BAPCPA's "Plain Meaning" Requires That a Consumer Debtor's Feet Be Held to the Fire

The "don't mess with Texas" attitude described earlier regarding a Texas bankruptcy court's hard-nosed reading of the credit counseling requirements of BAPCPA's new "bankruptcy abuse" provisions seems to be sweeping the land, as recently demonstrated in bankruptcy court decisions from Missouri and Virginia addressing another aspect of BAPCPA's new "bankruptcy abuse" provisions: a debtor's request for extension of time to obtain credit counseling services. See In re Gee, 2005 WL 2978962 (Bankr. W.D. Mo., 10/26/05), and In re Watson, 2005 WL 2990902 (Bankr. E.D. Va., 11/3/05).

If these early cases are any guide, then the future sure looks bleak for the poor consumer. Both these cases address the new BAPCPA requirement that permits a debtor who failed to comply with the onerous pre-filing debt counseling requirements to still be eligible to file a bankruptcy petition as long as it files a "Certification of Exigent Circumstance to Waive Debt Counseling Prior to Filing." In this certification, the debtor requests that the Court, pursuant to § 109(h)(3), temporarily waive the requirement contained in § 109(h)(1) that Debtor receive credit counseling in order to be eligible to file a petition.

In the Missouri case, the certification alleged that a foreclosure sale of debtor's residence was scheduled on the date of filing and that "Debtor's counsel could not be assured a certificate could be supplied prior to the foreclosure."

In the Virginia case, the debtor claimed he was engaged in negotiations with his landlord regarding a dispute concerning the continued occupancy of the business premises, was served with an unlawful detainer action ten days prior to filing, and was involved in mediation concerning this dispute until the afternoon prior to filing. This debtor filed his bankruptcy petition approximately twenty minutes prior to the hearing on the unlawful detainer.

The Bankruptcy Courts in both cases adopted the "plain meaning rule" of statutory interpretation and rejected each of the respective debtor's certifications for failing to strictly comply with all the requirements of Bankruptcy Code section 109(h). This section requires, at a minimum that the debtor make a request for credit counseling services during the five-day period preceding the filing, and then certify its inability to obtain those services. Because in each case, the debtor failed to comply with the strict requirements of Section 109(h), the Courts dismissed the petitions, notwithstanding the clear exigencies facing the debtors.

In the Missouri case, the court stated:

This Court has little doubt that the circumstances in this case are exigent and it did not reject the original certification on the ground that the Debtor had failed to describe exigent circumstances, although the original certification was somewhat cryptic. Rather, the Court rejected the original certification and must deny the motion to vacate because neither demonstrates that the Debtor met the requirement of § 109(h)(3)(A)(ii), that the Debtor had requested credit counseling services prior to filing the petition, and was unable to obtain them during the five-day period after making the request.
Debtor requests that under the circumstance of this case and because of the need for an immediate filing the Court waive the requirements contained in paragraphs (1) through (3) of § 109(h), including the requirement in § 109(h)(3)(A)(ii). The statute grants the Court the authority to postpone the credit counseling requirement, but only if each of the stated conditions is satisfied. Debtor is essentially asking the Court to ignore one of the plainly stated requirements for granting such a waiver. However, the Court cannot rewrite the statute and declines the Debtor's invitation to do so.


Accordingly, the Debtor is ineligible for a waiver for the exigent circumstances exception. As a result, the Debtor is ineligible to be a debtor under § 109(h) having neither obtained the requisite credit counseling nor demonstrated eligibility for a temporary or permanent waiver.

In the Virginia case, the bankruptcy court additionally rejected in summary fashion constitutional arguments raised by the debtor that BAPCPA's Section 109(h) violates the due process rights of an individual who runs a business as a sole proprietorship and not as single member corporations or limited liability companies. Citing the following portion of Justice Blackmun's opinion in U.S. v. Kras, 409 U.S. 434, 446, 93 S. Ct. 631, 34 L.Ed.2d 626 (1973), the Virginia court reasoned that sole proprietors are not a "suspect" class and that "the requirement of credit counseling as an element for an individual to be eligible for bankruptcy relief does not appear to burden a fundamental right":

Bankruptcy is hardly akin to free speech or marriage or to those other rights, so many of which are imbedded in the First Amendment that the Court has come to regard as fundamental and that demand the lofty requirement of a compelling governmental interest before they may be significantly regulated. Neither does it touch upon what have been said to be the suspect criteria of race, nationality, or alienage. Instead, bankruptcy legislation is in the area of economics and social welfare. This being so, the applicable standard, in measuring the propriety of Congress' classification, is that of rational justification.


Steven Jakubowski

© Steve Jakubowski 2005

Written By:jon alper On November 15, 2005 1:25 PM

I cited your post about credit counseling in my Florida Bankruptcy Law Blog.

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