Legal Definitions - bad-faith filing

A bad-faith filing in bankruptcy refers to the act of submitting a bankruptcy petition for reasons that are inconsistent with the fundamental goals of bankruptcy law, or in a way that exploits or abuses the bankruptcy system. This means the filing is not made with honest intentions to genuinely seek financial relief or fairly resolve debts, but rather for an ulterior motive. If a court determines that a bankruptcy petition was filed in bad faith, it has the authority to dismiss the case.

Here are some examples illustrating a bad-faith filing:

• Example 1: Delaying Foreclosure Without Intent to Pay

  A homeowner facing an imminent foreclosure sale files for Chapter 13 bankruptcy just hours before the scheduled auction. However, the homeowner has no stable income, has made no mortgage payments for over a year, and has no realistic plan or intention to propose a viable repayment plan to catch up on their mortgage. Their sole purpose in filing is to trigger the "automatic stay," a legal protection that temporarily halts collection actions, thereby delaying the foreclosure for a few months without any genuine effort to reorganize their finances.

  This illustrates a bad-faith filing because the homeowner is using the bankruptcy system's protective mechanisms (the automatic stay) not to genuinely reorganize their debt or save their home, but merely to buy time and delay creditors, which is an abuse of the system's intended purpose.

• Example 2: Concealing Assets Before Filing

  A business owner, anticipating a significant personal judgment from a lawsuit, quickly transfers ownership of their valuable vacation home and luxury car to a newly formed company owned by their spouse and children, for little to no compensation. Shortly thereafter, the business owner files for Chapter 7 bankruptcy, claiming minimal assets. The primary motivation for these transfers and the subsequent bankruptcy filing was to shield these assets from creditors and avoid paying the judgment, rather than to honestly liquidate assets and distribute them fairly among creditors.

  This demonstrates a bad-faith filing because the debtor engaged in pre-bankruptcy maneuvers to hide assets and manipulate their financial situation, undermining the principle of transparency and fair distribution to creditors that is central to bankruptcy law.

• Example 3: Repeated Filings to Harass Creditors

  An individual has a history of filing multiple bankruptcy petitions (e.g., Chapter 7, then Chapter 13, then another Chapter 7) within a short period, often having each case dismissed by the court for failing to provide required documents, attend meetings, or make proposed payments. Each time a new petition is filed, it temporarily stops creditors from pursuing collection efforts. This pattern suggests the individual is not genuinely seeking a fresh start or attempting to resolve their debts through the bankruptcy process, but rather is using the system repeatedly to delay or frustrate creditors without any real intent to complete a bankruptcy case.

  This is an example of a bad-faith filing because the repeated, unsuccessful filings indicate an abuse of the bankruptcy system's automatic stay provision, using it as a tool for harassment or delay rather than for its legitimate purpose of providing a structured path to financial relief.