What is Bad Faith in Bankruptcy?
When courts dismiss bankruptcy cases due to “bad faith,” or when a creditor uses the term “bad faith” in a bankruptcy proceeding, what should a debtor know? First, our West Palm Beach bankruptcy attorneys want to emphasize that you should not worry about accusations of bad faith when you are working with an experienced advocate on your case. These allegations do not arise with frequency, and you should not anticipate that your bankruptcy case will be impacted by the issue of bad faith. Yet we do want to be clear about what bad faith can entail since this phrase or term is often used in discussions of involuntary bankruptcy dismissals and in cases involving allegations of bankruptcy fraud.
Defining Bad Faith
A wide range of areas of civil law have specific definitions of bad faith, and there the precise definition of bad faith can change in different contexts. To be clear, the specific acts or omissions that constitute bad faith in contracts or commercial transactions are distinct from the specific acts or omissions that can constitute bad faith in a bankruptcy case. However, the Cornell Legal Information Institute (LII) does provide a general definition of bad faith:
“Bad faith refers to dishonesty or fraud in a transaction. Depending on the exact setting, bad faith may mean a dishonest belief or purpose, untrustworthy performance of duties, neglect of fair dealing standards, or a fraudulent intent.”
Bankruptcy bad faith can occur in personal and business bankruptcy cases, and it is not limited to a specific chapter of bankruptcy. To be sure, concerns about bad faith can arise in Chapter 7, Chapter 11, Chapter 12, and Chapter 13 bankruptcy cases in South Florida.
How Bad Faith Can Happen in Bankruptcy Cases
What does bad faith typically entail in a bankruptcy case specifically? Bad faith can take many forms, but the following are common situations in which concerns about bad faith will arise in a personal or business bankruptcy case:
- Filing for bankruptcy solely to stop a foreclosure — or to otherwise stop creditors — with the automatic stay, with plans to have the bankruptcy case dismissed before it can be closed (in other words, only filing to benefit from the automatic stay without intending to complete the bankruptcy case;
- Failing to disclose certain non-exempt assets in a liquidation bankruptcy;
- Hiding property in a Chapter 7 case that is set to be liquidated;
- Providing inaccurate or misleading information on a bankruptcy filing and any related documents;
- Intentionally failing to complete a debtor education course or failing to complete another bankruptcy requirement solely in order to have a bankruptcy case dismissed; or
- Inaccurately reporting income.
Contact Our West Palm Beach Bankruptcy Lawyers Today
Whether you are facing allegations of bad faith in a bankruptcy case, or you want to learn more about bad faith or other issues that could arise in a bankruptcy proceeding, you should get in touch with an experienced West Palm Beach bankruptcy lawyer at Kelley, Kaplan & Eller today. One of the attorneys at our firm can learn more about your individual circumstances or the circumstances of your business, and we can assist you with any concerns you have about a personal or business bankruptcy in South Florida.
Sources:
law.cornell.edu/wex/bad_faith
abi.org/member-resources/blog/a-court-may-dismiss-a-bankruptcy-case-filed-in-bad-faith
