ARMANDO SANCHEZ CRESPO

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO
IN RE
ARMANDO SANCHEZ CRESPO,
Debtor
CASE NO. 24-05169 (ESL)
CHAPTER 11
FILED AND ENTERED 8/7/2026
OPINION AND ORDER
This case is before the court upon the Motion to Dismiss (dkt. #123) filed by creditor
Jessenia González Soto (“González Soto”) on August 5, 2025, which seeks dismissal of the
captioned case for alleged bad faith filing and because the case is a two-party dispute pursuant to
11 U.S.C. § 1112(b)(1). Also before the court are the Motion in Response to Unsecured Creditor
Jessenia 	González’s 	Motion 	to 	Dismiss 	[Dkt. 	No. 	123] 	(“Opposition”, 	dkt. 	#132), 	as
supplemented (dkt. #160), the Response to Debtor’s Supplemental Motion at Dk. No 160
(“Reply”, dkt. #161), the Reply to Response to Supplement to Response to Unsecured Creditor
Jessenia González’s Motion to Dismiss [Dkt. No. 123] (“Sur-Reply”, dkt. #169), Debtor’s Pre-
Trial Report (dkt. #139), and González Soto’s Pre-Trial Report (dkt. #140).
For the reasons discussed below, the Motion to Dismiss (dkt. #123) is GRANTED.
Factual and Procedural Background
1. 	On November 27, 2024, Debtor filed a petition for relief under Subchapter V of
the Bankruptcy Code (the “Petition Date”) (dkt. #1).
2. 	On January 10, 2025, González Soto filed, and thereafter amended, Proof of Claim
No. 2 (“POC No. 2”) in the unsecured amount of $438,092.00 on account of a final state court
judgment. See Proof of Claim No. 2-1 and 2-2.
3. 	On March 4, 2025, Debtor filed a Reorganization Plan for Small Business Under
Sub Chapter V (the “Plan”, dkt. #63), which reads, in pertinent part, as follows:
Debtor’s primary need for relief stems from litigation he initiated against his ex-
wife to recover control of another corporation to which he had loaned most of its
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capital and equipment … Mrs. González … obtained a judgement for damages in
the amount of $438,092 …
In this case the Debtor will file three adversary proceedings for collection of
moneys owed to the Debtor, one of which is a substantial claim for money owed
by Mrs. González, Debtor’s ex-wife …
The Debtor is expected, by the abundance of evidence, to recover from all three
defendants and plans to offer a partial offset to Mrs. González for her allowable
claim. The claim against Mrs. González alone will make feasible the Plan of
Reorganization. The other claims can be paid with current funds available …
Id., pp. 1-3.
4. 	The Plan proposed the following treatment for González Soto’s POC No. 2:
Id., p. 8, § 4.01. The Plan further states the following with respect to POC No. 2: “[a]n objection
will be filed for POC 2-1” (id., p. 9, § 5.01); “the principal risks [of the proposed Plan] are the
collectability of the Debtor’s actions against third parties, potentially the Debtor’s ex-wife.
However, in that respect, the Plan provides for a partial setoff of the amounts due by Mrs.
González and he has funds available to pay off the other two creditors at the effective date” (id.,
p. 18, § 10.03); and, “[t]he Debtor’s has causes of action against … Jesenia González” (id., p. 19,
§ 10.05).
5. 	On August 5, 2025, González Soto filed the Motion to Dismiss (dkt. #123), seeking
the dismissal of the captioned case for alleged bad-faith filing and because the case is a two-party
dispute pursuant to 11 U.S.C. § 1112(b)(1). González Soto avers that the bankruptcy petition “was
filed within 90 days of Gonzalez placing a judicial lien over the debtor’s real estate asset with the
intent to stay process of execution of a final judgment issued in favor of Gonzalez” (id., p. 7, ¶
5), that Debtor’s monthly operating reports (each a “MOR”, and collectively “MORs”) show that
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he is solvent, has sufficient cash flow to meet his current expenses, and that the filing of the
petition cannot be deemed as a real benefit for creditors. González Soto further avers that
debtor has displayed a pattern of bad faith acts against González, derives most of
his income from a single asset real estate building, has no employees and no
substantial unsecured debts or obligations, other than the debt with González, that
would warrant Chapter 11 protection and has displayed a bad faith attitude towards
González. Furthermore, the debt arising from the two-party dispute between
Gonzalez and the Debtor has absolutely no relation to Debtor’s current primary
source of income. … his Subchapter V Plan is not feasible as it is based and depends
on an alleged claim to be submitted against González; that is barred by res judicata
and other legal principles. This case involves a dispute between two parties,
including González, and may be more appropriately addressed in state court. The
case lacks the collective nature for creditors inherent to bankruptcy proceedings,
and therefore, should be dismissed.
Id., p. 12. Attached to the Motion to Dismiss is (i) a Judgment issued by the Puerto Rico Court of
Appeals (dkt. #123-1); (ii) a Resolution issued by the Puerto Rico Supreme Court (dkt. #123-2);
and (iii) and the Unsworn Statement Under Penalty of Perjury of González Soto (dkt. #123-3).
6. 	On August 19, 2026, the court entered an Order and Notice Setting Hearing (dkt.
#124), setting a hearing to consider the Motion to Dismiss, and ordering the parties to file a report
prior to such hearing. See also dkt. #128.
7. 	On August 24, 2025, Debtor filed the Opposition recounting the procedures before
and judgments rendered by the state court and his alleged rights and claims against González Soto
under state law. With respect to the allegations that this case is a two-party dispute, Debtor argues
that the state court judgment is final, and that he must “provide a mechanism for the payment of
said claim, from his disposable income” (dkt. #132, p. 21). Attached to the Opposition is the
Unsworn Statement Under Penalty of Perjury of Debtor (“Debtor’s Unsworn Statement”, dkt.
#132-7) and thirteen (13) other exhibits, most of which are in Spanish.1
1 Although Debtor filed a Motion for Extension of Time to File a Certified Translation of State Court Documents in
Support to [the Opposition] (dkt. #133), Debtor failed to file such translations. This court will only consider the
merits of those documents filed in the English language.
“It is well settled that the law incontrovertibly demands that federal litigation in Puerto Rico be conducted in English”,
in accordance with 48 U.S.C. § 864. Banco Popular de P.R. v. Santiago-Salicrup, 630 B.R. 374, 378 (D.P.R. 2021),
citing Estades-Negroni v. Assocs. Corp. of N. Am., 359 F. 3d 1, 2-3 (1st Cir. 2004). See also 48 U.S.C. § 864 (“All
pleadings and proceedings in the United States District Court for the District of Puerto Rico shall be conducted in
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8. 	On August 29, 2025, Debtor filed an Urgent Motion Requesting that Unsecured
Creditor Jesenia Gonz[á]lez's Motion to Dismiss [Dkt. No. 123] be DENY[sic] Due to
Noncompliance with Pre-Trial Report Order [Dkt. No. 124] (dkt. #136), which the court denied
on that same date, finding that Debtor was also in default with the order at dkt. #124 (dkt. #137).
9. 	Also on August 29, 2025, both Debtor and González Soto filed individual pre-trial
reports. See Debtor’s Pre-Trial Report, dkt. #139; González Soto’s Pre-Trial Report, dkt. #140.
Attached to both pre-trial reports are various exhibits, most of which are in Spanish.2
10. 	On September 30, 2025, the court held a hearing on the Motion to Dismiss. The
minutes reflect as follows:
The court stated that the underlying facts, as evinced by state court orders, appear
not to be in dispute, and advanced that it had a concern as to the applicability of res
judicata and the Rooker–Feldman doctrines to the instant case, and whether
dismissal 	or 	suspension 	under 	Section 	305(a) 	of 	the 	Bankruptcy 	Code 	or
discretionary abstention under 28 U.S.C. § 1334(c)(1) was appropriate. The court
stated that it had concerns as to whether the Debtor could file actions in bankruptcy
which are related to actions previously filed with and adjudicated by the state
courts.
… The court questioned why these state law claims should be pursued in
bankruptcy court. Counsel for Debtor stated that they were integral to fund the plan.
The court stated that it was not clear from the pleadings how the Debtor has a right
to pursue these claims against González Soto. The court further advanced that it
was concerned that this was a two-party dispute, particularly where the funding of
the plan was contingent on the filing of these actions, which added weight to
González Soto’s claim that this case may have been filed in bad faith.
The Debtor clarified that the third scenario proposed in the plan was not contingent
on the filing of claims against González Soto and explained how the plan would be
funded under that scenario. The court questioned why file bankruptcy and not to
file these claims against González Soto in the state court. Counsel for Debtor stated
that they owed money to FirstBank Puerto Rico, the IRS, and others, and that it was
Debtor’s obligation to pursue all claims he believed himself to have. Counsel for
the English language.”); L. Civ. R. 5(c) (“All documents not in the English language which are presented or filed,
whether as evidence or otherwise, must be accompanied by a certified translation into English…”); P.R. LBR 9070-
1(c) (“All Exhibits and documentary evidence in Spanish or other language shall be fully translated to the English
language by a certified translator.”); In re Bernier, 2022 WL 17096264, at *6-7, 2022 Bankr. LEXIS 3283, at *17-
18 (Bankr. D.P.R. 2022) (holding that documents not in the English language should not be considered).
2 Ibid.
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González Soto stated that the claims may be time bared. Counsel for Debtor stated
they would pursue whether an amended plan may be proposed without the filing of
claims.
See Minutes of Hearing held on September 30, 2025, dkt. #142, pp. 3-4, lines 12-11. At the
conclusion of the hearing, the court granted the parties additional time to file certified English
translations of Spanish-language documents and to supplement their motions and responses.
11. 	On October 30, 2025, Debtor filed an Urgent Motion for Extension of Time to File
Supplement to Response to Unsecured Creditor Jessenia González’s Motion to Dismiss [Dkt. No.
123] in Order to Finish Settlement Negotiations with Jessenia González (dkt. #149), which was
granted (dkt. #150).
12. 	On November 13, 2025, Debtor filed a further extension of time to supplement his
position to the Motion to Dismiss and to file an amended plan, informing that “[d]espite the
parties’ efforts, no settlement has been reached” (dkt. #153, ¶ 3), which was granted (dkt. #154).
13. 	On November 20, 2025, Debtor filed a Second Amended Reorganization Plan for
Small Business Under Subchapter V (the “Amended Plan”, dkt. #159), which reads, in pertinent
part, as follows:
Debtor’s primary need for relief stems from the State Court litigation he initiated
against his exwife, Mrs. Jesenia Gonzalez (“Mrs. Gonzalez”) and a corporation
identified as Safety Route, Corp. (“SR,C”).
…
… the Debtor decided not to pursue two of the claim’s receivable, and several
claims against the estate have been amended. In response to a Motion to dismiss
filed by Mrs. Gonzalez the Debtor filed an amended Plan that considered three
possible scenarios for the treatment of claims, considering the outcome of its most
significant claim receivable, the claim to recover money lent, equipment sold,
salaries, and rents from SR,C and/or of Mrs. González.
After an examination of the parties’ arguments discussed with the Honorable Court
on a hearing held September 30, 2025, and further evaluation of the specifics of the
bankruptcy case, the debtor decided to file this Second Amended Plan of
Reorganization with only one scenario, under which Debtor will structure a
payment plan with his disposable income and best effort. Any claims against
unsecured creditor Jessenia Gonzalez will be filed in State Court with a special
counsel authorized by this Court 1 . If Debtor prevails in any of his claims as filed
in State Court, then those funds will be paid to creditors in proportional shares, after
discounting prior payments under the plan.
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…
The Second Amended Plan provides additional payment to unsecured creditors
upon obtaining judgement in local Court on the claim receivable from Jesenia
Gonzalez. The expected recovery from this claim is over $1 million dollars. Thus,
the expected payoff to unsecured creditors is also 100%.
…
Debtor and Debtor’s counsel are confident that the civil action proceedings in local
Court will be successful and for the benefit of the estate, thus the proceeds of local
Court judgement will be available to payoff (or settle) with Mrs. González and pay
100% of to the other creditors.
dkt. #159, pp. 1-5 (underline removed; boldface original). The Amended Plan proposes the
following treatment for González Soto’s POC No. 2:
Id., p. 9, § 2.04. And,
Id., p. 12, § 4.01.
14. 	Also on November 20, 2025, Debtor filed a Supplemental Motion to Response[sic]
to Unsecured Creditor Jessenia González’s Motion to Dismiss at Docket 123 (“Supplemental
Opposition”, dkt. #160), stating that he intends to prosecute his claims against Mrs. Gonzalez
and/or her corporations in state court, and submitting a certified English translation of an Order
issued on September 3, 2024, by the Puerto Rico Court of First Instance in Civil Case No. A
DP2017-0064 (dkt. #160-1). The Debtor did not file any additional translations.
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15. 	On December 4, 2025, González Soto filed the Reply (dkt. #161), to which Debtor
filed the Sur-Reply (dkt. #169) on December 16, 2025, corrected on December 18, 2026 (dkt.
#171). See Informative Motion, dkt. #172.
Legal Issue
Whether the petition for relief was filed in bad faith and, consequently, constitutes “cause”
for dismissal under 11 U.S.C. § 1112(b)(1).
Uncontested Material Facts
After reviewing the record, the court finds the following material facts are uncontested:
1. 	Debtor and González Soto married in 2003 under the separate property system.
See Judgment, dkt. #123-1, p. 10, ¶ 1.
2. 	In November 2011, Debtor and González Soto agreed to incorporate Safety Route
Corp. (“Safety”), that González Soto would be the sole shareholder, officer, director, and chief
executive officer, and that Debtor would not be involved in its management, capital or
administration. See Judgment, dkt. #123-1, p. 10, ¶¶ 2-3.
3. 	Debtor and González Soto divorced in 2017. See Judgment, dkt. #123-1, fn. 1.
4. 	On February 6, 2017, Debtor filed a complaint for damages against González Soto,
captioned Civil Case No. A DP2017-0064, requesting he be declared the sole shareholder of
Safety, among other things. See Judgment, dkt. #123-1, p. 1.
5. 	On August 22, 2017, Debtor amended the complaint to include Safety as a co-
defendant and filed a petition for derivative action and moved the court to appoint a judicial
administrator and order the deposit of all corporate funds in the Clerk’s Office. See Judgment,
dkt. #123-1, p. 1.
6. 	On September 11, 2023, the Puerto Rico Court of First Instance (“Court of First
Instance”) issued and notified a Judgment on Reconsideration in Civil Case No. A DP2017-0064
(i) dismissing the complaint and derivative action filed by Debtor against González Soto, (ii)
granting the counterclaim filed by González Soto against Debtor, and (iii) ordering Debtor to “pay
González [Soto] $438,092.00 in damages for the loss of her investment in Safety, plus costs and
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legal interest from the date the complaint was filed …”. See Judgment, dkt. #123-1, p. 14, ¶¶ 1-
2.
7. 	On April 30, 2024, the Puerto Rico Court of Appeals issued a Judgment in Case
No. KLAN202301036 affirming the Judgment on Reconsideration. See dkt. #123-1, p. 23.
8. 	On August 2, 2024, the Puerto Rico Supreme Court issued a Resolution in Case
No. AC-2024-46 denying certiorari review of the Judgment. See dkt. #123-2.
9. 	On September 3, 2024, the Court of First Instance issued an Order in Civil Case
No. A DP2017-0064 directing (i) the turnover to González Soto of funds consigned with the Court
of First Instance; (ii) the recording of a notice of attachment in the Puerto Rico Property Registry
against Debtor’s commercial property in Aguada; (iii) the garnishment of Debtor's interest in
AMPHEX, infra; (iv) the garnishment of Debtor's bank accounts; and (v) the judicial sale of
Debtor's real and personal property. See Order, dkt. #160-1.
10. 	On November 27, 2024, Debtor filed the instant petition for relief. See dkt. #1.
11. 	Debtor’s main source of income is derived rents collected from commercial
properties in Aguada. See MOR March 2025, dkt #82, pp. 4-5; MOR December 2024, dkt. #51,
pp. 4-5.
12. 	Among the tenants from whom Debtor collects rent is AMPHEX GROUP LLC
(“AMPHEX”), a corporation wholly owned by Debtor, for which he serves as both project
manager and president. See MOR December 2024, dkt. #51, p. 5 (disclosing rent paid by
AMPHEX); MOR March 2025, dkt #82, p. 5 (disclosing rent paid by AMPHEX); Proposed
Reorganization Plan for Small Business Under Sub Chapter V, dkt. #63, p. 1, § I (A) (disclosing
ownership in AMPHEX); Amended Schedule A/B, dkt. #47, p. 8, item no. 19 (disclosing
investment in AMPHEX).
13. 	Debtor has disclosed assets totaling $2,031,654.14 (dkt. #47, p. 11, item no. 63),
including a commercial building he administers valued at $750,000.00; his 100% ownership in
AMPHEX valued at $100,000.00; receivables of $1,162,964.14; and a 1/9 th interest in the
succession of Amparo Crespo Chaparro, which includes real property located in Aguada valued
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at $112,500, making Debtor’s interest approximately $12,500. See Amended Schedule A/B, dkt.
#47, p. 6, item no. 1.1 (commercial building); p. 8, item no. 19 (investment in AMPHEX); p. 9,
item no. 30 (succession participation).
14. 	The $1,162,964.14 receivables disclosed as owed include the following:
See Amended Schedule A/B, dkt. #47, p. 13.
15. 	Debtor disclosed a secured debt with FirstBank Puerto Rico (“FirstBank”) of
$261,881.00, secured by a commercial property in Aguada valued at $750,000.00. See Schedule
D, dkt. #22, p. 13.
16. 	Debtor disclosed unsecured debts of $438,430.25, of which $438,092.00 are owed
to González Soto. See Amended Schedule E/F, dkt. #48, pp. 6 and 8.
17. 	The Claims Register reflects the following claims:
POC No. 	Creditor 	Amount Secured or
Unsecured
1-2 	FirstBank 	$262,698.38 	Secured
2-2 	González Soto 	$438,092.00 	Unsecured
3-4 	Internal Revenue Service 	$5,832.67 	Unsecured
4-1
Puerto Rico Department of
the Treasury (“Departamento
de Hacienda”) 	$194.20 	Unsecured
See Proof of Claim Nos. 1-2, 2-2, 3-4, and 4-1.
18. 	Although González Soto originally filed POC No. 2 as secured on account of a
final state court judgment and recorded judicial order of attachment (or embargo), POC No. 2 was
amended to change its status to unsecured. Compare Proof of Claim No. 2-1 with Proof of Claim
No. 2-2.
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19. 	The secured status of POC No. 2 was amended because following “preliminary
discussions to simplify pending controversies between” the parties, and:
[p]rior to filing an objection to claim number two (2), the Debtor’s counsel made
the approach to request that the appearing creditor amend [POC No. 2] as
unsecured. The legal basis for the request is that the recorded judicial lien order was
issued and presented at the Registry of Property within the 90 days of the filing of
the petition.
In response to the Debtor’s request, the appearing creditor has agreed to
voluntarily amend its claim as unsecured.
Joint Motion to Inform, dkt. #93, ¶¶ 2-4 (boldface added).
20. 	Debtor’s only secured creditor is FirstBank. See Proof of Claim No. 1-2; Schedule
D, dkt. #22, p. 13.
21. 	González Soto is Debtor’s largest creditor. See Proof of Claim Nos. 1-2, 2-2, 3-4,
and 4-1.
22. 	Debtor has more assets than liabilities. Compare Amended Schedule A/B, dkt. #47
with Amended Schedule E/F, dkt. #48 and Schedule D, dkt. #22.
23. 	Debtor’s main source of income derives from the leased offices of his sole real
property. See dkt. #132, p. 22 (Debtor admission). See also MORs, dkt. #29, 51, 58, 71, 82, 92,
94, 107, 111, 116, 127, 147, 155, 173, 178, 179, 187, 190, 196, 199.
24. 	Debtor’s MORs show that he has enough cash flow to meet his current expenses.
See MORs, dkt. #29, 51, 58, 71, 82, 92, 94, 107, 111, 116, 127, 147, 155, 173, 178, 179, 187, 190,
196, 199.
25. 	Debtor has not asserted having any employees. See MOR December 2024, dkt.
#51 (payroll: “$-”), p. 4; MOR March 2025, dkt #82, p. 4 (payroll: “$-”).
26. 	Debtor sought bankruptcy protection following González Soto’s request for
execution of the Judgment on Reconsideration issued by the Court of First Instance. See Debtor’s
Unsworn Statement, dkt. #132-7, ¶ 5 (“I decided to file the bankruptcy petition to protect among
other things the my main source of income that is my only real property … when the trial court
entered an order granting Mrs. González requests for execution of the Judgment by way of a
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judicial sale, garnishment and sales by public auctions of other movable and the real property.
The trial court also ordered notice of attachment (‘anotación preventiva de embargo’) in the
Property Registry of Aguadilla for the amount of $250,000.00.”). See also dkt. #132, p. 22 (Debtor
admission); Reorganization Plan for Small Business Under Sub Chapter V, dkt. #63 (Debtor
admission); Second Amended Reorganization Plan for Small Business Under Subchapter V, dkt.
#159 (Debtor admission).
Applicable Law and Analysis
A. 	Dismissal Pursuant to 11 U.S.C. § 1112(b), Generally
Section 1112(b) of the Bankruptcy Code, 11 U.S.C. § 1112(b), mandates, after notice
and a hearing, the conversion or dismissal of a chapter 11 case, whichever is in the best interests
of creditors and the estate, if the movant establishes “cause” and the case is devoid of unusual
circumstances pursuant to 11 U.S.C. § 1112(b)(2). See 11 U.S.C. § 1112(b)(1). Although the
Bankruptcy Code does not define “cause” as that term is used in Section 1112(b), Section
1112(b)(4) provides a non-exhaustive list of circumstances which constitute “cause” for
conversion or dismissal. Because the list of causes is nonexhaustive, a case may be converted or
dismissed for other causes. See, e.g., In re Plaza Antillana Inc., 2014 WL 585299, at *11 (Bankr.
D.P.R. 2014).
The initial burden is on the movant to argue and present evidence by a preponderance of
the evidence standard to prove its position that there is cause for either conversion or dismissal
of the chapter 11 case, whichever is in the best interests of creditors and the estate. See Alan N.
Resnick & Henry J. Sommer, 7 Collier on Bankruptcy ¶ 1112.04[4] (16th ed., 2026). “Thus,
until the movant carries this burden, the statutory direction that the court ‘shall convert the case
to a case under chapter 7 or dismiss the case’ is not operative.” Id. The court, after finding cause,
has broad discretion to determine whether conversion or dismissal is in the best interest of
creditors and the estate. See Gilroy v. Ameriquest Mortg. Co. (In re Gilroy), 2008 Bankr. Lexis
3968, 2008 WL 4531982 (B.A.P. 1st Cir. 2008). However, if the movant proves that there is
cause for dismissal pursuant to 11 U.S.C. § 1112(b)(4) by a preponderance of the evidence, the
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court must find that movant has established cause. See Alan N. Resnick & Henry J. Sommer, 7
Collier on Bankruptcy ¶ 1112.04[4] (16th ed., 2026).
Once “cause” has been established, the burden shifts to the debtor to identify unusual
circumstances that evince that conversion or dismissal is not in the best interest of creditors and
the estate. Even, if there are no unusual circumstances, the court may not convert or dismiss a
case if the debtor establishes and the court finds that: “(1) there is a reasonable likelihood that a
plan will be confirmed within a reasonable time; (2) the cause’ for dismissal or conversion is
something other than a continuing loss or diminution of the estate coupled with a lack of
reasonable likelihood of rehabilitation; and (3) there is a reasonable justification or excuse for a
debtor's act or omission and the act or omission will be cured within a reasonable time.” In re
Orbit Petroleum, Inc., 395 B.R. 145, 148 (Bankr. D.N.M. 2008).
B. 	Lack of Good Faith (or Bad Faith) as Cause to Dismiss
In In re Costa Bonita Beach Resort, Inc., 479 B.R. 14 (Bankr. D.P.R. 2012), this court
held that lack of good faith (or bad faith) in filing a chapter 11 petition constitutes “cause” to
dismiss pursuant to 11 U.S.C. § 1112(b)(1). In so doing, the court also rejected the use of the
mechanical checklist approach to determine lack of good faith for all cases. In pertinent part, the
court stated the following regarding lack of good faith (or bad faith) as a cause for dismissal of
a chapter 11 petition:
Good faith is not a statutory requirement for the filing of a Chapter 11 petition.
However, it is a requirement for a Chapter 11 plan to be confirmed. 11 U.S.C. §
1129(a)(3). The unsettled issue is whether lack of good faith (or bad faith) may
constitute “cause” to dismiss a Chapter 11 petition under 11 U.S.C. § 1112(b)(1).
See 	Ali 	M.M. 	Mojdehi 	& 	Janet 	Dean 	Gertz, 	The 	Implicit 	“Good 	Faith”
Requirement in Chapter 11 Liquidations: A Rule in Search of a Rationale?, 14 Am.
Bankr.Inst. L.Rev. 143 (2006). Any determination of good faith, or lack of good
faith (bad faith) is fact intensive and must consider the totality of the circumstances
on a case by case basis. In Chapter 11 cases the court must carefully consider the
distinctions between liquidation and reorganization as both are valid objectives
under the Bankruptcy Code.
Several Circuits have determined that lack of good faith (or bad faith) in filing a
chapter 11 bankruptcy petition constitutes “cause” to dismiss or convert a case to
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Chapter 7 pursuant to 11 U.S.C. § 1112(b). See Little Creek Dev. Co. v.
Commonwealth Mortgage Corp. (In re Little Creek Dev. Co.), 779 F.2d 1068 (5th
Cir.1986); In re Humble Place Joint Venture v. Fory (In re Humble Place Joint
Venture), 936 F.2d 814 (5th Cir.1991); Carolin Corp. v. Miller, 886 F.2d 693 (4th
Cir.1989); Trident Assocs. Ltd. Partenership v. Metro. Life Ins. Co. (In re Trident
Assocs. Ltd. Partnership), 52 F.3d 127 (6th Cir.1995); NMSBPCSLDHB, L .P. v.
Integrated Telecom Express, Inc. (In re Integrated Telecom Express, Inc.), 384 F.3d
108 (3rd Cir.2004); In re Albany Partners, Ltd., 749 F.2d 670 (11th Cir.1984). The
First Circuit has not decided whether lack of good faith (or bad faith) in the filing
of a Chapter 11 bankruptcy petition constitutes “cause” under 11 U.S.C. § 1112(b).
See Fields Station LLC v. Capitol Food Corp. (In re Capitol Food Corp.), 490 F.3d
21, 24 (1st Cir.2007). One court declined the proposition that 11 U.S.C. § 1 112(b)
imposes a good faith filing requirement in a SARE case. See In re Victoria Ltd.
Partnership, 187 B.R. 54, (Bankr.D.Mass.1995).
The First Circuit has determined that if 11 U.S.C. § 1112(b) imposes a good faith
filing requirement, then it is the movant that must establish prima facie that the
petition was filed in bad faith before the burden shifts to the debtor. See In re
Capitol Food Corp., 490 F.3d at 24 (“Although the bankruptcy court held that
subsection 1112(b) imposes no good faith filing requirement, we need not address
this matter in the present case. Even the courts which have found a good faith filing
requirement would demand that Fields Station first make a prima facie showing
that Capital Food filed its petition in bad faith.”); Farnsworth v. Morse (In re
Farnsworth), 2009 Bankr.Lexis 3699, *18, (B.A.P. 1st Cir.2009); In re Miller, 2009
Bankr.Lexis 	3351, 	*4 	(Bankr.D.Mass.2009). 	The 	First 	Circuit 	noted 	that,
“[c]atastrophic business events, such as an imminent or threatened foreclosure on
the debtor's interests in real property essential to successful reorganization efforts,
are precisely the sort of imminent financial distress for which debtors routinely seek
chapter 11 protection.” In re Capitol Food Corp., 490 F.3d at 25 citing In re Liberate
Techs., 314 B.R. 206, 216 (Bankr.N.D.Cal.2004). The First Circuit also observed
that a good faith petition must seek to preserve or create some value that would
otherwise be lost outside of bankruptcy and that it is not bad faith to seek to gain
an advantage from declaring bankruptcy. Id. at 25.
The determination of whether the movant has established prima facie that there is
a lack of good faith (or bad faith) in the filing of a bankruptcy petition is a fact
intensive inquiry in which the court analyzes the totality of the circumstances. See
In re Farnsworth, 2009 Bankr.Lexis 3699, *20 citing Marrama v. Citizens Bank of
Mass. (In re Marrama), 430 F.3d 474, 482 (1st Cir.2005) aff'd, 549 U.S. 365, 127
S.Ct. 1105, 166 L.Ed.2d 956 (2007). Lack of good faith or bad faith is atypical
conduct that constitutes an abuse of the bankruptcy process. See Marrama v.
Citizens Bank, 549 U.S. 365, 375, 127 S.Ct. 1105, 166 L.Ed.2d 956, fn. 11
(U.S.2007); Berliner v. Pappalardo (In re Puffer), 674 F.3d 78, 82 (1st Cir.2012).
Good faith is driven by the congressional intent of Chapter 11 relief. “Chapter 11
is designed to offer greater recovery for creditors and equity owners than
liquidation in a Chapter 7 case by providing a means by which financially distressed
businesses or individuals may restructure their finances by obtaining confirmation
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of a plan which provides either a continuation of the business, or retention or
orderly sale of assets, and exiting bankruptcy relieved of burdensome debts and
obligations.” Hon. Nancy C. Dreher & Hon. Joan N. Feeney, Bankruptcy Law
Manual, § 11.1 (5th ed. 2011).
The totality of the circumstances test cannot be reduced to a mechanical checklist
(irrespective of the chapter or whether it is in the filing of the petition and/or the
confirmation of the plan). See In re Puffer, 674 F.3d at 81 (“The totality of the
circumstances test cannot be reduced to a mechanical checklist, and we do not
endeavor here to canvass the field and catalogue the factors that must be weighed
when determining whether a debtor has submitted a Chapter 13 plan in good faith”).
The First Circuit has determined that, “in all events, good faith is a concept not a
construct. Importantly, it is a concept that derives from equity. This matters because
equitable concepts are particularly insusceptible to per se rules.” In re Puffer, 674
F.3d 78, 82. Thus, this court, in conformity with the determinations of the First
Circuit in In re Puffer rejects the mechanical checklist approach for a determination
of lack of good faith (or bad faith) for all cases, irrespective of whether they are
SARE 	cases. 	Good 	faith 	is 	an 	abstract 	idea 	generalized 	from 	particular
circumstances and not a working assumption.
Id., at 39-40. See also Plaza Antillana, 2014 Bankr. LEXIS 634, 2014 WL 585299 (finding that
movant established prima facie that debtor filed its bankruptcy petition in bad faith, and stating
that “filing for bankruptcy on the eve of a consented foreclosure, without ongoing operations and
inability to service the secured debt, is atypical conduct which constitutes an abuse of the
bankruptcy process.”); In re Rodriguez, 2022 Bankr. LEXIS 1341, 2022 WL 1308081 (Bankr.
D.P.R. 2022) (finding cause pursuant to 11 U.S.C. § 1112(b) for filing a petition in bad faith. No
“unusual circumstances” were demonstrated); In re Ginorio, 2024 WL 739327, at *7-8 (Bankr.
D.P.R. 2024).
This court’s analysis of bad faith as a cause for dismissal of a bankruptcy petition was
cited with approval and applied by the U.S. Bankruptcy Appellate Panel for the First Circuit (the
“Panel”) in La Trinidad Elderly LP SE v. Loiza Ponce Holdings LLC (In re La Trinidad Elderly
LP SE), 627 B.R. 779 (B.A.P. 1st Cir. 2021). In pertinent part, the Panel stated the following:
The issue of whether lack of good faith (“bad faith”) constitutes cause for dismissal
is “unsettled,” and “debated.” The First Circuit “has expressly declined to decide”
the issue. Nonetheless, “[t]here is a well-developed body of case law that holds that
chapter 11 petitions can be dismissed for lack of good faith.” Several courts of
appeals have determined that lack of good faith (or bad faith) in filing a chapter 11
petition constitutes “cause” to dismiss or convert a case under § 1112(b). In holding
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that lack of good faith could constitute cause for dismissal, the Third Circuit
explained:
Four factors guide our adoption of a good faith standard—the
permissive language of § 1112(b), viewed in light of its legislative
history; the decisions of our sister courts of appeals; the equitable
nature of bankruptcy; and the purposes underpinning Chapter 11.
The legislative history of the statute reflects that “[t]he court will be able to consider
other factors as they arise, and to use its equitable powers to reach an appropriate
result in individual cases.”
“[T]he overwhelming majority of courts considering the issue agree that an implicit
good faith filing requirement exists under § 1112(b), and that a Chapter 11 case
may be dismissed for cause if it was filed in bad faith.” “The equitable nature of
[the ‘for cause’] determination supports the construction that a debtor's lack of
‘good faith’ may constitute cause for the dismissal of a petition.” Most bankruptcy
courts and at least one district court within this circuit that have considered the issue
in published opinions have also concluded that bad faith constitutes cause for
dismissal. The Panel has not yet addressed this issue in the chapter 11 context,
although it has previously ruled that lack of good faith is grounds for dismissal of
a chapter 13 petition.
We are persuaded by the abundant, well-reasoned authority holding that lack of
good faith can constitute cause for dismissal of a chapter 11 petition under §
1112(b). Accordingly, the bankruptcy court below did not commit error when it so
ruled.
Id., at 799-800 (citations omitted).
C. 	Relevant Considerations in Determining Lack of Good Faith (or Bad Faith)
In La Trinidad, the Panel further observed that “[w]hile there is no single formulation of
what constitutes lack of good faith (or bad faith), courts have concluded that the good faith
determination involves a fact-intensive inquiry” (id., at 800), and applied the following eight-
factor test:
(1) 	the debtor has only one asset;
(2) 	the debtor has few unsecured creditors whose claims are small in relation to
those of the secured creditors;
(3) 	the debtor's one asset is the subject of a foreclosure action as a result of
arrearages or default on the debt;
(4) 	the debtor's financial condition is, in essence, a two[-]party dispute between
the debtor and secured creditors which can be resolved in the pending state
court foreclosure action;
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(5) 	the timing of the debtor's filing evidences an intent to delay or frustrate the
legitimate efforts of the debtor's secured creditors to enforce their rights;
(6) 	the debtor has little or no cash flow;
(7) 	the debtor cannot meet current expenses, including the payment of personal
property and real estate taxes;
(8) 	the debtor has no employees.
Id., at 800-801, quoting In re PM Cross, LLC, 494 B.R. 607, 618 (Bankr. D.N.H. 2013). All of
the factors need not be present. See id.
D. 	Whether the Factors Support a Finding that the Petition was Filed in Bad Faith
With this framework in mind, the court will consider whether the totality of the
circumstances indicate that the Debtor’s bankruptcy petition was filed in bad faith, as supported
by the record and the uncontested facts in this case.
The first and third factors are not present. Debtor owns various assets in addition to the
sole real property (Amended Schedule A/B, dkt. #47). Although Debtor’s primary source of
income is derived from that real property, and said property is the object of a future judicial sale
(see, Order, dkt. #160-1), Debtor claims substantial assets in receivables. See Amended Schedule
A/B, dkt. #47, p. 13 (receivables of $1,162,964.14). The court will state no opinion as to Debtor’s
likelihood of success in pursuing such receivables. The sixth and seventh factors are also not
present. Debtor has more assets than liabilities, and Debtor’s MORs evince that he has enough
cash flow to meet his current expenses. Compare Amended Schedule A/B, dkt. #47 with Amended
Schedule E/F, dkt. #48 and Schedule D, dkt. #22. See also MORs, dkt. #29, 51, 58, 71, 82, 92, 94,
107, 111, 116, 127, 147, 155, 173, 178, 179, 187, 190, 196, 199. Consequently, Debtor has
sufficient cash flow and assets to meet his current expenses.
With respect to the remaining factors, the court finds that the second factor is present.
Debtor has few unsecured creditors, whose claims are small in relation to those of González Soto.
Although González Soto’s claim is unsecured, it is nearly twice that of FirstBank’s secured claim
and substantially larger than the other two (2) unsecured claims. See Proof of Claim Nos. 1-2, 2-
2, 3-4, and 4-1. In so finding, this court will not consider the merits of the alleged judicial lien as
González Soto voluntarily agreed to treat POC No. 2 as unsecured. See Joint Motion to Inform,
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dkt. #93, ¶¶ 2-4. The fourth factor is also present. Debtor's financial condition is, in essence, a
two-party dispute between Debtor and González Soto, which has been addressed, at least in part,
through the affirmed Judgment on Reconsideration. To the extent that Debtor believes he
possesses additional claims against González Soto, those claims may be pursued in the
appropriate non-bankruptcy forum, as is Debtor’s intent. See Supplemental Opposition, dkt. #160;
Amended Plan, dkt. #159, p. 12, § 4.01. The fifth factor is present; the timing of this bankruptcy
case is meant to delay or frustrate González Soto’s legitimate efforts to execute the affirmed
Judgment on Reconsideration. Finally, the eighth factor is also present; Debtor has not asserted
that he or his wholly owned corporation has any employees.
Considering the totality of the circumstances, González Soto has established a prima facie
case that the instant petition was filed in bad faith. The record demonstrates that this case is, at its
core, a two-party dispute filed to delay or frustrate González Soto’s legitimate efforts to enforce
the affirmed Judgment on Reconsideration. Debtor’s arguments to the contrary neither rebut the
foregoing facts nor support a finding that the petition was filed in good faith. As noted above,
bankruptcy relief must serve a legitimate bankruptcy purpose by preserving or creating value that
would otherwise be lost outside of bankruptcy. Here, the record reflects that any potential increase
in the value of the estate depends on the outcome of future state court litigation, not on the
protections or processes afforded by bankruptcy. Accordingly, Debtor has failed to demonstrate
a valid bankruptcy purpose for maintaining this case. Under these circumstances, dismissal, rather
than conversion, is in the best interests of the estate.
Conclusion
The court concludes that González Soto has established a prima facie case that Debtor
filed this bankruptcy petition in bad faith, which constitutes “cause” for dismissal under 11 U.S.C.
§ 1112(b)(1).
For the reasons stated herein, the Motion to Dismiss (dkt. #123) is GRANTED and the
case is hereby DISMISSED.
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IT IS SO ORDERED.
In San Juan, Puerto Rico, this 7 th day of August 2026
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