In re Oasis at Wild Horse Ranch, No. 4:11-bk-01124-JMM (Bankr. D. Ariz., March 31, 2011)
In a bankruptcy case, the bankruptcy court has discretion to dismiss a case for many reasons. If the court determines that a case was filed in bad faith, the court is authorized by precedent in Arizona to dismiss a Chapter 11 reorganization. In a recent Arizona decision, the court exercised this remedy against a business entity.
Bad faith is a broad legal doctrine that applies in many contexts. In a bankruptcy case, it means that the debtor filed a case for some reason other than to get a lawful discharge. Either the entity was not entitled to file, attempted to abuse the bankruptcy system, or filed not seeking a discharge. Often, a court's use of the term "bad faith" signals a distrust of the debtor based on inaccuracies to the court or other poor behavior.
In this case, the debtor was engaged in contentious, complex, and long-term litigation in state court over various legal matters. The court found that the debtor had filed for Chapter 11 in an attempt to run away from its obligations from state court, after burdening the state court with excessive litigation.
The court seemingly distrusted that the debtor was in bankruptcy court for the right reasons, and rather that the entity was seeking financial relief in the wrong place.
