United States Court of Appeals
For the First Circuit
No. 07-2736
In Re IVÁN ACOSTA-RIVERA AND AÑA A. BALSEIRO-CHACÓN,
Debtors,
___________
WILFREDO SEGARRA-MIRANDA, CHAPTER 7 TRUSTEE,
Appellant,
v.
IVÁN ACOSTA-RIVERA ET AL.,
Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Gustavo A. Gelpí, U.S. District Judge]
[Hon. Sara E. De Jesús, U.S. Bankruptcy Judge]
Before
Lipez, Selya, and Howard,
Circuit Judges.
Noemi Landrau Rivera and Landrau Rivera & Associates on brief
for appellant.
Iván Acosta-Rivera and Aña A. Balseiro-Chacón on brief pro se.
February 19, 2009
SELYA, Circuit Judge. This appeal, which requires us to
decide an issue of first impression at the federal appellate level,
turns on the construction of a provision of the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005 (BAPCPA or the Act),
Pub. L. 109-8, 119 Stat. 23 (2005). Writ large, the provision in
question expands the debtor's duties of financial disclosure to the
extent that he or she must now file with the bankruptcy court,
"unless the court orders otherwise," six traunches of financial
information (including payment advices and an itemized statement of
monthly net income). 11 U.S.C. § 521(a)(1)(B)(iv),(v). The issue
centers on whether the bankruptcy court may enter an order excusing
non-disclosure after the time for filing the required information
has expired. The bankruptcy court thought that it had the
authority to enter such an order. It proceeded to exercise that
power, thus avoiding dismissal of the debtors' petition under
section 521(i)(1) (BAPCPA's so-called "automatic dismissal"
provision). The district court construed the "orders otherwise"
provision differently. Consequently, it determined that the order
excusing the failure to file was beyond the scope of the bankruptcy
court's authority. See Rivera v. Miranda, 376 B.R. 382, 386
(D.P.R. 2007).
We conclude that the bankruptcy court acted in consonance
with the statutory scheme and within the realm of its discretion.
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Accordingly, we reverse the district court's order and remand for
further proceedings.
The procedural background is uncomplicated. The debtors,
Iván Acosta-Rivera and Aña Balseiro-Chacón, are married to each
other. They originally filed a joint Chapter 13 petition and later
converted that filing to a Chapter 7 petition.1 The debtors'
estate included an unresolved employment discrimination suit
brought by Acosta-Rivera against his quondam employer. In that
suit, which had been pending for roughly eight years and had twice
been appealed to the Supreme Court of Puerto Rico, Acosta-Rivera
sought reinstatement, backpay, and compensatory damages.
At this point, the plot thickens. Although this chose in
action was plainly an asset of the debtors' estate, it did not
appear on their original bankruptcy schedules, their first amended
schedules, or their second amended schedules.
Six months after the filing of the bankruptcy petition,
the debtors revealed the existence of the chose in action, listing
its value as "unknown," in their third amended set of schedules.
Even then, they failed to disclose that the suit demanded pecuniary
1
In brief, a Chapter 13 bankruptcy allows individuals who
have a regular source of income to submit to the bankruptcy court
a plan to repay all or part of their debts over a three to five
year period. During the repayment period creditors are stayed from
starting or continuing collection efforts. See 11 U.S.C. §§ 1321-
1330. Chapter 7 is a liquidation. See 11 U.S.C. §§ 701-784. A
bankruptcy trustee collects and sells the debtor's non-exempt
assets and uses those proceeds to pay creditors.
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relief (e.g., backpay and money damages). After several further
amendments (not material here), the debtors valued the chose in
action at $2,700,000 and claimed an exemption of $350,000.
Eventually, the Chapter 7 trustee moved for leave to
settle the suit for $200,000 (a sum that would have generated
enough cash to pay all allowed claims and produce some surplus
funds for the debtors). Balking at this proposal, the debtors
moved under the automatic dismissal provision, 11 U.S.C. §
521(i)(2), to confirm the dismissal of their petition. In support
of their motion, they claimed not to have filed or otherwise
provided the payment advices and statement of monthly net income
required by BAPCPA. As their attorney acknowledged, the debtors
wanted to dismiss the bankruptcy case so that they could "continue
prosecuting the state court action" for damages.
We pause at this juncture to discuss the Act's "automatic
dismissal" provision. When a debtor fails to file all the
information required by section 521(a)(1)(B) within the prescribed
period — that is, within forty-five days of the filing date of the
bankruptcy petition — BAPCPA provides that "the case shall be
automatically dismissed."2 11 U.S.C. § 521(i)(1). The term
2
The automatic dismissal deadline can be extended by another
forty-five days upon timely request. See 11 U.S.C. § 521(i)(3).
Moreover, the automatic dismissal provision is subject to an
explicit statutory exception: a timely motion by the trustee to
forestall dismissal based on the best interests of the creditors
and the debtors' good-faith efforts to effect the required filing.
Id. § 521(i)(1), (4). That exception does not apply here.
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"automatic dismissal" is something of a misnomer. Typically,
dismissal under this provision takes place at the instance of a
"party in interest." Id. § 521(i)(2); see, e.g., In re Spencer,
388 B.R. 418, 421 (Bankr. D.D.C. 2008). Dismissal is, therefore,
hardly "automatic."3
We return to what transpired below. In due season, the
bankruptcy court denied the debtors' motion to dismiss, finding
that "facts peculiar to this case do not require dismissal under
section 521." In support, the court noted that the debtors' motion
stemmed from their "disagreement with the proposed settlement."
That was significant because the putative settlement would have
satisfied all allowed claims; thus, neither the creditors nor the
trustee needed the missing (undisclosed) information. Based on
that reasoning, the court entered "an order nunc pro tunc . . .
excusing the debtors from filing the payment advices mentioned in
section 521(a)(1)(B)(iv)."4 In short, the court excused the
detailed disclosure by ordering the debtors to do "otherwise" under
section 521(a)(1)(B).
3
A few courts have conceptualized dismissal under this
section as a matter involving only the counting of the days. See,
e.g., In re Fawson, 338 B.R. 505, 510 (Bankr. D. Utah 2006). To
decide this case, we need not resolve that question.
4
Although not explicitly mentioned, the court evidently
meant to excuse as well the filing of the monthly net income
statement. We proceed on that assumption.
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In a subsequent order, the court approved the trustee's
revised recommendation to settle the discrimination case for
$600,000, citing the likelihood of delay from further litigation,
uncertainties surrounding collection, and the fact that Acosta-
Rivera stood to receive nearly $400,000, less mortgage arrearages,
after the allowed claims were paid.
The debtors appealed the denial of their motion to
dismiss to the district court. The district judge ruled that the
bankruptcy court lacked authority to excuse compliance with the
disclosure requirement more than forty-five days after the debtors
filed their bankruptcy petition. See Rivera, 376 B.R. at 386. In
the judge's view, the strictures of the Act left the bankruptcy
judge "with no discretion to fashion any reasonable or equitable
solution." Id. at 386-87. The judge stated: "'After the
expiration of the specified period set forth in 11 U.S.C. §
521(i)(1), there are no exceptions, no excuses, only dismissal and
the consequences that flow therefrom.'" Id. at 386 (quoting In re
Ott, 343 B.R. 264, 268 (Bankr. D. Colo. 2006)). This timely appeal
followed.5
Some preliminary pruning is in order. The Chapter 7
trustee devotes much of his brief to General Order 05-06 of the
5
Only the United States Trustee filed an answering brief in
the district court. That court, however, designated both the
United States Trustee and the Chapter 7 trustee as appellees. The
Chapter 7 trustee has taken the instant appeal. We are satisfied
that he has standing to do so.
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bankruptcy court, which directs debtors not to file the payment
advices required by section 521(a)(1)(B)(iv), but, rather, to
provide them to the trustee and interested creditors. The general
order further provides that "[f]ailure of debtor to comply with the
requirements of 11 U.S.C. § 521(a)(1)(B)(iv)" — presumably as
adjusted by the general order — "will result in automatic dismissal
under section 521(i)(1)." This general order is standard fare:
bankruptcy courts in numerous districts have adopted comparable
orders. See In re Brickey, 363 B.R. 59, 64 & n.4 (Bankr. N.D.N.Y.
2007).
Neither the bankruptcy court nor the district court
mentioned General Order 05-06. Moreover, even if the debtors had
complied with this general order — a circumstance that the record
does not document and that the debtors deny — the statutory issue
would persist. By its terms, the general order is limited to the
payment advices required by section 521(a)(1)(B)(iv); it does not
mitigate the debtors' duty to file the statement of monthly net
income required by section 521(a)(1)(B)(v).
The trustee has yet another new argument. For the first
time, he suggests that the debtors filed the functional equivalent
of a monthly net income statement in the form of Schedule J. This
is too little and too late.
Schedule J deals with a debtor's current expenditures.
In the process, it responds to a different filing requirement,
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contained in 11 U.S.C. § 521(a)(1)(B)(ii). Although line 20 of
Schedule J is called a "Statement of Monthly Net Income" and the
advisory committee note to the official bankruptcy forms states
that this line was added to Schedule J in 2005 "as required by §
521(a)(1)(B)(v)," there is no reason to think that Schedule J is a
proxy for the statement of current monthly income required by
section 521(a)(1)(B)(v). In fact, the case law suggests the
opposite conclusion. See, e.g., In re Turner, 384 B.R. 852, 856
(Bankr. D. Colo. 2008) (holding that a Chapter 7 debtor's duty to
file a section 521(a)(1)(B)(v) statement of monthly net income "can
only be fulfilled by filing" Form B22A).
We need not probe this point too deeply. Whether
Schedule J can ever serve double duty in a given case is not before
us. Suffice it to say that, in this instance, we will not
entertain the trustee's forfeited argument. See Teamsters Union
Local No. 59 v. Superline Transp. Co., 953 F.2d 17, 21 (1st Cir.
1992) ("If any principle is settled in this circuit, it is that,
absent the most extraordinary circumstances, legal theories not
squarely raised in the lower court cannot be broached for the first
time on appeal.").
Having cleared away the underbrush, what remains is the
question of the bankruptcy court's authority to waive the
disclosure requirement after the expiration of the filing
deadline. The statute provides that the debtor "shall . . . file"
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the required disclosures "unless the court orders otherwise." 11
U.S.C. § 521(a)(1)(B). The grant of judicial power to "order[]
otherwise" predated BAPCPA.6 In overhauling section 521, Congress
left this familiar language intact. We do not regard that as a
mere fortuity. Nor do we think that a slip of the pen accounts
for the fact that the provision does not now contain an explicit
deadline for ordering otherwise. In this context, we have a high
regard for congressional silence.
Sharing this regard, a few courts have held that the
bankruptcy court possesses authority to waive the disclosure
requirement even after the forty-five-day filing deadline has
expired. See, e.g., In re Parker, 351 B.R. 790, 801-02 (Bankr.
N.D. Ga. 2006); In re Jackson, 348 B.R. 487, 499-500 (Bankr. S.D.
Iowa 2006); cf. In re Bonner, 374 B.R. 62, 64-65 (Bankr. W.D.N.Y.
2007) (suggesting that "special circumstances can justify nunc pro
tunc relief" under section 521(i)). Other courts, however, have
taken the view that BAPCPA's new forty-five-day deadline applies
to courts and debtors alike. See, e.g., In re Spencer, 388 B.R.
at 422; Warren v. Wirum, 378 B.R. 640, 647 (N.D. Cal. 2007); In re
Hall, 368 B.R. 595, 599 (Bankr. W.D. Tex. 2007); In re Brickey,
6
The pre-BAPCPA version of section 521(1) provided:
The Debtor shall . . . file a list of creditors, and
unless the court orders otherwise, a schedule of assets
and liabilities, a schedule of current income and current
expenditures, and a statement of the debtor's financial
affairs.
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363 B.R. at 64-65 (Bankr. N.D.N.Y. 2007); In re Calhoun, 359 B.R.
738, 740 (Bankr. E.D. Mo. 2007). That view reads into the filing
deadline a restriction on bankruptcy courts' authority gleaned by
implication from the "automatic dismissal" provision.
Neither reading satisfies both head and heart in equal
measure. The former (more flexible) reading honors the policy
behind the Act by vesting bankruptcy courts with greater
discretion to discourage bankruptcy abuse. Because any party in
interest may request an order of automatic dismissal, debtors with
something to hide are liable to treat dismissal as an escape hatch
to be opened as needed. See Parker, 351 B.R. at 802; see also
Hall, 368 B.R. at 602 (dismissing case on motion of debtor whom
court describes as "the poster child for a bad faith debtor"). In
such cases, the court has no occasion to address non-disclosure
until long after the forty-five-day period has elapsed. That
timetable rubs uneasily against the strictures of an inflexible
reading — and bankruptcy courts are, after all, courts of equity.
But the story has another side. The stricter reading of
the statute, though inflexible, gives sharper teeth to the
automatic dismissal provision. It ensures that dismissal at a
party's request is all but guaranteed once the forty-five days
have passed. Given Congress's concern with "the recent escalation
of consumer bankruptcy filings," H.R. Rep. No. 109-31, at 3-4,
reprinted in 2005 U.S.C.C.A.N. 90, it can be argued that the
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stricter reading has some implicit support in the legislative
history. See, e.g., Warren, 378 B.R. at 647; see also Rivera, 376
B.R. at 386 (voicing concern that retroactive relief from the
filing requirement "would render the automatic dismissal provision
in § 521(i) meaningless").
This position has a certain superficial appeal. Still,
we must caution against trying to stretch a morsel into a meal.
The amendments to section 521 are part of an abuse-prevention
package. With Congress's core purpose in mind, we are reluctant
to read into the statute by implication a new limit on judicial
discretion that would encourage rather than discourage bankruptcy
abuse. It is safe to say that Congress, in enacting BAPCPA, was
not bent on placing additional weapons in the hands of abusive
debtors.7
In all events, we believe that it is possible to give
effect to all of section 521, preserving the bankruptcy court's
discretion to forgive compliance with disclosure requirements
after the fact while at the same time preserving the authentic
value of automatic dismissal. When a party moves under section
521(i)(2) for the entry of an order dismissing an incomplete
petition, the court can do one of three things: dismiss the case,
7
By definition, such debtors are unfit for the "good faith"
exception in section 521(i)(4). See supra note 2. Moreover, under
11 U.S.C. § 707(a), a chapter 7 debtor has no absolute right to
dismiss his petition but must instead show cause. See In re Smith,
507 F.3d 64, 72 (2d Cir. 2007).
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decline to dismiss the case if the good-faith exception for
payment advices applies, see supra note 2; or determine, in its
discretion, that the missing information is not "required under
subsection (a)(1)." 11 U.S.C. §521(i)(1). In the last-mentioned
event, the court can deny the motion to dismiss. Some courts in
"strict" jurisdictions seem to assume that the second and third of
these options cover the same ground. That thinking underlies the
opinions construing the forty-five-day deadline for automatic
dismissal as an implicit temporal limitation upon the court's
authority to order otherwise. See, e.g., Spencer, 388 B.R. at
422; Warren, 378 B.R. at 646; Hall, 368 B.R. at 599; Brickey, 363
B.R. at 64-65; Calhoun, 359 B.R. at 740.
We find that mechanical reading unwise. While it may be
textually plausible, it fails to harmonize the letter and purpose
of the statute. There is another, equally plausible reading — a
reading that avoids this vice.
The approach that we endorse recognizes that missing
information may or may not be required, in a practical sense,
depending upon what is deemed material by the court many months
(or even years) after the bankruptcy petition has been filed.
This would seem to be a likely reason for Congress to have
entrusted the bankruptcy court with discretion to modify
disclosure requirements on the fly. Where, as here, a previously
hidden asset has more than enough value to cover the entire
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universe of creditors' claims, dollar for dollar, dispensing with
the disclosure of statements reflecting payment advices and/or
monthly net income is both pragmatic and reasonable. Common sense
suggests that Congress never intended to strip the bankruptcy
court of the flexibility needed to respond intelligently to the
emergence of such a circumstance after the forty-five-day filing
deadline has expired.
This intuition is reinforced by our certain knowledge
that this degree of flexibility existed in the Bankruptcy Code
prior to BAPCPA's passage. As we have said, BAPCPA did not
expressly curtail this aspect of the bankruptcy court's authority
and, given the practical realities, we are reluctant to step in
where Congress has elected not to tread. Automatic dismissal may
be a new twist, but the importance of the judiciary's ability to
assess needs and respond to exigencies free of artificial
constraints has not changed. In our view, Congress must have
recognized that bankruptcy courts would still need a meaningful
opportunity to gauge whether missing information is "required" in
a particular case. We conclude, therefore, that when the missing
information has become irrelevant or extraneous and the court, in
lieu of dismissal on that account, "order[s] otherwise," section
521(i) does not compel dismissal of the case.8
8
To be sure, the time line for the entry of an order of
automatic dismissal suggests an impatience with delay. When a
party in interest requests dismissal and the case is one that falls
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On the same reasoning, we also reject the assertion that
the exceptions to automatic dismissal contained in section 521(i),
see supra note 2, were meant to supplant the bankruptcy court's
discretion to order otherwise more than forty-five days after the
filing date. Those exceptions apply when the court does not
choose to waive the disclosure requirement either ex ante or ex
post; they do not apply when the court does so elect. So
understood, the exceptions operate within their own statutory
ambit and do not cabin the bankruptcy court's discretion in other
areas.
Let us be perfectly clear. We do not decide today
whether bankruptcy courts possess unfettered discretion to waive
the disclosure requirements ex post. Where, however, there is no
continuing need for the information or a waiver is needed to
prevent automatic dismissal from furthering a debtor's abusive
conduct, the court has discretion to take such an action. This
case is of that genre.9
To sum up, the great divide in section 521 is between
information that is required and information that is not. The Act
within section 521(i)(1), "the court shall enter an order of
dismissal not later than 5 days after such request." 11 U.S.C. §
521(i)(2). Nothing in our holding today diminishes this mandate.
9
It would serve no useful purpose for us to attempt to sketch
the full range of circumstances that might justify the exercise of
this discretion.
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allows courts to do the sifting suggested by that divide without
rigid adherence to the forty-five-day deadline.
We need go no further. In this case the bankruptcy
court, acting with care and restraint, was faithful to the
evolving statutory scheme. Its order was, therefore, within the
compass of its discretion.
The judgment of the district court is reversed and the
matter is remanded for further proceedings consistent with this
opinion.
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