This paper discusses case law developments as of 2005 regarding a debtor’s bad faith filing of a Chapter 7 case as grounds for dismissal under § 707(a).
In the case In re Pedigo, 296 B.R. 485 (S.D. Ind. 2003), on the U.S. Trustee’s motion to dismiss under § 707(a), the court held that a debtor’s “bad faith” in filing for relief under Chapter 7 does not constitute “cause for dismissal. The court also held that § 707(a) does not subsume § 707(b)’s concept of “substantial abuse” as it applies to a debtor whose debts are primarily business debts, and Pedigo’s debts were primarily business, so § 707(b) is inapplicable.
The motion to dismiss was denied, and the U.S. Trustee then appealed the decision to the District Court on the issue of whether under § 707(a) “cause” for dismissal includes “bad faith.” The District Court reversed and remanded the matter, holding with a majority of courts that “bad faith” constitutes “cause” for purposes of § 707(a).
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