Filing a bad faith bankruptcy can mean the death of automatic stay protection and since the automatic stay is the shield which protects debtors from creditors it's basically a very harsh punishment.
A bankruptcy case may be considered bad faith if any of the following is true:
- The bankruptcy debtor has filed more than one case within the year preceding the current bankruptcy case. This is why debtors need to be careful to file bankruptcy with an experienced bankruptcy attorney so that they don't need to file again due to incompetence. Even if the debtor has a good reason for filing multiple cases, it still looks bad.
- The debtor's bankruptcy may be considered bad faith if there doesn't seem to be any economic reason for the bankruptcy. If a debtor is not financially distressed and uses the bankruptcy process only to stop a lawsuit or some other creditor action, then the bankruptcy case is bad faith.
- The debtor's bankruptcy case may be considered bad faith if the debtor refuses to cooperate with the court. Refusal to provide documents or to appear in court can be considered a bad faith act and end in the dismissal of the debtor's bankruptcy case.
- The debtor's bankruptcy case may be considered bad faith if the debtor fails to make payments as ordered by the court. For example, if the debtor is trying to keep their home and the bankruptcy court orders them to pay the mortgage company a certain amount each month, failure to comply could make the trustee view the case as bad faith.