A New York bankruptcy court judge ruled last month in favor of a dentist who filed Chapter 7 bankruptcy in a case brought by one of his creditors. The creditor claimed that the dentist filed for bankruptcy in bad faith in order to evade his collection efforts on the judgment and asked that the bankruptcy case be dismissed.
The judge, who presides in the U.S. Bankruptcy Court for the Eastern District of New York, determined that the creditor did not meet the burden of proof necessary to dismiss the case for “cause.”
The dentist filed for bankruptcy after the creditor won a medical malpractice judgment against him for almost $268,000. The man who won the judgment claimed that he did this only to avoid paying him.
According to the bankruptcy filing, the dentist’s and his spouse’s monthly income minus their monthly debts left them with a $1,001 deficit. The creditor who won the malpractice judgment claimed that the dentist overstated his expenses, which he said was another instance of bad faith. He further argued that the dentist had enough assets to pay the judgment.
However, the dentist asserted that most of his debts were related to his business rather than the malpractice judgment. He listed a total of over $370,000 unsecured debt, including the judgment.
The bankruptcy judge stated in his ruling that any misconduct by the dentist failed to meet the standard for ruling that he had acted in bad faith. Courts have had varying opinions on whether, even if bad faith exists, it’s enough to dismiss a case for cause. The judge acknowledged this in his ruling, saying that for a case to be dismissed for bad faith, there needs to be an egregious misrepresentation and/or concealment of assets or evidence of excessive expenditures by the debtor.
Often, people seek to get out from under a judgment that they can’t afford to pay by filing for bankruptcy. However, that doesn’t always work as intended. It’s essential to consult with an experienced New York bankruptcy attorney if you’re considering bankruptcy when facing a hefty legal judgment.
Source: Bloomberg BNA, “Dentist Sued for Malpractice Didn’t File Ch. 7 in Bad Faith,” Diane Davis, Oct. 20, 2016