Incapacity and Disability Waivers for Credit Counseling Explored

(Editor's Note: With this post we start a short series of entries on the 109(h) credit counseling provisions authored by our able summer associate, Daniel Cervantes, who graciously agreed to help us get caught up.)

So far debtors and courts have found little if any wiggle room in the BAPCPA requirement, codified in 109(h), that debtors complete credit counseling in advance of filing. Much of the discussion has focused on the ability to obtain an extension of time to complete the counseling (inartfully called a "waiver") under the provisions of 109(h)(3). However, there is another provision which really is a waiver, and excuses a debtor from the counseling requirement entirely. 11 U.S.C. 109(h)(4) provides that the counseling requirements do not apply to a debtor who "is unable to complete those requirements because of incapacity, disability, or active military duty in a military combat zone."

For purposes of this provision, “incapacity” means that the debtor "is impaired by reason of mental illness or mental deficiency so that he is incapable of realizing and making rational decisions with respect to his financial responsibilities;" and “disability” means that the debtor "is so physically impaired as to be unable, after reasonable effort, to participate in an in person, telephone, or Internet briefing required under paragraph (1). "

In In re Tulper, __ B.R. __, 2006 WL 1651710 (Bankr. D. Col. 5/22/06), the court granted the debtor's Motion for Waiver of Budget and Credit Counseling. At the evidentiary hearing, the court found that Mrs. Tulper, age 60, suffered from heart problems, tremors, asthma, a bad lung, arthritis, a disintegrated spine, and a plate in her right ankle, which combined to make her wheelchair-bound. Moreover, Mrs. Tulper was taking approximately 17 prescribed medications, which she brought to the hearing in their regular container that “was the size of a small tool box.” Id. at 2. The court also found that Mr. Tulper, age 81, who was Mrs. Tulper’s care giver, could not hear or had little hearing capability even with the use of a hearing aid. He also had 40% disability with respect to use of hands and feet. Neither of them had any computer skills.

The court found that there are three elements required to satisfy the disability requirement: (1) the debtor is severely physically impaired; (2) the debtor has made a reasonable effort, despite the impairment, to participate in the pre-petition credit counseling; and (3) the debtor is unable, because of the impairment, to participate meaningfully in an in person, telephone, or Internet briefing pre-petition. Id. at 3. The court easily found that the debtors were physically impaired. The debtors also made a reasonable effort to address credit counseling by conferring with their accountant and attorney, who found that it was very difficult to communicate anything with the debtors. The court found that the Tulpers could not meaningfully participate in the briefing because of their communication difficulties.

Thus, the purpose of counseling could not be fulfilled, and the requirement would be waived: "If a debtor goes to credit counseling and, because of a significant impairment, cannot participate in the credit counseling such that he or she can understand what is conveyed during the credit counseling session, so as to be able to have the 'opportunity to learn about the consequences of bankruptcy,' then the prepetition credit counseling becomes meaningless." (Editor's Note: Query how the attorney could be assured the debtors were making a meaningfully informed decision to file bankruptcy if they were incapable of meaningfully participating in a counseling session.)

To obtain a waiver via § 109(h)(4) disability, the debtor must provide sufficient evidence; mere allegations are not enough. In re Stockwell, Slip Copy, 2006 WL 1149182 (Bankr. D. Vt. 4/27/06). In Stockwell, the debtor alleged disability as a result of a brain tumor, seizures, and blindness. The court set a hearing requiring the debtor to show proof of these disabilities, and the Debtor’s attorney responded with a medical report. Though the court found that “a medical report documenting the disability or incapacity may be sufficient,” the report “[did] not describe a person who ‘is impaired by reason of mental illness or mental deficiency so that [she] is incapable of realizing and making rational decisions with respect to [her] financial responsibilities’ nor ‘so physically impaired as to be unable, after reasonable effort, to participate in’ a personal financial management course.” Id. at 2. Furthermore, “there [was] nothing in the record to verify that the Debtor is blind, nor to affirm that there are no personal financial management courses available in which she could, after reasonable effort, participate, e.g., courses designed for persons who are visually impaired.” Though the motion alleged sufficient facts appearing to warrant a waiver, the debtor could not support the allegations with evidence.

In a very different take on the disability/incapacity exception, in In re Star, 341 B.R. 830 (Bankr. E.D. Va. 4/24/06), an incarcerated debtor argued that his present confinement rendered him “disabled” within the meaning of § 109(h)(4). The debtor argued that because of the specific restrictions of his environment, he was “physically prevented” from participating in any credit counseling classes. Furthermore, no such courses are available for him to attend in person, by phone or via internet. The court held that “incarceration” was not within the meaning of “disability” intended by Congress, but nonetheless treated debtor’s motion as one for Certification of Exigent Circumstances and granted the debtor extra time to complete the counseling course.