A New York bankruptcy case does not need to end in dismissal; there are some situations in which debtors, creditors, or trustees may prefer to just suspend cases. That is, rather than ending cases abruptly there can be times when it’s preferable to simply hit the pause button on bankruptcy until it’s more convenient to resume. How does this work?
Section 305 of the Bankruptcy Code authorizes the Bankruptcy Court to suspend all bankruptcy proceedings after notice and a hearing. The exact same rule applies to case dismissals as well. The statute gives two conditions that must be met for a court to exercise this power. One, the “interests of the creditors and debtor would be better served by a suspension.” Two, a debtor’s chapter 15 petition for recognition of a foreign proceeding has been granted, and, like reason number one, it’s in the parties’ best interest that the case be suspended. Orders to suspend or dismiss a bankruptcy case are among the rare few that cannot be reviewed by an appellate court or body.
When would a debtor (or other party) want to suspend a case?
For one, the Bankruptcy Code contains chapter 15, which augments cross-border bankruptcy proceedings with domestic ones. Debtors who have filed bankruptcy in foreign countries can use the chapter to administer assets in the United States, or they can file bankruptcy in the U.S. with an eye toward filing in chapter 15 to accept the rulings of a foreign bankruptcy court. Understandably, debtors may want to suspend a U.S. bankruptcy case until motions or outcomes in a foreign case are resolved—probably a primary filing that involves incidental American assets or debts.
As for non-chapter 15 situations, section 305 is broad enough that it doesn’t lend itself to obvious examples for applications. However, I’ve written about one already: avoiding a disaster in chapter 13. If a debtor faces the prospect of being unable to meet a plan payment, then the typical options are: attempting to modify the plan, dismiss the case, convert the case to chapter 7, or ask for a hardship discharge. A suspension might help instead where the debtor might see a one-time cost that shouldn’t reasonably derail the plan. The example I used in the post was a sudden need for uninsured dental surgery. Importantly, though, a debtor in a suspended chapter 13 case must still pay secured creditors on time.
The notes to the Bankruptcy Code offer another example in which some creditors have filed an involuntary bankruptcy case against a debtor while other creditors are negotiating with the debtor to resolve their dispute. A suspension would meet everyone’s interests given that the involuntary bankruptcy is being used as a negotiation tool.
Many unexpected things can happen in a bankruptcy case that can jeopardize it. If you are facing serious financial difficulties, then consulting with an experienced New York bankruptcy lawyer can help you assess your options and avoid all obstacles that may needless terminate your case.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.