What Does it Mean to File for Bankruptcy in Bad Faith?

If you file for bankruptcy "in bad faith", your case can be dismissed and you can face serious consequences.

Every bankruptcy case has an inherent good faith filing requirement. In general, when a case is considered to be filed in bad faith, it means that there was an abuse of the bankruptcy system. Read on to learn more about what can constitute a bad faith bankruptcy filing.

For more information on filing considerations, see Should I File for Bankruptcy?

What Is a Bad Faith Bankruptcy Filing?

If the totality of the circumstances surrounding a bankruptcy indicates an abuse of the system, the filing will be deemed to be in bad faith. If you file for bankruptcy simply to delay creditors, misrepresent or omit information on your petition, or otherwise try to take advantage of the bankruptcy system, the court may find your filing to be in bad faith.

A bad faith bankruptcy filing can have serious consequences (discussed below). As a result, it is not a good idea to file for bankruptcy relief if you don’t plan to complete your case or be honest in your paperwork.

Characteristics of a Bad Faith Bankruptcy Filing

Bankruptcy courts look at the totality of the circumstances surrounding a bankruptcy to determine bad faith. There are numerous factors that can indicate a bad faith filing. The following are some of the most common factors courts consider when deciding whether a bankruptcy was filed in bad faith:

  • the frequency and number of  prior bankruptcy filings and dismissals
  • whether the debtor misrepresented or omitted any information in the petition
  • whether the bankruptcy is feasible or filed simply to delay creditors
  • whether the debtor has shown the intention to complete the bankruptcy by complying with all court rules and procedures after filing the case
  • whether the debtor financed any luxury items (such as an expensive car) prior to filing to increase his or her expenses, and
  • any other egregious conduct.

Consequences of Filing for Bankruptcy in Bad Faith

Filing a bankruptcy in bad faith can get you in trouble. The consequences of a bad faith filing can vary depending on how egregious your conduct was and whether you own any nonexempt assets. But they can include dismissal of your bankruptcy, forever losing the right to discharge debts existing at the time of your filing, and loss of your nonexempt assets.

If you file for bankruptcy just to delay your creditors and fail to disclose all of your property, you may end up losing your nonexempt assets. This can happen even if you filed for  Chapter 13 bankruptcy  where you can normally keep all of your property including nonexempt assets. For example, if you file for Chapter 13 bankruptcy but intentionally omit assets on your petition, the court has the power and discretion to force a conversion of your case to a  Chapter 7  bankrutpcy  so that your nonexempt property can be sold to satisfy your debts.

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