No Extension for Credit Counseling

On November 3, 2005 a Virginia court issued a published opinion on the new credit counseling provisions in BAPCPA, rejecting a debtor's request for more time to satisfy the new requirement that individual debtors complete a credit counseling program prior to filing. In re Watson, __ B.R. __, 205 WL 2990902 (Bankr. E.D. Va. 2005).

Amended 11 U.S.C. 109(h) requires that individual debtors, within 180 days prior to filing, complete a credit counseling program from an approved agency. There are provisions for a temporary waiver of this requirement if the debtor files a certification that: "(i) describes exigent circumstances that merit a waiver of the requirements ...; (ii) states that the debtor requested credit counseling services ... but was unable to obtain the services [within 5 days after the request]; and (iii) is satisfactory to the court." In Watson, the debtor filed a certification that he had been unable to obtain credit counseling prior to filing because he had been involved in a hearing and mediation on an unlawful detainer action filed by the landlord of his business premises until immediately before he filed his personal bankruptcy. The certification did not indicate that the debtor had requested credit counseling from an approved agency. The Watson court concluded that this didn't cut it, denied the request for an extension and dismissed the case.

First, the court rejected the debtor's argument that the 109(h) requirements cited above are disjunctive rather than conjunctive (i.e., that there can be either exigent circumstances or an unfulfilled request to counseling agency). The court concluded that the use of a semi-colon between clauses (i) and (ii), with an "and" to connect clause (iii), clearly demonstrated the intent that the statute be interpreted conjunctively, notwithstanding the absence of a phantom "and" between clauses (i) and (ii). Somewhat apologetically, it noted that "while the result of interpreting Section 109(h)(3)(A) using the Plain Meaning Rule may produce an unpopular and perhaps even burdensome result, this Court is not the forum in which to seek a remedy; the proper venue instead lies with Congress."

Having concluded that the plain language requires an individual to seek credit counseling prior to filing, it then addressed the debtor's alternative argument that the imposition of such a requirement is an unconstitutional violation of the equal protection clause. Specifically, the debtor argued that the imposition of the credit counseling requirement only on individual debtors denies equal protection to people who choose to operate their businesses as sole proprietorships rather than through corporations or limited liability companies. Unsurprisingly, the Watson court was not persuaded. Since sole proprietors are not a "suspect" class meriting heightened review, and the counseling requirement does not burden a fundamental right (there being no constitutional right to a discharge of debts), the court found that the credit counseling requirement passed the necessary rational basis test.

The Watson decision confirms that exigent circumstances alone will not excuse debtors from the credit counseling requirements; debtors must also certify that they have actually sought, and been unable to get, credit counseling before filing.