Bankruptcy Court Can Review Adequacy of Credit Counseling

Our previous posting, “Credit Counseling Not ‘Adequate’ For Debtors Who Can't Understand It”, discussed one of the few debtor-friendly decisions under Section 109(h), in which Judge A. Jay Cristol, In re Petit-Louis, 338 B.R. 132 (Bankr.S.D.Fla. 3/1/06) (“Petit-Louis I”), held that section 109(h)’s credit counseling requirement cannot be imposed on a debtor who has very limited English-speaking ability, where no approved counseling agency had counselors who spoke the debtor's language. Judge Cristol concluded that Mr. Petit-Louis’s inability to obtain counseling in Creole, combined with the fact that he could not afford to hire a translator, created a barrier to the bankruptcy court that Congress did not intend to create when it mandated that debtors complete a credit counseling course before filing. At the time of the posting, the U.S. Trustee (“UST”) had a pending motion for reconsideration, arguing that the Bankruptcy Court lacked authority to waive the counseling requirement for Mr. Petit-Louis.

Judge Cristol recently reaffirmed his ruling in Petit-Louis I, and provided debtors a second argument for seeking waiver of the pre-filing counseling requirement if a debtor contends that counseling in his district is inadequate. In re Petit-Louis, __ B.R. __, 2006 WL 1793642 (Bankr. S.D. Fla. 6/23/06) ("Petit-Louis II"). First, Judge Cristol held that the bankruptcy court had authority to waive Mr. Petit-Louis’s counseling requirement under section 109(h)(3) (the “Exigent Circumstances Waiver”), as provided in the original decision. Second, Judge Cristol held that the Court also had authority to grant Mr. Petit-Louis’s waiver under section 109(h)(2), which imposes a duty on the UST to decertify a district (thus waiving section 109(h)’s counseling requirement) if adequate credit counseling is not reasonably available in the district.

Under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), debtors are required to attend a credit counseling course from an agency approved by the Office of the U.S. Trustee prior to filing a petition. However, pre-filing counseling is not required for:

A debtor who resides in a district for which the United States trustee . . . determines that the approved nonprofit budget and credit counseling agencies for such district are not reasonably able to provide adequate services to the additional individuals who would otherwise seek credit counseling from such agencies by reason of the requirement of [section 109(h)] . . .

In Petit-Louis II, Judge Cristol stated that this provision gives the UST authority to determine whether counseling in a district is adequate. However, Judge Cristol found that a debtor must be afforded a forum to seek review of an “arbitrary and capricious” adequacy determination by the UST and that the bankruptcy court is the “logical and proper” forum for seeking such review.

Thus, upon Mr. Petit-Louis’s challenge that credit counseling is inadequate for Creole-speaking debtors in the Southern District of Florida who cannot afford to hire a translator, the UST was required to defend its determination of adequacy. In this case, the UST did not set forth any argument or proffer any evidence to support its determination that credit counseling in the district was adequate for debtors such as Mr. Petit-Louis. Because the UST did not meet its burden in responding to Mr. Petit-Louis’s challenge under section 109(h)(2), the bankruptcy court was entitled to waive the pre-filing counseling requirement for Mr. Petit-Louis.

Judge Cristol’s decision provides precedent for a debtor who may be unintentionally barred access to the bankruptcy court on account of his lack of English language ability to seek relief in the bankruptcy court. In this case, Mr. Petit-Louis’s counsel requested the credit counseling waiver by attaching a letter to his petition explaining his substantial efforts to obtain credit counseling in Creole before filing. Because this was a “novel procedural issue for the Debtor” and because the UST was placed on sufficient notice that the debtor intended to challenge the adequacy of counseling, the Court held that the UST was not prejudiced by the procedure. However, future debtors who seek relief from section 109(h)’s counseling requirement in the bankruptcy court on the basis that counseling is not adequate in their district, should do so by filing a motion that puts forth the basis for the requested relief with their voluntary petition.

The UST appears to have recognized some of the problems for limited-English speaking debtors created by section 109(h)’s credit counseling requirement and has accordingly taken steps to solve this problem by approving counseling agencies that provide services in multiple languages. The UST’s list of approved counseling agencies, available on the UST’s national website, now includes information about the languages in which credit counseling agencies are able to provide counseling. If accurate and up-to-date, this information should make it easier for limited-English speaking debtors to find adequate counseling agencies in their district.

(In the interest of full disclosure, I should advise that my firm colleagues Lisa Keyfetz and John Kozyak provided pro bono assistance to Mr. Petit-Louis and Legal Services of Greater Miami in responding to the U.S. Trustee's motion for reconsideration).