Tag Archives: Dismissal

You Do Not Have To Immediately Dismiss A State Court Lawsuit If The Defendant Files Bankruptcy

By Ryan C. Wood

This issue comes up all the time.  What I always hope is the creditor or plaintiff just dismisses the state court lawsuit without prejudice upon the filing of the bankruptcy petition.  The automatic stay goes into effect stopping any and all collection activity including lawsuits.  It just saves time and money for all parties.  Of course it is not that simple and I will discuss this issue in more detail below.  The important part is continuing status conferences or just maintaining the status quo and not dismissing the state court lawsuit once the defendant files for bankruptcy protection is not a willful violation of the bankruptcy automatic stay.  A recent Ninth Circuit Bankruptcy Appellate Panel decision addressed this issue.  See Jerome E. Perryman v. Karen Dal Pogetto, BAP No. NC-21-1036-BFS, Bk. No. 19-10253 (9th Cir. BAP 2021)

“Continuances like these keep the matter against the debtor ‘on hold’ consistent with the stay; they do not advance the matter in the creditor’s favor.”

See In re Welsch, 602 B.R. 682, 686 (Bankr. N.D. Ill. 2019) (holding that continuances in a prepetition domestic relations proceeding did not violate the automatic stay)

See In re Cobb, 88 B.R119, 120 (Bankr. W.D. Tex. 1988) (holding that a status hearing does not violate the automatic stay because it does not move the case forward to a judicial determination).

Just Maintaining The Status Quo In The State Court Lawsuit Not Willful Violation of The Automatic Stay

I really do not see the utility in continuing to have status conferences in a state court case that is dead or soon to be dead.  Each status conference requires a pre-conference statement be filed and then only thing to be communicated is the state court lawsuit is stayed until further notice.  It would make sense to then order the plaintiff to only schedule a status conference in the event there is no longer a stay in the bankruptcy case.  For some reason this does not always happen.  The only reason I can come up with is the plaintiff’s attorney wants to incur the time and bill their client.  The thing is more often not an attorney for the plaintiff has no interest in saving time and money.  The state court attorney that filed the lawsuit just got the rug pulled out from under them.  They may very well want to continue to appear for status conferences and have to file preconference statements before every conference.  They want to bill their client for that so …….

It Does Unnecessarily Increase Expenses

It is difficult enough for most bankruptcy attorneys to get paid for their time without complications.  So anything that increases the time I have to spend to get the job done is not good.  This is one of those issues.  I quote a client a fee for their case with the hope certain things play out as I plan and the amount I quoted is an amount I can make money on.  That is the deal.  When a creditor and/or their attorney choose to not dismiss the pre-bankruptcy state court lawsuit I have to spend additional time dealing with and explaining to my client what is going on and why, why a status conference statement continues to be filed in the state court case or why there continue to be status conferences.  It is just so much simpler and cheaper for the plaintiff to dismiss the state court lawsuit without prejudice.  If the defendant bankruptcy filer does not receive a discharge in their bankruptcy case the plaintiff/creditor can file the lawsuit again.  Or even better file a notice of stay of proceedings.  In California this is judicial council form CM-180.  If a defendant/debtor has made an appearance in the state court litigation under California law the defendant/debtor has the duty to file the notice of stay of proceeding.  Plaintiffs rarely if ever file a notice of stay of proceedings in the state court case. 

So in the Chapter 7 case upon entry of the order of discharge the state court lawsuit must be timely dismissed given the underlying claim is in fact legally discharged.

In a Chapter 13 case things get more complicated given a discharge is not received until after completion of the Chapter 13 Plan.  That could be as long as five years after the case is filed.  So in theory for five years a plaintiff could request the state court keep scheduling status conferences until the Chapter 13 Plan is complete and a discharged entered.  This is a common practice for foreclosure sale dates.  Upon the filing of a bankruptcy case a pending foreclosure sale of real property is stayed or stopped. 

Chapter 7 Case Versus Chapter 13 Case

As I began to discuss above there are differences whether the bankruptcy case filed is Chapter 7 or Chapter 13.  In Chapter 7 bankruptcy the debtor will most likely receive their discharge in 3 to 4 months after the petition is filed.  So the state court case can only be an issue for this short period of time even if not dismissed.  So one status conference is held or continued while the Chapter 7 case is still pending.  No big deal and this does not substantially increase bankruptcy attorneys time and expenses.  If the state court law is not dismissed upon entry of the debtor/defendant’s discharge then at some point it has to be a willful violation of the automatic stay.  In a Chapter 13 bankruptcy filing the Chapter 13 Plan is usually either 36 months or the maximum 60 months.  There can be five years for status conferences and status conference statements to deal with?  Potentially yes when the state court lawsuit is not dismissed.  Even of the notice of stay of proceeding is filed the state court could still choose to have periodic status conferences.  The entire point is to be ready to go in state court if for some reason the Chapter 13 case is dismissed.   Some Chapter 13 cases are filed to stop foreclosures or state court lawsuits temporarily with no intent to actually confirm a Chapter 13 Plan of Reorganization.  These case usually use the minimum documents, or a skeletal petition, to get the case started.  If a skeletal petition is filed then it is unclear whether the case will continue and the petition completed.  In this case it is perfectly reasonable to not dismiss the state court lawsuit unless the petition is completed and then a Chapter 13 Plan is confirmed or approved by the Court.  In a Chapter 13 case the end of the rode for creditors should be when a Chapter 13 Plan is confirmed or approved.  After that the debtor/defendant need only complete the plan to receive their discharge so why not dismiss the state court lawsuit at this point?  Well, the debtor/defendant has not completed the Chapter 13 Plan and received their discharge.  This is the, “So you say’ in I got a chance” syndrome.   At the off chance that the Chapter 13 case is dismissed the state court lawsuit is still there to be continued.

How Can I Try to Dismiss a Chapter 13 Case if I am a Creditor?


If you are owed money and just received a notice of meeting of creditors and deadlines in the mail time is of the essence. Once a bankruptcy case is filed it sets in motion a number of deadlines that are extremely important to creditors. If you are a creditor then mostly likely you may have an interest is trying to get the Chapter 13 bankruptcy case dismissed in its entirety to prevent the discharge of the debt owed to you. So how can a chapter 13 case be dismissed prior to approval or confirmation of the Chapter 13 Plan?

Review the Filed Petition and Attend the Meeting of Creditors

Once the case is filed there is a limited amount of time to review the bankruptcy petition and chapter 13 plan. The meeting of the creditors is scheduled about 30 days after the case is filed. In most jurisdictions objections to approval or confirmation of the chapter 13 plan must be filed on or before the first scheduled meeting of the creditors. Depending upon the type of debt you are owed (secured, priority or general unsecured) the plan will provide how the different types of debts will be treated in the plan. If you have a secured claim or priority claim then generally the plan should provide for full payment over the life of the plan. If you have a general unsecured claim then you will receive a percentage of what you are owed. In the majority of Chapter 13 cases general unsecured creditors receive less than 10% of their claim or less. If the debtor is not treating your claim properly or is not committing all of their monthly disposable income to the chapter 13 plan your bankruptcy attorney may have grounds to file an objection to confirmation or approval of the chapter 13 plan on your behalf.

Objection to Confirmation of the Chapter 13 Plan

The most basic procedure to try and dismiss a chapter 13 case is to object to the confirmation of the chapter 13 plan. To object to the plan you need to have the proper grounds though. Section 1325 of the Bankruptcy Code provides the requirements to confirm a chapter 13 plan. If the proposed plan does not meet the requirements of Section 1325 you can object to approval of the plan. If the plan does not treat your claim properly under state law or the bankruptcy code you may object to confirmation of the plan. Generally the bankruptcy filer’s bankruptcy lawyers will try and work out the problem so that you will withdraw the objection to confirmation of the plan. If no solution can be agreed upon then a confirmation hearing will have to take place for the judge assigned to the case to decide who is right and whether the chapter 13 plan can be confirmed over the objection. If the court agrees and sustains your objection to confirmation of the chapter 13 plan, then the court may allow the debtor to amend the plan again. Eventually the court will seek dismissal of the chapter 13 case if a confirmable plan cannot be submitted within a reasonable amount of time.

Seek Dismissal Pursuant to Section 1307 of the Bankruptcy Code

If the chapter 13 case is just dragging on and on with little to no progress, then a party-in-interest, creditor or trustee may file a motion with the court to request a hearing and dismissal for unreasonable delay. A recent Ninth Circuit Bankruptcy Appellate Panel case discussed this process and procedure. The case, In re Debra Sue Phillips, BAP No. NV-14-1359-JuKuD, the debtor, Debra Sue Phillips, appeals the bankruptcy court’s dismissal of her chapter 13 case pursuant to Section 1307(c) of the Bankruptcy Code.

Section 1307(c) provides that a bankruptcy court may either dismiss or convert a chapter 13 case for cause, whichever is in the best interest of creditors.

– Section 1307(c)(1) provides dismissal or conversion for unreasonable delay that is prejudicial to creditors. In reality the Chapter 13 Trustee’s office will seek dismissal under 1307(c)(1) if the case is dragging on without confirming a chapter 13 plan. § 1307(c)(1). “A debtor’s unjustified failure to expeditiously accomplish any task required either to propose or confirm a chapter 13 plan may constitute cause for dismissal under § 1307(c)(1).” Ellsworth v. Lifescape Med. Assocs., P.C. (In re Ellsworth), 455 B.R. 904, 915 (9th Cir. BAP 2011)
– Section 1307(c)(2) provides for dismissal or conversion for nonpayment of any fees and charges required under chapter 123 of title 28.
– Section 1307(c)(3) provides for dismissal or conversion for failure to file a plan tmely under section 1321 of this title. Rule 3015 provides that a plan is untimely unless it is filed within fourteen days of the petition date. Subsequent plans required by the court are also subject to § 1307(c)(3). Ellsworth v. Lifescape Med. Assocs., P.C. (In re Ellsworth), 455 B.R. at 916.
– Section 1307(c)(4) provides dismissal or conversion for failure to commence making timely payments under section 1326 of this title.
– Section 1307(c)(5) provides for dismissal or conversion upon the denial of confirmation of a plan under Section 1325 of this title and denial of a request made for additional time for filing another plan or modification of a plan.
– Section 1307(c)(6) provides for dismissal or conversion upon a material default by the debtor with respect to a term of a confirmed plan.

If the court finds there is sufficient cause and proper additional grounds then the court must choose conversion to chapter 7 or dismissal of the case entirely. Okay, well, what is cause then? Cause is not specifically defined in the Bankruptcy Code in Section 101 (Definitions). In the Phillips case Section 1307(c)(5) was the section cited to request dismissal. Under Section 1307(c)(5) the first element for there to be cause is denial of confirmation of the Chapter 13 plan and denial of leave to amend and file a new plan. Nelson v. Meyer (In re Nelson), 343 B.R. 671, 674-75 (9th Cir. BAP 2006) In the Phillips case at the time of the hearing on the motion to dismiss the Phillip’s bankruptcy attorneys did not have a current plan on file and the court had denied confirmation of the prior seven proposed chapter 13 plans. The court in Phillips also gave Phillips ten weeks to file an eighth amended plan for consideration, but Phillips did not file an eighth amended chapter 13 plan. The bankruptcy court found cause under Sections 1307(c)(1) and (c)(3) to dismiss the case.

The court must also consider the best interests of creditors when deciding whether to dismiss or convert a case to Chapter 7. In the Phillips case neither the trustee’s motion or the debtor requested or considered conversion to Chapter 7. Accordingly, the 9th Circuit Bankruptcy Appellate Panel affirmed the bankruptcy court’s granting of the trustee’s motion to dismiss the case.