Ralph Janvey v. Peter Romero

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 17-1197
RALPH JANVEY,
Creditor - Appellant,
v.
PETER ROMERO,
Debtor - Appellee.
Appeal from the United States District Court for the District of Maryland, at Baltimore.
J. Frederick Motz, Senior District Judge. (1:16-cv-03355-JFM)
Argued: December 6, 2017 Decided: February 21, 2018
Before GREGORY, Chief Judge, and WILKINSON and HARRIS, Circuit Judges.
Affirmed by published opinion. Judge Wilkinson wrote the opinion, in which Chief Judge
Gregory and Judge Harris joined.
ARGUED: Kevin Marshall Sadler, BAKER BOTTS L.L.P., Palo Alto, California, for
Appellant. Kevin Gerald Hroblak, WHITEFORD TAYLOR & PRESTON, L.L.P.,
Baltimore, Maryland, for Appellee. ON BRIEF: Scott D. Powers, Stephanie F. Cagniart,
BAKER BOTTS L.L.P., Austin, Texas, for Appellant.

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WILKINSON, Circuit Judge:
Appellee Peter Romero filed a Chapter 7 bankruptcy petition after he was found
liable for $1.275 million to the victims of a multibillion-dollar Ponzi scheme. Appellant
Ralph Janvey, the receiver in the Ponzi scheme litigation, moved to dismiss Romero’s
bankruptcy petition for cause under 11 U.S.C. § 707(a). The bankruptcy court denied the
motion, and the district court affirmed the bankruptcy court’s order. We focus only on the
matter before us—that is, whether Romero’s decision to file for bankruptcy rises to the
level of bad faith and therefore constitutes cause for dismissal under § 707(a). Because
the bankruptcy court did not abuse its discretion in denying Janvey’s motion to dismiss,
we affirm.
I.
A.
We begin with the facts of the underlying litigation, which hover above and
around the present action but do not strictly pertain to the question before us. They are, to
borrow a term from film, the McGuffin in this case.1
Peter Romero had a storied career in the Foreign Service. He served for twenty-
four years with the State Department, most prominently as an Ambassador and as
Assistant Secretary of State for Western Hemisphere Affairs. Upon retiring from the
1 See 3 Oxford English Dictionary Additions Series 285 (John Simpson & Michael
Proffitt eds., 1997) (defining “McGuffin” as “a particular event, object, factor, etc., which
assumes great significance to the characters and acts as the impetus for the sequence of
events depicted, although often proving tangential to the plot as it develops”).

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Foreign Service, Romero founded a private consulting company to advise companies that
do business overseas. One of his clients was the Stanford Financial Group (Stanford).
Romero consulted for Stanford for approximately seven years. He earned a total of
$700,000 in fees plus reimbursements for travel expenses and returns on his own
Stanford investments. While Romero was working for Stanford, the company was being
used to carry out a multibillion-dollar Ponzi scheme. The scheme was unearthed in 2009,
at which point Romero cut ties with Stanford.
The Securities and Exchange Commission sued Stanford, its affiliated entities, and
its leadership in the Northern District of Texas. That court appointed Ralph Janvey to be
the receiver in the litigation. Pursuant to his duties as receiver, Janvey sued Romero to
recover for victims of the scheme the payments Romero had received while consulting
for Stanford. Romero participated in mediation and offered to settle with Janvey. But
mediation proved unsuccessful, and Janvey rejected the settlement offer without
proposing a counteroffer. Romero ultimately lost at trial, and Janvey was awarded
approximately $1.275 million in damages, interest, and fees. Romero appealed the
judgment to the Fifth Circuit with no success. See Janvey v. Romero, 817 F.3d 184 (5th
Cir. 2016). While the appeal was pending, he again offered to settle with Janvey, who
again rejected the offer without a counteroffer. Janvey instead moved for leave to register
the judgment in California under 28 U.S.C. § 1963 on the belief that Romero had
property there. The district court granted the motion.
B.

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And so we arrive at the present bankruptcy action. Romero voluntarily filed a
Chapter 7 bankruptcy petition in the District of Maryland the day after the judgment
against him was certified in California. At the time, Romero’s financial situation was as
follows:
Assets: Romero’s assets totaled more than $5.348 million. The majority of these
assets, however, were statutorily exempt. Nobody challenged these claimed exemptions.
Among Romero’s exempt assets were three real properties he owned with his wife as
tenants by the entirety, one of which was their home and the others of which were rental
properties. Romero also claimed as exempt pension, retirement, and benefit plans.
Romero’s nonexempt assets included one car and two boats, which he turned over to the
Chapter 7 trustee for administration. The trustee sold both the car and one of the boats,
and Romero agreed to pay the docking and insurance fees for the other boat until it was
sold.2
Unsecured Debts: Janvey’s judgment accounted for roughly 90% of Romero’s
unsecured debt when he filed for bankruptcy. The remainder was composed of debts with
two law firms for unpaid legal fees totaling approximately $150,000.3
Expenses: Most prominent among Romero’s expenses were his wife’s medical
costs, which averaged $12,000 per month. Romero’s wife had contracted a bacterial brain
2 The remaining boat sold after Janvey moved to dismiss Romero’s petition.
3 Romero initially listed three unpaid credit card debts among his unsecured debts.
Those cards, however, were primarily in his wife’s name, and Romero later amended his
petition to reflect that all three debts had been paid.

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infection in 2013 that left her incapacitated and in need of extensive care. Until recently,
the majority of Romero’s wife’s medical expenses were covered by her three disability
policies and Romero employed a live-in caretaker. After Romero filed for bankruptcy,
however, two of his wife’s three disability policies were terminated; meanwhile, her
condition slightly improved and Romero was able to scale back to daily care. Romero
also listed entertainment expenses of $1,000 per month, most of which went to the
docking and other costs for the boat he had turned over to the trustee.
Income: Romero reported monthly income approximately $350 less than his
monthly expenses. Romero and his wife were both unemployed—she because of her
illness and he because he had been unable to find work after the Stanford scheme was
discovered. Their combined monthly income came entirely from Romero’s State
Department pension plan, their two rental properties, social security, and long-term
disability.
More than six months after Romero filed for bankruptcy, Janvey moved to dismiss
his petition under 11 U.S.C. § 707(a) on the ground that Romero had abused the
bankruptcy process to avoid Janvey’s judgment. The bankruptcy court denied the motion.
See In re Romero, 557 B.R. 875 (Bankr. D. Md. 2016). It acknowledged that bad faith
can constitute cause for dismissal under § 707(a), but it found that Romero had not acted
in bad faith. In doing so, it applied the eleven bad-faith factors set forth in McDow v.
Smith, 295 B.R. 69 (Bankr. E.D. Va. 2003). The bankruptcy court acknowledged that
Romero’s “primary motivation in filing the petition was to address [Janvey]’s judgment”
but that he also “faced the inability to earn a living, his wife’s illness and care needs, the

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pending termination of two disability policies, and aggressive and costly litigation tactics
by [Janvey].” Romero, 557 B.R. at 883-84. The court also noted that Romero had twice
tried and failed to settle the matter in the course of the underlying litigation. Id. at 884. It
observed that most of Romero’s assets were statutorily exempt and that he “lives a
comfortable, but not exorbitant, lifestyle. Perhaps his primary discretionary expense is
eating out at restaurants. He belongs to no country clubs or social clubs.” Id. at 883. The
court accordingly denied Janvey’s motion to dismiss and ultimately granted Romero a
discharge under 11 U.S.C. § 727.
Janvey appealed the denial of his motion to dismiss and—by inference, at least—
the eventual discharge of Romero’s debt to the district court, which affirmed the order of
the bankruptcy court. He now appeals to this court. We, like the district court, review the
bankruptcy court’s denial of a motion to dismiss for abuse of discretion, its factual
findings for clear error, and its legal conclusions de novo. See In re Jenkins, 784 F.3d
230, 234 (4th Cir. 2015); In re Piazza, 719 F.3d 1253, 1271 (11th Cir. 2013). Janvey’s
claims boil down to an accusation that Romero has abused the bankruptcy process and
should therefore be ineligible for its protections. For the reasons that follow, we do not
agree.
II.
A bit of background may be helpful in understanding the operation of the relevant
statutes. The Bankruptcy Code balances the interests of both creditors and debtors in the
distribution of an insolvent party’s assets. The purpose of the Code is therefore twofold:
“to convert the estate of the bankrupt into cash and distribute it among creditors and then

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to give the bankrupt a fresh start.” Kokoszka v. Belford, 417 U.S. 642, 645-46 (1974)
(quoting Burlingham v. Crouse, 228 U.S. 459, 473 (1913)). The Code serves the interests
of creditors by “consolidat[ing] the debtor’s assets into a broadly defined estate from
which, in an equitable and orderly process, the debtor’s unsatisfied obligations to
creditors are paid to the extent possible.” In re Andrews, 80 F.3d 906, 909-10 (4th Cir.
1996) (footnote omitted).
At the same time, the Code aims to “grant a ‘fresh start’ to the ‘honest but
unfortunate debtor.’” Marrama v. Citizens Bank of Mass., 549 U.S. 365, 367 (2007)
(quoting Grogan v. Garner, 498 U.S. 279, 286, 287 (1991)). This fresh start allows the
debtor to “restructure [his] financial obligations, discharge [his] pre-existing debt, and
emerge from bankruptcy with a new capital structure that better reflects financial reality.”
Bosiger v. U.S. Airways, 510 F.3d 442, 448 (4th Cir. 2007). To ensure that a debtor is
able to receive this fresh start, the Code prevents creditors from making claims on certain
assets. See 11 U.S.C. § 522. These so-called exemptions ensure that individuals are able
to actually rehabilitate themselves after the bankruptcy process has concluded.
Although the interests of creditors and debtors are at odds during insolvency—the
creditor would like to be paid in full and the debtor would like to pay as little as
possible—as a general matter, the Code’s balance benefits creditors and debtors alike.
See generally Douglas C. Baird, Bankruptcy’s Uncontested Axioms, 108 Yale L.J. 573,
583-86 (1998); Thomas H. Jackson, The Fresh-Start Policy in Bankruptcy Law, 98 Harv.
L. Rev. 1393, 1424-47 (1985). If debtors had to pay their creditors no matter what, or if
they were forced to give up all their assets before they could discharge their debts,

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individuals and businesses would be less likely to borrow money. In protecting certain
assets from creditor claims, the Code incentivizes individuals to incur debt and thereby
support both creditors and our capital markets. Similarly, by ensuring that creditors
receive a fair and predictable distribution of assets, the Code reduces the risks creditors
face and allows creditors to account for the risk that a borrower will fail to repay. The
benefit of these decreased risks is then passed on to debtors in the form of lower interest
rates. The fresh start policy is therefore “of public as well as private interest.” Local Loan
Co. v. Hunt, 292 U.S. 234, 244 (1934).
In furtherance of this dual mandate, the Code supplies various avenues of relief to
debtors seeking to discharge their debts. Relevant here is Chapter 7, which allows debtors
to discharge their outstanding debts in exchange for liquidating their nonexempt assets
and distributing them to their creditors. Chapter 7 also supplies various tools for
bankruptcy courts to use in policing the Code’s enduring tension between debtors and
creditors. This case involves § 707(a), which sets forth the grounds on which a Chapter 7
bankruptcy petition may be dismissed:
The court may dismiss a case under this chapter only after notice and a
hearing and only for cause, including—
(1) unreasonable delay by the debtor that is prejudicial to creditors;
(2) nonpayment of any fees or charges required under chapter 123 of
title 28; and
(3) failure of the debtor in a voluntary case to file, within fifteen days or
such additional time as the court may allow after the filing of the
petition commencing such case, the information required by
paragraph (1) of section 521(a), but only on a motion by the United
States trustee.

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11 U.S.C. § 707(a).
“Cause” is an open-ended term. It is not defined in § 707(a), and the examples
provided are illustrative rather than exhaustive. See id. § 102(3) (noting that for purposes
of the Code, “‘includes’ and ‘including’ are not limiting”); Fed. Land Bank of St. Paul v.
Bismarck Lumber Co., 314 U.S. 95, 100 (1941) (“[T]he term ‘including’ is not one of all-
embracing definition, but connotes simply an illustrative application of the general
principle.”). Bankruptcy courts are therefore left to determine case by case what
constitutes valid cause for dismissal of a Chapter 7 bankruptcy petition.
III.
A.
For the most part, courts have recognized that a debtor’s bad faith in filing may
constitute cause for dismissal under § 707(a). See In re Krueger, 812 F.3d 365, 370 (5th
Cir. 2016) (“[A] debtor’s bad faith in the bankruptcy process can serve as the basis of a
dismissal ‘for cause’ . . . .”); In re Schwartz, 799 F.3d 760, 764 (7th Cir. 2015) (“[A]n
unjustified refusal to pay one’s debts is a valid ground under 11 U.S.C. § 707(a) to deny a
discharge of a bankrupt’s debts.”); Piazza, 719 F.3d at 1260-61 (“[T]he power to dismiss
‘for cause’ in § 707(a) includes the power to involuntarily dismiss a Chapter 7 case based
on prepetition bad faith.”); In re Tamecki, 229 F.3d 205, 207 (3d Cir. 2000) (“Section
707(a) allows a bankruptcy court to dismiss a petition for cause if the petitioner fails to
demonstrate his good faith in filing.”); In re Zick, 931 F.2d 1124, 1127 (6th Cir. 1991)
(“[L]ack of good faith is a valid basis of decision in a ‘for cause’ dismissal by a

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bankruptcy court.”). But see In re Padilla, 222 F.3d 1184, 1191 (9th Cir. 2000) (“[B]ad
faith as a general proposition does not provide ‘cause’ to dismiss a Chapter 7 petition
under § 707(a).”); In re Huckfeldt, 39 F.3d 829, 832 (8th Cir. 1994) (adopting a “narrow,
cautious” approach that requires “extreme misconduct falling outside the purview of
more specific Code provisions”).
We think the majority view is the sounder one, because it is the most helpful in
preventing serious abuses of the bankruptcy process. But acknowledging that bad faith
may constitute “cause” under § 707(a) also requires that the remedy of dismissal be
reserved for cases of real misconduct. Those courts that have found that bad faith in filing
for bankruptcy can constitute cause for dismissal have counseled “[c]aution in dispensing
the remedy of dismissal for bad faith” because of “the need . . . to maintain the balance of
remedies in bankruptcy.” In re Khan, 172 B.R. 613, 626 (Bankr. D. Minn. 1994). They
have accordingly emphasized that the bar for finding bad faith is a high one. See, e.g.,
Zick, 931 F.2d at 1129 (explaining that bad faith exists “only in those egregious cases that
entail concealed or misrepresented assets and/or sources of income, and excessive and
continued expenditures, lavish life-style, and intention to avoid a large single debt based
on conduct akin to fraud, misconduct, or gross negligence”). In short, bad faith exists
only where “the petitioner has abused the provisions, purpose, or spirit of bankruptcy
law.” Tamecki, 229 F.3d at 207.
B.
The concept of bad faith “does not lend itself to a strict formula.” Piazza, 719 F.3d
at 1271. Courts must consider the totality of the circumstances underlying each case to

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determine whether a debtor has acted in bad faith. To aid in this effort, bankruptcy courts
have developed a number of multifactor tests. See, e.g., McDow, 295 B.R. at 79 n.22
(proposing eleven factors); In re Griffieth, 209 B.R. 823, 827 (Bankr. N.D.N.Y. 1996)
(proposing six factors); In re Spagnolia, 199 B.R. 362, 365 (Bankr. W.D. Ky. 1995)
(proposing fourteen factors). These tests are meant to be guides only. A bankruptcy court
need not mechanically tick off each factor and tally up its tick-marks at the end. It may be
the case that many factors are relevant, or it may be the case that relatively few of them
are. It all depends. Evaluating these factors and their comparative relevance is a
discretionary exercise that is best left to bankruptcy judges. After all, many of the
potentially pertinent factors involve credibility determinations or exercises in fact-
finding. See, e.g., Griffieth, 209 B.R. at 827 (“debtor’s failure to make significant
lifestyle changes”); Spagnolia, 199 B.R. at 365 (“an intent to avoid a large single debt”);
id. (“debtor is paying debts to insiders”).
The bankruptcy court in this case employed the eleven-factor bad-faith test set
forth in McDow, 295 B.R. at 79 n.22. Those eleven factors represent a distillation of the
various “totality of the circumstances test[s]” courts have applied in determining whether
a debtor’s actions amounted to bad-faith cause for dismissal. Id. at 79. They are meant to
represent the “factors [that] are typically considered” in that analysis. Id. at 79 n.22.
Among them are “[t]he debtor’s lack of candor and completeness in his statements and
schedules”; “[t]he debtor has sufficient resources to repay his debts, and leads a lavish
lifestyle”; “[t]he debtor’s motivation in filing is to avoid a large single debt incurred

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through conduct akin to fraud, misconduct, or gross negligence”; and “[t]he debtor’s lack
of attempt to repay creditors.” See id.4
Careful consideration of the McDow factors here—aided by lengthy briefing from
the parties, dozens of exhibits, and a three-hour evidentiary hearing—led the bankruptcy
court to conclude that Romero had not acted in bad faith. While Janvey’s judgment may
have been Romero’s “primary motivation in filing,” the bankruptcy court found that it
was not the only reason he filed. Romero, 557 B.R. at 883. Romero’s wife was suffering
from a brain infection that required extensive care and left her “100% incapacitated for
work.” Id. at 879. The bankruptcy court found that this infection had impaired her motor
skills, balance, and eyesight to such an extent that she and Romero had to remodel their
home so that she could live on the first floor. Id. It also found that Romero’s wife’s
condition had at one point necessitated employment of a live-in caretaker and that it still
required “a daily home caregiver, except for Sundays and part of Saturdays when
[Romero] manages his wife’s care on his own.” Id. Moreover, the court noted that two of
Romero’s wife’s disability policies—which together comprised the majority of her
disability payments—were about to end when he filed for bankruptcy. Id. at 879, 883-84.
4 The other seven factors are: “[t]he debtor’s concealment or misrepresentation of
assets and/or sources of income”; “[t]he debtor’s petition is part of a ‘deliberate and
persistent pattern’ of evading a single creditor”; “[t]he debtor is ‘overutilizing the
protection of the Code’ to the detriment to his creditors”; “[t]he debtor reduced his
creditors to a single creditor prior to filing the petition”; “[t]he debtor’s payment of debts
to insider creditors”; “[t]he debtor’s ‘procedural gymnastics’ that have the effect of
frustrating creditors”; and “[t]he unfairness of the debtor’s use of the bankruptcy
process.” McDow, 295 B.R. at 79 n.22.

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It predicted that the subsequent termination of these policies would result in an increase
in the couple’s out-of-pocket medical expenses, which were already steep at $55,000 in
the year before Romero filed. Id. at 884.
The bankruptcy court also found that, as a result of his affiliation with Stanford,
Romero had “found it impossible to obtain work.” Id. at 883. And he still owed
approximately $150,000 in legal fees from the underlying litigation, in which Janvey had
employed “aggressive and costly litigation tactics.” Id. at 884. The bankruptcy court
commended Romero for being candid, forthcoming, timely, and cooperative throughout
both the instant and the underlying litigation. It explained that he had surrendered his
nonexempt assets and twice attempted to settle with Janvey. The bankruptcy court also
found that Romero’s lifestyle was “comfortable, but not exorbitant.” Id. at 883. And it
found nothing duplicitous about Romero’s desire to preserve exempt assets he and his
wife would “be required to live off” in the future. Id. at 885. In light of these
circumstances, the bankruptcy court concluded that no “cause” for dismissal existed in
this case.
IV.
Janvey raises three primary objections to the bankruptcy court’s denial of his
motion to dismiss. First, he argues that Romero should not be allowed to benefit from the
Code’s protections because he filed for bankruptcy solely to avoid Janvey’s judgment.
Second, he suggests that Romero’s efforts to settle the underlying litigation betrayed his
bad-faith motive. And finally, Janvey maintains that Romero’s petition ought to be
dismissed on the basis of his substantial assets and attendant ability to pay the judgment.

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Each of these objections is rooted in a factor that may well prove relevant to the
bad-faith analysis. See McDow, 295 B.R. at 79 n.22 (listing as potentially relevant factors
“[t]he debtor’s motivation in filing is to avoid a large single debt incurred through”
improper conduct; “[t]he debtor’s lack of attempt to repay creditors”; and the debtor’s
“sufficient resources to repay his debts”). But there is a risk in elevating any single factor
above all others as the sine qua non of bad faith. And yet this is precisely what Janvey’s
objections would have us do.
A.
Janvey first objects that bankruptcy should be unavailable to Romero because he
seeks to avoid a single large debt—namely, Janvey’s judgment against him. This
objection is flawed for two reasons.
As a factual matter, it is simply not the case that Romero filed for bankruptcy
solely to avoid the judgment. The bankruptcy court found that Romero filed for many
reasons. Romero, 557 B.R. at 883-84. Chief among his motivations was his wife’s
medical condition, which left her totally incapacitated and entailed substantial expenses
for her care. Additionally, Romero had multiple debts. Aside from to the $1.275 million
he owed Janvey, he also owed debts to two separate law firms totaling approximately
$150,000. The fact that Janvey’s judgment accounted for roughly 90% of Romero’s total
debt does not negate those other claims. In fact, courts have declined to dismiss Chapter 7
petitions filed in response to debts that constitute similarly large fractions of the debtor’s
total debt. See In re Bage, No. 13-33367, 2014 WL 4749072, at *2, *5 (Bankr. N.D. Ohio
Sept. 24, 2014) (denying a motion to dismiss where litigation-related debt accounted for

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more than 90% of the total unsecured debt); In re Ajunwa, No. 11-11363 (ALG), 2012
WL 3820638, at *1, *9 (Bankr. S.D.N.Y. Sept. 4, 2012) (denying a motion to dismiss
where one judgment “accounted for over 90% of the total claims listed”).
As a legal matter, the fact that a bankruptcy petition was filed in response to a
single debt need not alone constitute bad-faith cause for dismissal. “Almost every
bankruptcy case is filed because a creditor is pursuing a debtor.” In re Bushyhead, 525
B.R. 136, 149 (Bankr. N.D. Okla. 2015). The purpose of bankruptcy law, after all, “is to
provide a procedure by which certain insolvent debtors can reorder their affairs, make
peace with their creditors, and enjoy ‘a new opportunity in life.’” Grogan, 498 U.S. at
286 (quoting Local Loan Co., 292 U.S. at 244). A person becomes insolvent when he is
no longer able to meet his financial obligations as they become due. See 11 U.S.C. §
101(32)(A). This may happen over time, or it may happen very suddenly. But in every
case, the debtor reaches a tipping point. That may well happen because of a single
additional debt. And that debt may be either large or small. It may be the result of
litigation, or it may be the product of a large hospital bill or a decline in the housing
market. Regardless, equating a decision to file for bankruptcy in response to a sizeable
debt with cause for dismissal would fault debtors for using the Code in precisely the way
Congress intended. As one bankruptcy court has observed, “if filing bankruptcy to avoid
the payment of a debt was cause for dismissal, no debtor would ever be able to file a
bankruptcy case.” In re Uche, 555 B.R. 57, 62 (Bankr. M.D. Fla. 2016).
For these reasons, courts have frequently held that without additional evidence of
fraud or misconduct, the fact that a debtor filed for bankruptcy in response to a single

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large debt is not sufficient for a finding of bad faith. See, e.g., In re Chovev, 559 B.R.
339, 347 (Bankr. E.D.N.Y. 2016); In re McVicker, 546 B.R. 46, 51 (N.D. Ohio 2016); In
re Gutierrez, 528 B.R. 1, 15 (Bankr. D. Vt. 2014); In re Grullon, No. 13-11716 (ALG),
2014 WL 2109924, at *3 (Bankr. S.D.N.Y. May 20, 2014); In re Mazzella, No. 09-
78449-478, 2010 WL 5058395, at *6 (Bankr. E.D.N.Y. Dec. 6, 2010); In re Glunk, 342
B.R. 717, 736 (Bankr. E.D. Pa. 2006).
None of this is to say that courts may not consider the nature of a debtor’s
motivation to file for bankruptcy. The fact that a bankruptcy petition was filed to skirt the
collection efforts of a single creditor may well prove relevant in the overall bad-faith
analysis. See McDow, 295 B.R. at 79 n.22 (listing this factor among others); Griffieth,
209 B.R. at 827 (same); Spagnolia, 199 B.R. at 365 (same). Indeed, both the district and
bankruptcy courts below took note of the fact that Janvey’s judgment served as the
catalyst for Romero’s bankruptcy petition. But Janvey now attempts to transform this
single factor into a per se test for bad faith. Because such an attempt would blind us to the
totality of Romero’s circumstances, we reject it.
B.
Janvey’s second objection attributes bad-faith motivation to Romero’s two
attempts to settle the underlying judgment. He suggests that Romero was trying to
pressure him into accepting a mere fraction of his judgment by casting bankruptcy as the
alternative to settlement.
Janvey was, of course, well within his rights to reject Romero’s settlement offers.
But we find groundless the notion that Romero’s attempts to settle with a judgment

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creditor constitute cause to dismiss his case. The law encourages voluntary settlement of
disputes. See United States v. Cannons Eng’g Corp., 899 F.2d 79, 84 (1st Cir. 1990) (“[I]t
is the policy of the law to encourage settlements.”); Bank of Am. Nat. Tr. & Sav. Ass’n v.
Hotel Rittenhouse Assocs., 800 F.2d 339, 344 (3d Cir. 1986) (describing “the strong
public interest in encouraging settlement of private litigation”). Settlement yields both
private and public benefits. It spares the parties substantial costs in terms of time and
money, and it lightens the docket of a resource-strapped judicial system.
In line with these principles, debtors and creditors remain free to settle their debts
among themselves outside the courtroom and before resorting to bankruptcy. The tools at
their disposal are varied. A creditor, for instance, may choose to forbear from
immediately collecting a debt and thereby offer the debtor a momentary reprieve. Or he
may allow the debtor to refinance or modify his loan in order to provide a more
permanent solution. Settlement is simply a way creditors and debtors can avoid
protracted litigation and resolve their disputes in a mutually satisfactory manner.
But the fact that parties often settle does not mean that the failure to settle should
deprive debtors of the backstop provided by bankruptcy law. Far from amounting to
“blackmail,” Appellant’s Br. at 38, the backstop of bankruptcy encourages parties to
come to the table to reach an agreement when debts cannot be paid in full. It is altogether
right that the parties can rest assured that, should settlement fail, bankruptcy will provide
a way for them to resolve their case.
There are, to be sure, limitations on settlement in bankruptcy, among them the
prohibition on preferred treatment of certain creditors in the immediate prepetition

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period. See 11 U.S.C. § 547. But the Code’s voidable preference provisions are designed
to prevent parties from privileging some creditors at the expense of others; they are not
designed to hinder the efforts of parties to settle to avoid bankruptcy in the first place.
Nobody has claimed that questions of preference are at issue here. Rather, Janvey claims
that Romero’s two settlement offers were unacceptably low. But the bankruptcy court
determined that this was not the entire story. Romero, 557 B.R. at 884. As Janvey himself
explained in rejecting Romero’s second settlement offer, “[p]ursuing the Ambassador
ha[d] strategic importance beyond the amount of money involved.” Id. at 878. Janvey
sought to make an example of Romero to ease his collection efforts elsewhere. He aimed
to show through his relentless pursuit of the judgment that those found liable in the Ponzi
scheme litigation would be required to compensate the victims in full. But just as Janvey
was within his rights to reject Romero’s settlement offers, Romero, too, had every right
to take advantage of the mechanism by which insolvent individuals can discharge their
debts.
C.
Janvey’s final objection boils down to a belief that Romero should not be allowed
to discharge his debts in bankruptcy because he has too much money. Janvey suggests
that Romero should use his substantial assets—which were almost all exempt—to pay the
judgment against him. This argument falters not only on its assumption that a debtor’s
ability to repay his debts alone constitutes cause for dismissal but also on its reliance on
Romero’s exempt assets. We address these flaws in turn.

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A debtor’s ability to repay debts does not alone amount to cause for dismissal. See
Bushyhead, 525 B.R. at 148 (noting a “consensus among the courts” on this issue). As the
House Report noted, “[t]he section [§ 707(a)] does not contemplate . . . that the ability of
the debtor to repay his debts in whole or in part constitutes adequate cause for
dismissal.”5 H.R. Rep. No. 95-595, at 380 (1977). Such a conclusion also follows
logically from the Code’s fresh-start philosophy. A penniless start is not a fresh start.
Were absolute depletion of one’s assets a prerequisite for bankruptcy relief, debtors and
their families would be left destitute and without the means to become productive
members of society. This would increase the strain on our social safety net by increasing
the number of people who might potentially qualify for government benefits.
Forcing a debtor to repay his debts using exempt assets before resorting to
bankruptcy would also undercut the entire exemption scheme that Congress designed.
The “historical purpose” of bankruptcy exemptions “has been to protect a debtor from his
creditors, to provide him with the basic necessities of life so that even if his creditors levy
on all of his nonexempt property, the debtor will not be left destitute and a public
charge.” H.R. Rep. No. 95-595, at 126. Bankruptcy exemptions are meant to “afford the
debtor some economic and social stability, which is important to the fresh start
guaranteed by bankruptcy.” In re Morehead, 283 F.3d 199, 203 (4th Cir. 2002). They
5 The language of what is today § 707(a) was enacted as § 707. See Bankruptcy
Reform Act of 1978, Pub. L. No. 95-598, 92 Stat. 2549, 2606 (codified as amended at 11
U.S.C. § 707(a)). It was later renumbered as § 707(a) when §707(b) was added to the
provision in 1984. See Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.
L. No. 98-353, 98 Stat. 333, 355 (codified as amended at 11 U.S.C. § 707(a)).

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represent a careful balance of “the difficult choices that exemption limits impose on
debtors with the economic harm that exemptions visit on creditors.” Schwab v. Reilly,
560 U.S. 770, 791 (2010). Janvey’s suggestion that Romero should use his exempt assets
to pay the judgment turns this carefully crafted scheme on its head. We reiterate that the
ability to repay debts may be a relevant factor in the holistic bad-faith analysis. See
McDow, 295 B.R. at 79 n.22. But for the reasons stated above, we reject Janvey’s attempt
to transform it into a per se bar to bankruptcy relief.
V.
In ruling that the bankruptcy and district courts did not err in declining to dismiss
Romero’s petition, we remain aware that the bankruptcy process is subject to real abuse.
See Robinson v. Worley, 849 F.3d 577, 583 (4th Cir. 2017) (denying debtor a discharge
for “knowingly and fraudulently” making “a false oath or account” under 11 U.S.C.
§ 727(a)(4) (quoting 11 U.S.C. § 727(a)(4)(A))). Any process that is established for
legitimate reasons will occasionally be hijacked for illegitimate ends. It remains for
bankruptcy judges to detect in the first instance those cases of fraud upon the court and
creditors that constitute cause for dismissal under § 707(a) or reason for a denial of
discharge under the scenarios set forth in 11 U.S.C. § 727(a). The standard of review—
one of abuse of discretion—is of paramount importance here. We do not ask whether we
necessarily would have reached the same result as the bankruptcy court, but we do note
its greater familiarity with Romero’s case and the fact that the court gave good and sound
reasons for ruling as it did. Its decision is hereby
AFFIRMED.

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