Order,” and the automatic stay was not to “operate against actions to enforce [AmeriChoice’s] mortgage foreclosure judgment” on the couple’s property.  Wife lost an appeal in the district court, and did not further appeal her case. The Appellant unsuccessfully appealed his second case to the District Court, and then filed the present appeal.

In the midst of this litigation, AmeriChoice completed the sheriff’s sale, only to have the foreclosure undone when the Pennsylvania Superior Court held that the couple never received proper notice in the state action.

The lone unsettled issue is the Bankruptcy Court’s filing injunction against the Appellant, which remains in place.

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