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Bad faith conduct results in two-year refiling bar

Virginia Lawyers Weekly//May 25, 2021

Bad faith conduct results in two-year refiling bar

Virginia Lawyers Weekly//May 25, 2021

Where the court previously dismissed with prejudice the bankruptcy filing of the debtor’s alter-ego, this case was the ninth filed by the alter-ego since 2010 and was filed during a prior bar to refiling, and neither the debtor nor the alter ego defended their conduct, both the debtor and the alter ego were barred from refiling for two years.


This matter came before the court on the United States trustee’s motion seeking (i) to dismiss this case under sections 707(a) and (b)(1) of the Bankruptcy Code and (ii) a two-year bar to refiling as to both the debtor, Palsata Trust, and as to the nonfiling party, Palwinder Singh. At core, the U.S. trustee asserts that this is an abusive alter ego filing, made by an ineligible nonbusiness trust at the behest of the trust’s trustee, a serial filer in this court.

Business trust

Through its motion to dismiss, the U.S. trustee asserts that the debtor is not eligible for relief under the code as it is merely a trust, and not a business trust. In essence, the U.S. trustee has asserted that the debtor lacks, among other things, a profit motive and business activity. While these assertions do not end the inquiry, the court finds they constitute a prima facie challenge to eligibility as they strike at the heart of the business trust inquiry.

The schedules provide no indication of a profit motive or previous business activity. Moreover, even though the deed of gift attached to the petition indicates the property was transferred to the debtor for no consideration in 2015, thereafter, Singh claimed the property as his own in several unsuccessful bankruptcies. These circumstances support the movant’s assertion that this debtor lacks a profit motive.

Accordingly, upon the U.S. trustee’s prima facie showing, the burden shifted to the debtor to establish eligibility as a business trust. Having made no appearance at the hearing on the motion to dismiss and having filed no timely response to the motion, the court is left with no option but to find that the debtor has not met its burden. Accordingly, under the unrefuted record before it, the court finds that the debtor is not a business trust and is therefore ineligible to be a debtor under the code.

Bad faith

In addition to the debtor’s ineligibility, the U.S. trustee also asserts that the debtor is the alter ego of Singh, a serial filer, who used the Palsata Trust to circumvent this court’s with-prejudice dismissal of his last bankruptcy and, therefore, cause exists to dismiss the case under section 707(a) as a bad faith filing. The U.S. trustee similarly asserts that the bad faith filing also constitutes abuse under section 707(b)(1) of the Bankruptcy Code.

When considering Singh’s past filings and the fact that the Palsata Trust is ineligible to be a debtor, this case constitutes the ninth bankruptcy filed by Singh since 2010. Further, the debtor and Singh filed this case during the pendency of the previous bar to re-filing. Singh then failed to appear at both the 341 meeting and the hearing on the motion to dismiss which demonstrates bad faith. The schedules that were filed contain very little information. Furthering the evidence that this case was filed both in bad faith and as an alter ego filing, the debtor listed only nine creditors on the cover sheet for the list of creditors. This list is exactly the same as the one Singh filed in his prior individual case. The creditors listed are all parties to, or involved with, foreclosure proceedings against the property.

The court finds that this bankruptcy was filed in bad faith as it is but another case in a long line of serial filings made by Singh in order to frustrate the rights of his creditors by abusing the bankruptcy system. Accordingly, the court finds that cause exists to dismiss this case under section 707(a)(1).

Based on the entire record, this court finds that when Singh filed the instant case on behalf of the Palsata Trust, he knowingly violated the bar to re-filing issued in his previous personal bankruptcy. Unfortunately, a bar to re-filing against only the ineligible debtor in this case would not serve to dissuade Singh from filing another bankruptcy shortly after this case’s dismissal. Therefore, the court will dismiss this case with prejudice for two years, as to both the filing debtor, Palsata Trust, and the debtor’s representative, Palwinder Singh.

United States trustee’s motion to dismiss granted.

In re: Palsata Trust, No. 21-10157, April 23, 2021. EDVA Bankr. at Alexandria (Kindred). VLW No. 021-4-005. 14 pp.

VLW 021-4-005

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