Monday, January 16, 2006

Got Credit Counseling?

While the interpretation of some new BAPCPA provisions (like the homestead caps) have engendered debate, others -- for better or worse -- are abundantly clear. One thing that appears to be beyond dispute is that there will be no evading the pre-petition credit counseling requirements of 11 U.S.C. 109(h), or at least the requirement that debtors certify they have sought and were unable to obtain such counseling prior to filing.

Several recent cases have provided some additional clarity on the application of this new requirement, and the very limited circumstances in which it can be waived or extended. In a case that was previously discussed here, a Texas court has issued another published opinion, In re Hubbard, 333 B.R. 377 (Bankr. S.D. Tex. 11/16/05). This opinion clarifies that: (1) a "certification" as required by the statute must contain a declaration under penalty of perjury, as indicated in 28 USC 1746, or be deemed insufficient; (2) completion of credit counseling post-petition is insufficient; and (3) the effect of non-compliance with the counseling requirement is that a petition will be "stricken" rather than "dismissed," on the theory that if the debtor is ineligible there is no valid case to be dismissed.

Several other cases have similarly confirmed that completion of credit counseling post-filing will not remedy the failure to obtain it pre-filing. In re Fuller, __ B.R.__, 2005 WL 3454699 (Bankr. W.D. Pa. 12/16/05); In re Rodgers, __ B.R. __, 2005 WL 3454702 (Bankr. W.D. Pa. 12/16/05); In re Stidham, __ B.R. __, 2005 WL 3454709 (Bankr. W.D. Pa. 12/16/05); In re Childs, __ B.R. __, 2005 WL 3529729 (Bankr. D. Md. 12/19/05); In re Davenport, __ B.R. __, 2005 WL 3292700 (Bankr. M.D. Fla. 12/6/05). In Davenport, the case was dismissed notwithstanding the debtor's eminently logical and practical "no harm, no foul" argument that the dismissal would be "futile" since she could merely refile a new petition with the credit counseling certificate now in hand.

Multiple courts have also agreed that when a debtor fails to comply with the 109(h) pre-petition counseling requirements, the petition should be "stricken" rather than "dismissed." In re Valdez, __ B.R. __, 2005 WL 3526495 (Bankr. S.D. Fla. 12/13/05); In re Rios, __ B.R. __, 2005 WL 3462728 (Bankr. S.D.N.Y. 12/19/05). This is not an idle distinction; rather, the effect of treating the filing as a nullity and striking it is that if (or, more likely, when) the debtor refiles, the first filing will not be treated as a previously filed case which would trigger a presumption of bad faith and result in the automatic expiration of the automatic stay after 30 days under 11 U.S.C. 362(c)(3). The Rios court cautions that notwithstanding its opinion that a filing without satisfying the counseling requirements is void ab initio, parties would be well advised to seek a court determination as to whether a case was properly commenced before acting in reliance on a filing being void for lack of eligibility.

The Hubbard case also provides some insight on what would be necessary to represent that counseling is unavailable. While a debtor's lawyer may act as the debtor's agent for purposes of inquiring about the availability of counseling, mere general inquiries (rather than specific requests for a particular debtor) will not be a sufficient basis for representing that counseling is not available. On the other hand, a debtor will not be required to "scour the field" and seek out counseling from multiple agencies if it contacts one which is unable to provide the services within five days. If the debtor faces exigent circumstances, he/she can then file an appropriate certification without seeking counseling from another agency. Meanwhile, other courts have been more generous than the Hubbard court as for what constitutes a "certification," permitting any paper or motion which contains the reuired information and is signed by the debtor to constitute a "certification." See, e.g., In re Graham,__ B.R. __, 2005 WL 3629925 (Bankr. W.D. Ky. 12/21/05); see also Childs, supra (certification need not be under oath).

Congratulations are perhaps due to Mr. Melvin Carter, one of five debtors whose cases are described in the Childs decision referred to above. Mr. Carter was the only one of the five granted a waiver from the prepetition credit counseling requirement (and, as far as I can tell, the only one described in any published opinion). How did he do it? Mr. Carter's certification (his third, actually, after the court had denied earlier motions for extension) stated: "My real property ... is scheduled for foreclosure on October 21, 2005 at 11:04 A.M. On October 20, 2005, I was advised to seek credit counseling, which I did. Due to the large number of requests, I was unable to obtain an appointment for credit counseling until November 26, 2005. I completed the required counseling on November 26, 2005."

The court in Childs (a per curiam decision which is described as representing the consensus of all the members of the Maryland Bankruptcy Court) held that a certification is sufficient if it contains a simple description of the exigent circumstances precipitating the filing, and states that the debtor requested counseling that was not made available to him within five days, even if it does not specify the date the services were requested. Applying this standard, Mr. Carter's certification (unlike those of the other debtors in Childs and every other case that has so far been reported) was deemed sufficient.

Also worth noting in the Childs case is its definition of "exigent circumstances" as used in 109(h). The court defines this standard as "minimal," and requiring only "some looming event that renders prepetition credit counseling to be infeasible." It purposefully distinguishes this standard from the "excusable neglect" standard applied in other circumstances, noting that "exigent circumstances," unlike "excusable neglect," requires no inquiry into the reasons for the exigency and the debtor's responsibility for them. Other courts may disagree, however. Compare In re Talib, 2005 WL 3272411 (Bankr. W.D. Mo. 12/1/05) (description of exigent circumstances must explain why debtor waited until eleventh hour to seek counseling).

To get a taste of how bankruptcy judges feel about applying these new provisions, you should also read "Tell Us How You Really Feel About Credit Counseling".


Anonymous said...

I'm waiting for the hammer of section 109(h)(3)(B) to fall, where an "exigent circumstances" exemption is granted because the debtor couldn't get counseling within 5 days, but then the case has to be stricken later (I guess?) because the counseling could not be obtained within 30 (or even 45) days AFTER filing. I would think waiting periods at counseling agencies will rise above 45 days at some point soon.

Am I reading this right?
Any indication if (or when) this will become a problem? I've seen no discussion of this in the advance sheets.

Frodnesor said...

Jason -

I've not heard of that situation presenting itself yet, either in a decision or anectodally. I've got to think that if the agencies were unable to service potential filers within 45 days that the US Trustee would be obligated to make a determination that services are not reasonably available as contemplated by 109(h)(2)(A). An issue might arise if the debtor's agency "of choice" was unable to provide services within 45 days but another one could - some courts have already held that a debtor does not have to "scour the field" before making the certification which accompanies a waiver request, but would the same hold true after they've obtained the waiver?

Anonymous said...

Typo on Child's cite: should read
2005 WL 352972. Thanks for your work on blog.

Frodnesor said...

Sorry, cite's been corrected, it's actually 2005 WL 3529729. Thanks.