This article addresses whether a bankruptcy court has the discretionary power to dismiss an involuntary bankruptcy case filed under chapters 7 or 11 of title 11 of the United States Code (the “Bankruptcy Code”) for cause when there is a finding of bad faith or a lack of good faith on behalf of the petitioning creditor or creditors. In short, it is unclear because there is insufficient authority on this issue in the involuntary context, and the issue remains split among the courts in the voluntary context.
This article first addresses the statutory requirements of an involuntary petition. Next, it examines the court’s basis for relief or dismissal of involuntary bankruptcy cases, focusing specifically on “for cause” dismissals. Lastly, it reviews how various jurisdictions have considered the issue of whether a lack of good faith or a finding of bad faith is grounds for dismissal under section 707(a) of Bankruptcy Code.