Sixth Circuit Upholds Chapter 13 Debtor’s Right to Request and Obtain Dismissal of Bankruptcy Case | Favor Swift Collins & Smith


A law must be interpreted and applied as it is written, regardless, according to the United States Court of Appeals for the Sixth Circuit, “whether or not a court likes the results of that claim in a particular case.” . This legal maxim has guided the reasoning of the Sixth Circuit in a recent decision[1] in a case involving repeated filings of a Chapter 13 debtor and requests to dismiss his bankruptcy cases in order to avoid foreclosure of his home.

In short, the Sixth Circuit held that if a Chapter 13 debtor requests that their case be dismissed and no exceptions apply, a bankruptcy court must dismiss them.

The underlying facts

The case concerns a Chapter 13 debtor, Ronald Smith, who obtained a loan to buy a house. Smith defaulted on the loan, was sued by the mortgage holder, and in 2007 a state court scheduled a foreclosure sale.

Four days before the sale, Smith filed for bankruptcy, causing the sale to be suspended automatically. After the sale date passed, Smith filed a motion to dismiss the case, which the bankruptcy court granted. Smith did the same in 2017 when another foreclosure sale of his home was scheduled, and again, the bankruptcy court dismissed his case after the foreclosure sale was canceled.

In 2019, the U.S. bank bought the mortgage on Smith’s house and a foreclosure sale was scheduled. On the day the sale was due to take place, Smith filed for bankruptcy and six days later filed a motion to dismiss the case, which the bankruptcy court granted.

Subsequently, US Bank filed a petition under Federal Rule of Civil Procedure 60 (b) (as incorporated by Bankruptcy Rule 9024) requesting that the bankruptcy court rescind its order dismissing the case. The bankruptcy granted the petition and also lifted the automatic stay in Smith’s case for a period of two years.

Smith appealed to the district court and requested a stay of the bankruptcy court order reinstating his case. The district court dismissed the petition but certified for interlocutory appeal whether the reinstatement of the Smith case was against the law. Smith then appealed to the Sixth Circuit. The specific issue on appeal was whether the district court abused its discretion when it ruled that the bankruptcy court could reinstate Smith’s Chapter 13 case.

The Sixth Circuit Decision

The case was based on what the Sixth Circuit described as a “straightforward legal rule,” the requirement (subject to an exception not applicable in this case) in 11 USC §1307 (b) that if a debtor in a Chapter 13 case decides to dismiss their case, “the court will dismiss it.”

The Sixth Circuit, ruling in favor of the debtor, declared that, by its plain terms, the right to terminate in 11 USC §1307 (b) is mandatory. He explained that the U.S. bank has given no support to its argument that § 1307 (b) is discretionary in cases where the debtor filed its bankruptcy claim in bad faith.

The Sixth Circuit rejected the US bank’s argument that the US Supreme Court’s case concerning Marrama c. Citizens Bank of Massachusetts provides grounds for upholding the district court’s decision. In that case, the Supreme Court declared in dictum that a bankruptcy court, considering whether it should grant a debtor’s request to convert a debtor’s Chapter 7 case into a debtor case. under Chapter 13, could have dismissed the petition on 11 USC §105 (a), which gives bankruptcy courts equitable power to take any action “which is necessary or appropriate to carry out the provisions of this Title” or “to prevent abuse of process ”.

The Sixth Circuit noted that two other circuits of the United States Court of Appeals cited this saying when ruling that a bankruptcy court may dismiss a debtor’s motion to dismiss a Chapter 13 case if the debtor filed his claim in bad faith. However, the Sixth Circuit explained that the Supreme Court itself largely rejected this saying in the case of Law v. Siegel, which was decided in 2014.

In Law v. Siegel, the Supreme Court declared that “[a]t most, Marrama’s dictum suggests that, in certain circumstances, a bankruptcy court may be permitted to dispense with frivolous procedural niceties in order to more quickly achieve an end result required by the Code. §1307 (b) is “not just a procedural subtlety”.

The Sixth Circuit also rejected the argument of the Bank of the United States that Federal Rule of Civil Procedure 60 (b) (3), which allows a court to “release a part” of a final order due to fraud, “misrepresentation or bad conduct on the part of an opposing party” allowed the bankruptcy court to overturn its dismissal of Smith’s bankruptcy case.

However, as the Sixth Circuit explained, when there is a conflict between the Bankruptcy Code (in this case 11 USC §1307 (b)) and the Bankruptcy Rules, that conflict must be resolved in favor of the Bankruptcy Code. The Bankruptcy Code orders the court to dismiss a Chapter 13 on a request from a debtor.

Therefore, the Sixth Circuit ruled in the debtor’s favor and returned the case with directions for the bankruptcy court to dismiss Smith’s Chapter 13 bankruptcy case.

[1] Ronald J. Smith v US Bank National Association, Case n ° 20-3150 (6e Cir., June 9, 2021)


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