Under section 1112(b) of title 11 of the United States Code (the “Bankruptcy Code”), a bankruptcy court may dismiss a Chapter 11 filing “for cause.” It is a generally accepted principle that “for cause” dismissal includes dismissal of filings made in bad faith, and this concept originates in a need for bankruptcy courts to uphold the jurisdictional integrity of the Chapter 11 process from those who would seek to abuse it. Courts deciding whether dismissal for bad faith is warranted typically employ a two-step analysis: first to determine whether a bad faith filing is “cause” for dismissal under section 1112(b) and second whether dismissal is “in the best interests of creditors and the estate.”
This memorandum explores the considerations made by bankruptcy courts when deciding whether to dismiss a bad faith Chapter 11 filing. Part I explains the origin and purpose of the good faith requirement. Part II analyzes how courts determine whether such dismissal is warranted and examines case law that exemplifies how various bankruptcy courts have approached the issue.