BAPCPA Outline: Part V, Sections A-J: Credit Counseling -- BAPCPA's Exercise in Futility

This seventh post of the BAPCPA Consumer Bankruptcy Outline for cases decided between 6/1/05 and 5/31/06 addresses one of BAPCPA's worst provisions, the requirement that all consumer debtors obtain credit counseling in order to be eligible for bankruptcy.  Because these provisions determine whether a debtor is eligible to file for bankruptcy relief, courts were forced to address the meaning of BAPCPA's new credit counseling provisions early on.

BAPCPA's rigid credit counseling provisions have spawned perhaps the best BAPCPA-bashing that we'll likely ever again witness.  The most famous (discussed here) was Judge Frank Monroe who -- while ordering the dismissal on Christmas eve of a petition filed by another hapless consumer who failed to seek pointless credit counseling -- ripped into Congress for selling consumers out to special interest groups, courtesy of BAPCPA.  Other judges inquiring into the purpose of the credit counseling requirements have similarly been left scratching their heads wondering, for example, why the case of an indigent debtor who couldn't afford credit counseling should be dismissed when the debtor's so poor that "cause" exists to waive the bankruptcy filing fee.  Still, courts agree that BAPCPA's inflexible wording compels such dismissals.

In sum, what started out as an nice idea in theory (encourage people to think about bankruptcy alternatives) has sadly degenerated into an expensive shakedown, with consumers being charged about $50 on average by some faceless entity who provides "instant counseling" and "instant certification" (including over the internet) in about as much time as it takes to get a passport photo.  Not surprisingly, recent studies conclude that only about 3% of those receiving mandatory credit counseling since October 17 have opted for the non-bankruptcy workout alternative (though that percentage is likely to come down over time), thus proving that BAPCPA's credit counseling requirement is truly an exercise in futility (though perhaps without all its Sisyphean implications).

So who are these credit counseling agencies in whose hands Congress entrusted our fellow bankrupt Americans?  Well, they're quite well to do, to be sure, with industry revenues topping about $1 billion annually.  As such, they likely had $ignificant influence over the pa$$age of these provi$ion$.  As reported here, they're also teeming with potential and actual conflicts.  Then, of course, there's that remarkable IRS news release of a couple of months ago in which the IRS reported that a two-year examination of the "tax-exempt" status of the top 41 credit counseling agencies (representing about 40%-50% of the industry's revenues) will result in the revocation of the tax-exempt status of  EVERY ONE of the 41 agencies examined (with the prospects looking equally grim for the next 22 on the list)!

In short,  BAPCPA's credit counseling additions are a debacle.  It doesn't matter much anymore, however, as the law's not going to change for a good long while.  So we're stuck with it whether we like it or not.  I suppose, as Judge Monroe said, you can thank the House and the Senate for that.  (And wouldn't it be nice to see just one aspiring politican make a campaign issue of this in the upcoming election?) [NB: Anyone wondering why Sen. Hillary Clinton missed the vote will find the answer here.  What better day for her husband to schedule elective surgery?]

As for the cases involving credit counseling, if there's a single area of BAPCPA's developing jurisprudence where you're sure to find a case to support pretty much any proposition you need, this outline demonstrates that credit counseling is that area.  Some issues generating the most splits include:

  • Are the "exigent circumstances" justifying possible waiver of the credit counseling based on the external circumstances facing the debtor (e.g., a looming foreclosure sale),  the unique personal circumstances that prevented the debtor from obtaining counseling, or both?
  • How long in advance of the filing must credit counseling be obtained?
  • When must a request for waiver or extension of the credit counseling requirement be filed?
  • What are the formal requirements of the certification itself?

Later sections of the outline address some other controversies resulting from credit counseling case dismissals, such as whether the automatic stay applies in the period prior to the dismissal or striking of the petition and whether the initial petition counts as a "filing" that would turn the debtor upon refiling of the case into the dreaded "serial filer" against whom BAPCPA's harshest provisions are directed.  Another developing area is attorney liability for failing to properly advise clients regarding credit counseling requirements.

Thanks for reading.

 

V.     Credit Counseling

A.     Constitutionality of Credit Counseling Provisions

1.           Requirement that individuals, but not other entities, obtain credit counseling to be eligible for bankruptcy does not violate the equal protection clause. Congress simply mandated that any natural person, as opposed to an artificial entity such as a partnership, corporation, or limited liability corporation, who seeks bankruptcy relief must either receive credit counseling or be exempt from the requirement. This mandate is imposed regardless of the extent of business or personal assets which such individual may own, or whether such individual even operates a business. This "line-drawing" of the conditions of eligibility was not so devoid of rational justification that the court would substitute its personal notion of good public policy for that of Congress. In re Watson, 332 B.R. 740 (Bankr. E.D. Va. 2005) (St. John, J.).

2.           "Congress may have imposed this [credit counseling] requirement specifically to discourage the practice of hastily filing for relief.  Whether that is a wise policy decision is not a determination for this Court to make.  In this case, the Debtor could not reasonably have expected the credit counseling service to accommodate her need for counseling given the time allowed between her request and the time of the pending foreclosure sale.  The response she received was well within the parameters set by Congress and apparently consistent with voluntary industry standards on best practices.  The seemingly harsh effect of the literal application of the statutory requirement is ameliorated in part as well by the opportunity, sanctioned by the terms of the statute, to obtain the required counseling via the internet or by telephone." In re Talib, 335 B.R. 417 (Bankr. W.D. Mo. 2005) (Dow, J.).

3.           There is a rational basis for the BAPCPA's credit counseling requirement. Congress expected that debtors would be proactive with their financial problems. Thus, the provisions do not violate the Constitution. In re Tomco, 339 B.R. 15 (Bankr. W.D. Pa. 2006) (Deller, J.).

B.     No Exigency and No Waiver

1.           No exigency because chapter 7 filing will not affect the validity or enforceability of lien against car, but (for the vast majority of cases) only defer the enforcement of a consensual lien via the temporary automatic stay. The automatic stay can be terminated by motion of the secured creditor under Sectcion 362(d), and without some indication that the auto lender would make significant concessions to the debtor on delinquency, there is nothing to support a conclusion that the debtor must file now to gain some permanent benefit on the debtor-creditor dispute that she apparently considers to be her most serious credit-related problem. Further, the debtor never stated she actually requested credit counseling services or that she was unable to timely obtain such services after such a request. She only states she made a website search and concluded in isolation that she could not afford to travel to the approved agencies identified through the search for an in-person briefing and counseling. In re LaPorta, 332 B.R. 879 (Bankr. D. Minn. 2005) (Kishel, J.).

2.           Allegations that putative debtor was defendant in sequestration suit and that the vehicle could be repossessed were themselves insufficient to establish exigency absent allegations in the motion of the date of the upcoming sequestration hearing, the defenses to the action, or other facts that would have permitted court to determine exigency. In re Hubbard, 333 B.R. 377 (Bankr. S.D. Tex. 2005) (Isgur, J.) (ruling in 5 separate debtor cases).

3.           Court applies Pioneer test to determine if failure to file certification was due to excusable neglect. Court determines test not met because of inconsistencies in the testimony of Debtors' counsel, the lack of contemporaneous documentation, the inconsistent representations in the motion and at argument, and the multiplicity of documents filed in this case. Court not persuaded that Debtors actually received required briefing prepetition or that the Debtors or counsel were excusably negligent in failing to properly certify completion of the briefing requirement. "If the issues in this case were simply about computer software errors and counsel's excusably negligent efforts in reporting the Debtors' otherwise completed acts to the Court, the Court may have ruled differently; however, the real issues involve the Debtors' questionable prepetition actions and counsel's inexcusable failure to reasonably inquire and verify before filing." In re Sukmungsa, 333 B.R. 875 (Bankr. D. Utah 2005) (Boulden, J.).

4.           Court should base exigency finding not as much on imminence of a threat but on why debtor could not obtain the required credit counseling. Fact that prospective debtor waited until last day before foreclosure to get attorney and seek credit counseling isn't exigent because "as the court noted in Wallert, Congress may have imposed this requirement specifically to discourage the practice of hastily filing for relief. Whether that is a wise policy decision is not a determination for this Court to make. In this case, the Debtor could not reasonably have expected the credit counseling service to accommodate her need for counseling given the time allowed between her request and the time of the pending foreclosure sale. The response she received was well within the parameters set by Congress and apparently consistent with voluntary industry standards on best practices. The seemingly harsh effect of the literal application of the statutory requirement is ameliorated in part as well by the opportunity, sanctioned by the terms of the statute, to obtain the required counseling via the internet or by telephone." In re Talib, 335 B.R. 417 (Bankr. W.D. Mo. 2005) (Dow, J.).

5.           Debtor receives certificate postpetition. In re Childs, et al., 335 B.R. 623 (Bankr. D. Md. 2005) (per curiam ruling on 5 debtors).

6.           Debtor claims lack of time to obtain counseling. In re Childs, et al., 335 B.R. 623 (Bankr. D. Md. 2005) (per curiam ruling on 5 debtors).

7.           Term “exigent circumstances” does not refer to debtor's problems or situation but to the circumstances preventing the person from obtaining the required credit counseling. Individual's ignorance of the law was not a valid excuse for failure to obtain counseling. Although “exigent circumstances” existed in the sense that individual was about to lose home at foreclosure, the putative debtor failed to demonstrate that such circumstances prevented her from obtaining credit counseling. In re Valdez, 335 B.R. 801 (Bankr. S.D. Fla. 2005) (Cristol, J.).

8.           No exigency where debtors first met with bankruptcy attorney and was informed of upcoming changes in law one month before petition was filed. Also, exigency of impending garnishment of debtor-wife's wages had already occurred twice between debtors' meeting with counsel and filing of petition. In re Rodriguez, 336 B.R. 452 (Bankr. D. Idaho 2005) (Myers, J.).

9.           Court's focus in deciding whether requisite exigent circumstances exist should be less imminence of threatened event and need for automatic stay, and should instead focus on why debtor couldn't get required credit counseling prior to filing. In re DiPinto, 336 B.R. 693 (Raslavich, J.).

10.       Absent exigent circumstances, the credit counseling requirement must be fulfilled prior to filing. "Because the requirements of the statute are so clear and so exacting on their face, and because they dovetail with a rational divination of congressional intent, it simply is not open to the courts to depart from their express terms.” (Citation omitted.) All cases must be dismissed because none of the debtors met with a credit counselor, none of the debtors meet the express waiver exceptions set forth of Code section 109(h)(4), and none have filed a satisfactory certification showing that exigent circumstances prevented compliance with the requirement. Although this is a harsh result, the statute gives the court no discretion. In re Fields, 337 B.R. 173 (Bankr. E.D. Tenn. 2005) (Stair, J.).

11.       Pro se debtor's petition dismissed where she argued she "did not know anything about the credit counseling class being a new requirement." Court rules that "[i]n the absence of such a certification, the waiver cannot be granted, even if the debtor … was honestly unaware of the requirement and is prepared to cure the deficiency promptly." In re Ashley, (Bankr. E.D. Va. 2006) (Mitchell, J.) (no WL citation available).

12.       Threatened loss of debtor's home by foreclosure one day after petition was filed was not exigent circumstance because debtor had ample advance notice of foreclosure sale but waited until one day prior thereto to contact attorney. In re Dixon, 338 B.R. 383 (Bankr. 8th Cir. 2006) (Kressel, J.).

13.       Debtor failed to obtain credit counseling until seven days after case filed and failed to file a certificate describing exigent circumstances. In re Wallace, 338 B.R. 399 (Bankr. E.D. Ark. 2006) (Mixon, J.).

14.       Debtor who missed two credit counseling appointments in advance of filing showed lack of requisite diligence, despite pending foreclosure action. In re Dansby, 340 B.R. 564 (Bankr. D.S.C. 2006) (Waites, J.).

15.       Debtor's attorney enrolls debtors in credit counseling on petition date, which is completed the following day. Petition was filed one day after meeting with attorney and two days before foreclosure sale. No certification was filed, nor was a hearing requested to determine eligibility. Case dismissed, with court stating that it lacks discretion to act otherwise. In re Waggoner, 2006 WL 705931 (Bankr. E.D. Ky. 2006) (Scott, J.).

16.       Imminent foreclosure sale is not an exigency because the debtor waited to 6:30 pm on the day before the foreclosure sale to contact an attorney, even though he had 20 days' notice of the foreclosure sale. Debtor calls credit counseling agency prepetition and learned that personal interview is 2 weeks away and internet counseling is 24 hours away. BAP affirms bankruptcy court. In re Anderson, 2006 WL 314539 (Bankr. N.D. Iowa 2006) (Edmonds, J.)

17.       If debtor fails to obtain credit counseling on basis that it was in negotiations with mortgagee, no exigency exists. Court further holds that it is not unconstitutional to restrict consumer eligibility in a way that is not done with corporations. Hedquist v. Fokkena (In re Hedquist), 2006 WL 1042429 (Bankr. 8th Cir. 2006) (Federman, J.).

18.       Elderly married couple owned 1986 mobile home in Orlando.    Writ of possession served on day of filing. Debtors try to obtain credit counseling after meeting with attorney, but failed because of computer problems. Debtors otherwise comply with all reporting requirements. Court strikes case. In re Carey, No. 06-00490 (Bankr. M.D. Fla. 2006) (Briskman, J.) (no WL citation available).

 19.       Debtors not eligible for temporary waiver where debtors made no attempt to obtain credit counseling until one hour after petition was filed. Credit counseling requirement is not mere formality, but a substantive requirement designed to provide individual in financial distress with opportunity to evaluate his or her non-bankruptcy debt resolution options prior to filing for bankruptcy relief. Case stricken, and no bankruptcy case results from filing of petition. In re Carey, No. 06-00490 (Bankr. M.D. Fla. 2006) (Briskman, J.) (no WL citation available).

C.     No Exigency, But Debtor Given Another Chance to Replead

1.           Court denies request to extend credit counseling requirement, but grants 15 day extension to file amended motion complying with requirements. Court further states that, regarding the 5 day prerequisite period in Section 109(h)(3)(A)(ii) as to a debtor's inability to obtain counseling, there is no express requirement that debtor exhaust all credit counseling options or that debtor accept any offer of counseling, no matter how inconvenient or onerous. Rather, whether credit counseling could have been obtained by debtor within requisite five-day period should be judged by what debtor could reasonably accomplish in light of his particular, and likely exigent, circumstances. In re Graham, 336 B.R. 292 (Bankr. W.D. Ky. 2005) (Fulton, J.).

2.           Inability to "get a good attorney to advise [her] of [her] rights" was insufficient. Court notes that the standards are not high for pro se debtors, but that some showing must be made to prove that the debtor "was confronted with an urgent situation that rendered [it] unable to comply" with the credit counseling requirement. Situations that call for an immediate response, such as impending sale of putative debtor's home or means of transportation, are examples of potentially "exigent circumstances" that might warrant a temporary exemption the credit counseling requirement. Still, because putative debtor, with counsel's assistance, might be able to set forth requisite exigent circumstances, court would not dismiss case, but would allow putative debtor ten days to obtain counsel and to file proper certificate of exigent circumstances. In re Henderson, 339 B.R. 34 (Bankr. E.D.N.Y. 2006) (Stong, J.).

3.           Incarcerated debtor files without completing credit counseling, asserting that prisoners are not required to get counseling because they are "incapacitated or disabled" under Section 109(h). Court grants debtor an extension of time to receive credit counseling under Section 109(h)(3), which permits a court to defer the credit counseling requirement for 30 days, or an additional 15 days for cause shown, from the date of the filing of the petition upon the debtor's submission that describes exigent circumstances meriting a waiver of the requirements of § 109(h)(1).  The court agrees to treat debtor's motion to proceed and his response to the U.S. Trustee's objection as the required submission and for good cause shown ordered an additional 15 days for completion of the requirement. Court concludes that debtor must complete credit counseling within 45 days of the filing of petition. In re Star, 2006 WL 1409098 (Bankr. E.D. Va. 2006) (Tice, J.).

D.     Exigent Circumstances Found, But Not Enough to Prevent Dismissal

1.           Chapter 13 debtor not entitled to a waiver of credit counseling requirement where neither debtor's original certification of exigency nor motion to vacate demonstrated that debtor had requested credit counseling services prior to filing her petition and that he was unable to obtain such services during the five-day period after making the request. In re Gee, 332 B.R. 602 (Bankr. W.D. Mo. 2005) (Dow, J.).

2.           Debtor had a business subject to an "unlawful detainer" action that was scheduled to be heard on the petition date. Debtor files 20 minutes before start of unlawful detainer action. Debtor admits that he didn't seek counseling earlier, and thus case must necessarily be dismissed because the debtor didn't allege he was unable to obtain credit counseling within 5 days of asking for one. In re Watson, 332 B.R. 740 (Bankr. E.D. Va. 2005) (St. John, J.).

3.           Appears to be the first case interpreting the credit counseling provisions. Court states: "The language of § 109(h)(3) is conjunctive.  Accordingly, the debtor must satisfy each of the elements set forth in that subparagraph. The debtor's motion does describe exigent circumstances that merit a waiver of the credit counseling requirement. If the motion were certified and if exigent circumstances were sufficient, the motion would be satisfactory.  But, that is not the structure of the statute.  The debtor must additionally demonstrate that the debtor requested credit counseling services, but was unable to obtain the services during the five day period beginning on the date on which the debtor made the request.  The motion makes no such allegation.  Because the statute requires that all of the requirements be satisfied, the debtor's motion must fail." In re Hubbard, 333 B.R. 373 (Bankr. S.D. Tex. 2005) (Isgur, J.).

4.           Possible loss of the family home or sole means of transportation unless immediate relief is granted is an "exigent circumstance" for credit counseling purposes. In re Hubbard, 333 B.R. 373 (Bankr. S.D. Tex. 2005) (Isgur, J.) (containing rulings on 5 separate debtor cases).

5.           Need to file to save residence from sheriff's sale was "exigent circumstance," but failure to certify or mention anything regarding prepetition attempts to obtain credit counseling prevented motion for temporary waiver of credit counseling requirement from qualifying as sufficient "certification." In re Cleaver, 333 B.R. 430 (Bankr. S.D. Ohio 2005) (Walter, J.).

6.           Assertion that creditor was about to repossess family's only transportation was “exigent circumstance.” Under BAPCPA, however, to become a “debtor,” an individual must show that request was made before the petition was filed. In re Davenport, 335 B.R. 218 (Bankr. M.D. Fla. 2005) (May, J.).

7.           Petitions filed on eve of foreclosures or evictions reflect exigent circumstances, but not sufficient alone to prevent dismissal of petitions. In re Childs, et al., 335 B.R. 623 (Bankr. D. Md. 2005) (per curiam ruling on 5 debtors).

8.           Court finds that "based on the common understanding of exigency and exigent circumstances, the imminent loss of one's home qualifies as an exigent circumstance, and, therefore, [the filer] meets the first requirement of the § 109(h)(3) exception. However, [she] has not satisfied the second requirement of § 109(h)(3), and, therefore, [she] is not eligible to be a debtor under the Bankruptcy Code." In re Calderon, 2006 WL 871477 (Bankr. S.D. Fla. 2006) (Isicoff, J.).

E.     Requirement Waived / Counseling Unavailable

1.           Credit counseling requirement does not necessarily impose mandatory 5 day waiting period after debtors first requested services before they can file bankruptcy petition. If credit counseling agency states it can't provide counseling within 5 days of debtor's request, then debtor doesn't need to wait five days before filing. However, they must wait to receive such services, regardless of the exigency, if the agency indicates that such counseling can be provided within the five-day period. In re Rodriguez, 336 B.R. 462 (Bankr. D. Idaho 2005) (Myers, J.).

2.           No local counseling agency could speak Creole. "Since the credit counseling is a new provision and it is provided for a particular purpose, the position could be taken that it should be strictly construed and that, if the credit counseling agency cannot provide the counseling in the debtor's language and the debtor cannot afford to hire a translator, there is no possibility the debtor can get the credit counseling. Therefore, this Court grants the waiver of the credit counseling requirement in this case because of the inability of any of the certified credit counseling agencies to provide pre-bankruptcy counseling in Creole." In re Petit-Louis, 338 B.R. 132 (Bankr. S.D. Fla. 2006) (Cristol, J.).

 F.     Requirement Not Waived Based on Type of Debtor

1.           Prisoners required to seek credit counseling. Conclusory statement of counseling's unavailability is insufficient to satisfy statutory requirement. Section 109 "does not excuse incarceration and requires the court to dismiss the case if the debtor has not obtained credit counseling before filing." In re Loving (Bankr. W.D. Va. 2006) (Stone, J.) (no WL citation available).

2.           Family farmers must receive credit counseling before filing for chapter 12 relief. 7 of 8 local agencies said they could provide such counseling to the farmer. Also, Section 109(h) applies to individuals and Section 101(18)(A) defines family farmer as individuals engaged in farming. In re Bogedain (Bankr. E.D. Mich. 2006) (Rhodes, J.) (no WL citation available).

G.     Timing of Obtaining Credit Counseling

1.           Counseling can be obtained on the same day, as long as it precedes the filing. In re Warren, 339 B.R. 475 (Bankr. E.D. Ark. 2006) (Mixon, J.).

2.           Debtor must request credit counseling at least five days prior to petition date. Court rejects possibility that debtor could request credit counseling on the very day of his bankruptcy filing and be able to obtain a waiver as long as the credit counselor was unable to provide counseling within five days. This would lead to arbitrary results that Congress could not have intended. In re Dansby, 340 B.R. 564 (Bankr. D.S.C. 2006) (Waites, J.).

3.           Credit counseling requirement does not require the debtor merely to obtain credit counseling some hours, minutes or seconds prior to filing the petition.  It requires that such counseling must have been obtained at least one calendar day prior to the petition date. In re Mills, 341 B.R. 106 (Bankr. D.D.C. 2006) (Teel, J.).

H.     Court's Duty Upon Presentation of Colorable Claim to Credit Counseling

1.           Court considers nature and scope of independent duty to investigate whether a debtor has received the requisite credit counseling in order to determine whether the debtor has commenced a case over which the court has subject matter jurisdiction. Court concludes that a debtor need only make a colorable claim that it has received such counseling for the court to assert jurisdiction.   If party in interest files motion to dismiss case for failure to comply with § 109(h), the court would need to decide whether debtor actually received such counseling. Here, "the debtor has presented a colorable claim that she received pre-petition credit counseling, and the court sees no need to pursue this matter further on its own initiative." In re Hawkins, 340 B.R. 642 (Bankr. D.D.C. 2006) (Teel, J.).

I.     Nature of Certification

1.     Certification Requires Declaration Under Penalty of Perjury

[See In re Wallert, 332 B.R. 884 (Bankr.D.Minn.2005) (Kishel, J.); In re LaPorta, 332 B.R. 879 (Bankr. D. Minn. 2005) (Kishel, J.); In re Cobb, -- B.R. -- (Bankr. E.D. Ark. 2006) (Mixon, J.); In re Rodriguez, 336 B.R. 462 (Bankr. D. Idaho 2006) (Myers, J.).]

2.     Certification Does Not Require Declaration Under Penalty of Perjury

[See In re Talib, 335 B.R. 417 (Bankr. W.D. Mo. 2005); In re Nash, No. 05-40061 (Bankr. W.D. Tenn. 2005) (no WL citation available); In re Cleaver, 333 B.R. 430 (Bankr. S.D. Ohio 2005) (requiring, at a minimum, a written statement that the signer affirms or attests to be true); In re Davenport, 335 B.R. 218 (Bankr. M.D. Fla. 2005) (requiring only that the debtor file a verified motion, an affidavit, or testify at the hearing on the Section 109(h) motion); In re Graham, 336 B.R. 292 (Bankr. W.D. Ky. 2005) (Fulton, J.).]

3.     Attorney's Signatures / Inquiries

a.       Attorney's request for credit counseling services on behalf of a debtor satisfies credit counseling requirement if attorney requested services on behalf of a particular debtor. Attorney's general inquiries about the availability of credit counseling, however, are insufficient to satisfy the requirement as to each individual debtor that attorney may represent. In re Hubbard, 333 B.R. 377 (Bankr. S.D. Tex. 2005) (Isgur, J.) (ruling on 5 separate debtors).

b.      Statement signed only by debtor's attorney, and not by debtor, did not qualify as requisite certification. In re DiPinto, 336 B.R. 693 (Bankr. E.D. Pa. 2006) (Raslavich, J.).

c.       Certification must be made by a filing debtor. It may not be made by debtor's attorney. In re Anderson, 2006 WL 314539 (Bankr. N.D. Iowa 2006) (Edmonds, J.).

d.      Motion to extend time to obtain certification, filed after trustee moves to dismiss case, which motion was signed by attorney but did not contain the debtor's certification or signature was an invalid request. In re Miotta (Bankr. N.D. Ill. 2006) (Barbosa, J.) (no WL citation available).

4.     Other Certification Requirements

a.       BAPCPA only requires prospective debtor to contact a single agency before filing a certification of exigent circumstances. Debtor need not "scour the field" for other providers. In re Hubbard, 333 B.R. 377 (Bankr. S.D. Tex. 2005) (Isgur, J.) (ruling on 5 separate debtors).

b.      Individual debtor may allege that she could not get counseling services even though the US Trustee found them to be adequately available. However, debtor may not rely on her attorney's general determination that counseling services are not available. In re Hubbard, 333 B.R. 377 (Bankr. S.D. Tex. 2005) (Isgur, J.) (ruling on 5 separate debtors).

c.       If approved counseling service can't provide services during 5 days beginning on date putative debtor made request for services, then the putative debtor has two choices: (1) contact additional providers and obtain the services prepetition, or (2) if the debtor faces exigent circumstances, elect to file an appropriate certification and, after obtaining a temporary exemption, receive the credit counseling services postpetition. Regardless, the putative debtors' certifications were not satisfactory where they failed to provide the level of specificity required for a meaningful review by the court. In re Hubbard, 333 B.R. 377 (Bankr. S.D. Tex. 2005) (Isgur, J.) (ruling on 5 separate debtors).

d.      One debtor, on his third try, stated that he requested credit counseling and that it was not made available to him within five days of the request. Court doesn't require that the debtor state the date the credit counseling services were requested, merely the fact that they were requested and that they could not be obtained within five days of the request. In re Childs, et al., 335 B.R. 623 (Bankr. D. Md. 2005) (per curiam ruling on 5 debtors).

J.     US Trustees Take Hard Line on Credit Counseling Requirement

1.           US Trustee moved to dismiss prisoner's pro se chapter 7 petition based on failure to comply with credit counseling requirements. Prisoner moved to correct filing date stamped on his petition so that under “prisoner mailbox rule,” the petition would be deemed filed before BAPCPA went effective. Court holds that petition was deemed “filed” not on date it was received by bankruptcy clerk and stamped as filed, but on date that prisoner delivered his petition to prison officials for mailing. Neither the Code (which indicates that case is commenced by the filing of a petition) nor the Bankruptcy Rules (which specify that a petition shall be filed with clerk of court) define when a “filing” occurs. Thus, the “prisoner mailbox rule” applies, and the case could not be dismissed based on prisoner's failure to obtain requisite prepetition credit counseling. In re Looper, 334 B.R. 596 (Bankr. E.D. Tenn. 2005) (Stair, J.).

2.           The debtor -- who couldn't understand English -- requested a waiver of the credit counseling requirement on the basis that none of the approved counseling agencies could speak to him in his native Creole. Alternatively, he asked the Assistant US Trustee to provide a Creole translator, or to otherwise decertify the approved counseling agencies for failure to provide Creole speaking counselors. The Assistant US Trustee, for her part, stuck close to the party line and maintained several different reasons as to why she lacked authority to waive the pre-bankruptcy counseling requirement, decertify any counseling agencies approved for the district, or provide a free translator. In re Petit Louis, 338 B.R. 132 (Bankr. S.D. Fla. 2006) (Cristol, J.).


[NB:  Certain links are to Westlaw.  Those who do not have access to Westlaw may contact me directly if they would like to view a particular case, though all federal courts maintain their own websites where judicial opinions may be accessed by the public free of charge (e.g., Bankr. N.D. Ill. - Judge Wedoff opinions).  Because all the outline's case references identify the deciding judge, you should be able to find the opinions online with minimal effort.]

 

© Copyright 2006, Steven Jakubowski

All Rights Reserved.

Written By:Marty On July 11, 2006 10:20 AM

Enjoyed that great informative article on credit counseling, but the statement that all "consumer debtors obtain credit counseling" is not correct. Section 109(h) requires that ALL "individual" debtors endure credit counseling regardless of whether or not the debts are primarily consumer debts.

My typical clients are businessmen, professionals, doctors, lawyers, pro athletes, contractors, etc., who have incurred business debts often in the millions of dollars, yet they have to receive credit counseling under the premise that somehow they will now understand how to better manage their financial resources so that bankruptcy will not be necessary.

How about this for poor draftsmanship in the credit counseling requirements: Section 303(a) only allows an involuntary case to be commenced against a person "that may be a debtor". However, Section 109(h) states that an individual "may not be a debtor" unless that person has received credit counseling. Conclusion: you must somehow compel your target debtor to undergo credit counseling before you can commence an involuntary against him!

Marty

Written By:Steve Jakubowski On July 11, 2006 10:47 AM

Marty, thanks for your comment, and excellent points. Your first point on the futility of credit counseling for non-consumer debtors again proves that BAPCPA's credit counseling provisions help no one except the credit counseling companies themselves. I too sure would like to know what they really were thinking, other than "damn the torpedos, let's go with it."

As to whether an involuntary can be filed against someone who hasn't gone through credit counseling, I've neither seen nor heard of any cases dealing with the issue as of yet. Still, all the statute says is "may be a debtor." Isn't the counter argument that the person "may" be a debtor, even if it doesn't so qualify now? That at least gets the petition started and puts the jurisdiction in the court to figure out how to get around the statute (which you know it will if it believes the debtor should be adjudicated a bankrupt). I suppose it could force the debtor to attend counseling, or alternatively call in a counselor to provide a report to the court after a court-compelled interview with the debtor (paid for by the petitioning creditors).

Who knows, maybe this glitch in the statute is one of the items that gets picked up in the technical amendments that are circulating in various circles these days. Let's just hope they fired the proofreaders who let the enacted version get through!

Written By:Jonathan Ginsberg On July 11, 2006 9:58 PM

I have yet to hear a client suggest to me that credit counseling has been anything more than a $50 surcharge to filing for bankruptcy. As a rule, potential debtors seek counsel after exhausting all other non-bankruptcy alternatives - counseling at that point is closing the barn door after the cows have left.
Jonathan Ginsberg
Ginsberg Law Offices
Atlanta, GA