Georgia Bankruptcy Blog

I mentioned In re Grasso in a prior post discussing the Northern District's General Order regarding Section 521(i) dismissals. In that case, due to an error of the debtor's counsel, and not the debtor, tax returns were not timely provided to the trustee as required under 521(e)(2)(A).  The court held that although the statute uses the word "shall" in two places, the trustee had the discretion to not file a motion to dismiss just as the trustee has the discretion to not pursue other causes of action. 

The meat of the opinion is ---

Although § 521(e)(2) uses the word "shall" twice, at least one bankruptcy court has held that trustees' prosecutorial discretion allows them the authority to decline to file a motion to dismiss despite untimely filings under § 521(e)(2)(A). In re Duffus, 339 B.R. 746, 748 (Bankr. D. Or. 2006) (holding trustee has discretion to waive untimely filing under § 521(e)(2)(A) by declining to file a motion to dismiss); cf. Rooney v. Thorson (In re Dawnwood Properties), 209 F.3d 114, 117 (2d Cir. 2000) (indicating trustee has discretion to pursue malpractice claims, let them lie, or abandon them in order to allow the debtor to proceed with an action); Society Bank v. Sinder (In re Sinder), 102 B.R. 978, 984 (Bankr. S.D. Ohio 1989) (holding trustee has discretion to decline to pursue avoidance actions); In re V. Savino Oil & Heating Co., Inc., 91 B.R. 655, 656 (Bankr. E.D.N.Y. 1988) (indicating commencement of avoidance litigation by a trustee is permissive and not mandatory); In re Airlift Intern., Inc., 18 B.R. 787, 788 (Bankr. S.D. Fla. 1982) (stating the decision to cease operation of a business is within the discretion of the trustee). The Duffus court reasoned that Congress did not intend that § 521(e)(2) require mandatory dismissal because the language in § 521(e)(2) differs from the language in other sections of BAPCPA that do require mandatory dismissal. Duffus, 339 B.R. at 748. "Where the Congress intended that a case be dismissed automatically, and without need for a motion, it said as much." See § 521(i)(1). n2 Nothing in § 521 suggests that the Trustee's motion was required." Id.

If the Trustee has no discretion to waive an untimely filing under § 521(e)(2)(A), then dismissal would be automatic upon the Trustee's motion coming to the Court's attention, unless the debtor can satisfy § 521(e)(2)(B). Congress simply did not impose such a requirement. There is nothing in the language of § 521(e)(2) that suggests that Congress intended to limit the discretion traditionally exercised by trustees in performing their duties under federal bankruptcy law. This Court will not limit such discretion by implication. If anything, the language of § 521(e)(2)(B) was likely intended to limit the Court's discretion regarding the dismissal of a case for failure to timely deliver tax returns to the trustee as required under § 521(e)(2)(A). If a trustee or other party in interest brings a debtor's failure to timely comply with § 521(e)(2)(A) to the Court's attention, the Court must dismiss the case, unless the debtor can establish that such failure is excused as being due to circumstances beyond the debtor's control within the meaning of § 521(e)(2)(B).

Note that this case does not involve a Section 521(i) dismissal, which states that the case is automatically dismissed upon the debtor's failure to file documents required by §521(a)(1) except  "the court may decline to dismiss the case if the court finds that the debtor attempted in good faith to file all the information required by subsection (a)(1)(B)(iv) and that the best interests of creditors would be served by administration of the case."   Presumably, the "automatic dismissal" is also dependent on the moving party's compliance with the Northern District's General Order.

Thus, the words "shall" and "automatic" in the BAPCPA do not necessarily follow the plain meaning doctrine.  Does this provide courts with enough wiggle room to not dismiss a case when no one complains, or when in the best interest of creditors notwithstanding the debtor's failure to meet the good faith test?  Is there a limit to the court's discretion, but not the trustee's?  Will the courts resort to §105 to rewrite the statute?

There's more to this than appears. Take an involuntary chapter 7, alleged debtor wants no part of the bankruptcy case. An order for relief is entered tying up debtor with possession of his property taken. Since the petition alleges no controversy, the judge was without authority under Article III of the Constitution so the order for relief is void. So what the code does, as a policy matter, is deprive someone of property in violation of the 5th amendment. They all know this. To limit this situation, the period of which the debtor must suffer is limited. For example, the 341 meeting is usually required within 40 days less 7 for tax returns means that the case shall be dismissed in 33 days, ending the administration and debtors constitutional delemma. Therefore, a debtor is subjected to constitutional deprivation in a "soft" way that ends in 33 days. If the court does not dismiss by itself, then how would the situation resolve itself?