Summary of a Recent
Judicial Development in
Bankruptcy

Chapter 12 Debtors Have Absolute Right to Dismiss Their Case at Any Time

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In Wiese v. Community Bank of Central Wisconsin, No. 07-C-422, 2007 U.S. Dist. LEXIS 78945 (W.D. Wis. Oct. 18, 2007), the United States District Court for the Western District of Wisconsin held that Chapter 12 debtors have an absolute right to dismiss their case at any time, even post-confirmation.

Background

Debtors filed for Chapter 12 relief in January 2006, and Community Bank of Central Wisconsin was their principal creditor. Id. at *1. After a year of bankruptcy proceedings and confirmation of their plan, the Debtors filed for voluntary dismissal pursuant to 11 U.S.C. § 1208(b). Id. The bankruptcy court ordered the dismissal and that "[p]ursuant to 11 U.S.C. § 349(b), for cause, the terms of the confirmed plan shall remain binding upon the parties notwithstanding the dismissal of this case," and the Debtors appealed. Id.

Arguments

The Debtors argued that the bankruptcy court's order was wrong as a matter law because by stating that the confirmed plan remained binding despite the dismissal, the bankruptcy court essentially denied their request for dismissal. Id. at *2.

The Creditor argued that the bankruptcy court's order should be affirmed, because a failure to affirm the order would allow Debtors to avoid their confirmed plan. Id.

Analysis and Holdings

Section 1208(b) states, "[o]n request of the debtor at any time, if the case has not been converted under section 706 or 1112 of this title, the court shall dismiss a case under this chapter. Any waiver of the right to dismiss under this subsection is unenforceable." Id. at *2-3. The court stated that the right to dismiss a Chapter 12 case is absolute, even when a plan has already been confirmed. Id. at *3. Once a case is dismissed, the effect of the dismissal is governed by § 349(a) and (b). Id. Section 349(a) serves to completely undo the bankruptcy case and restore the rights of the parties to the position they were in prior to the case. Id. Section 349(b) allows the court not to re-establish some rights "for cause." Id. The court found that the bankruptcy court appropriately dismissed the Debtors' case under § 1208(b), but erred in ordering their plan to remain binding. Id. at *4. The court reasoned that in doing so, the bankruptcy court defeated the purpose of the dismissal statute. Id. The court further determined that no "cause" existed to dismiss the case under § 349(b). Id. at *5. The fact that the Debtors had "negotiated a confirmed plan after a series of contested hearings" was not "cause," because otherwise confirmed plans would essentially become waivers of the right to dismiss, which is expressly prohibited. Id. Thus the court affirmed dismissal of the Debtor's case, but vacated the bankruptcy court's order that the terms of the confirmed plan remain binding. Id. at *6.

The case was decided on October 18, 2007.