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Bankruptcy Code § 707(a) provides that a chapter 7 case may be dismissed “for cause,” including for (1) unreasonable delay, (2) nonpayment of fees or (3) failure to timely file certain information. However, “cause” is not defined, and the statutory examples are illustrative, not exhaustive. Currently, there is a circuit split as to whether bad faith can be “cause.”
In 1991, the Sixth Circuit recognized that bad faith can support § 707(a) dismissal. Today, a majority of circuits agree. The Third Circuit permits § 707(a) dismissal for bad faith, instructing that courts “determine good faith only on an ad hoc basis and must decide whether the petitioner has abused the provisions, purpose, or spirit of bankruptcy law,” with the understanding that bad faith “should not [be] lightly infer[red].” The Fifth Circuit recognizes that a debtor’s pre- and post-petition behavior can support § 707(a) dismissal for bad faith, even if other Code provisions arguably encompass the conduct. The Eleventh Circuit has held that bad faith may constitute “cause” under § 707(a), and applies a totality-of-the-circumstances approach. The Second Circuit has not yet addressed the issue; however, a bankruptcy
court in that circuit has indicated that if dismissal for bad faith is permitted, a “stringent standard” is proper. By contrast, the Ninth Circuit has held that while “bad faith per se can properly constitute ‘cause’ for dismissal of a Chapter 11 or Chapter 13 petition,” as a general proposition it cannot constitute “cause” for dismissal of a chapter 7 petition under § 707(a). The Eighth Circuit has held that while some conduct giving rise to dismissal under § 707(a) can be characterized as bad faith, the inquiry is properly whether the petition should be dismissed “for cause.”
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