Michael Barnett, P

¶1.1 Counsel is now permitted to sharing compensation with a public service attorney referral program operating in compliance with state and local laws regarding referral services and with all bar or other professional conduct rules regarding attorney acceptance of referrals.

§504(c) This section [limiting sharing of compensation] shall not apply with respect to sharing, or agreeing to share, compensation with a bona fide public service attorney referral program that operates in accordance with non-Federal law regulating attorney referral services and with rules of professional responsibility applicable to attorney acceptance of referrals.

¶1.2 Debt Relief Agency

¶1.21 Debtor’s counsel is a generally a debt relief agency, with the possible exception of pro-bono cases. §526 sets out the requirements all debt relief agencies (including debtor’s counsel) must follow.

Cases:

Georgia:

In re Attorneys at Law and Debt Relief Agencies, 332 B.R. 66 (Bankr. S.D. Ga. 2005). Judge Lamar W. Davis, Jr., Chief Judge of the Southern District of Georgia, has ruled that these provisions generally will not cover attorney admitted before his court. The Office of the US Trustee has appealed this order.

In the Middle District, Judge Hershner ruled that he did not have jurisdiction to determine whether debtor’s attorney qualified as Debt Relief Agency under BAPCPA in absence of some party threatening to enforce the DRA provisions against counsel. In re McCartney, 336 BR 588 (Bankr. M.D. Ga. 2006). Debtor’s attorney filed a request to determine counsel’s status, alleging that the DRA provisions of BAPCPA are unconstitutional as applied to attorneys practicing in the court, that the statutory structure indicated that attorneys were not DRA’s, and that legislative history indicated that the provisions were not intended to apply to attorneys. The US Trustee filed a response.

The Court initially determined whether Debtor’s counsel had met the burden of proof of showing that the motion involved a ‘case or controversy’ citing Wolff v. Cash 4 Titles, 351 F.3d 1348, 1353 (11^th Cir. 2003). In order to meet this requirement, the litigant must show ‘an invasion of a legally protected interest’ that is ‘concrete and particularized’ and ‘actual or imminent.’ The litigant must have suffered some threatened or actual injury that is subject to redress by a favorable ruling. The injury or threat of injury must be both real and immediate, not conjectural or hypothetical. Three elements are required to meet the case or controversy requirement: 1) the plaintiff must demonstrate ‘actual injury’; 2) the plaintiff must demonstrate a causal link between the challenged conduct and the injury; 3) it must be likely rather than speculative that the injury will be redressed by a favorable ruling.

Since no one has threatened to enforce the Debt Relief Agencies provisions against the counsel, counsel has not suffered any harm or injury and has not shown that he is at risk of suffering harm or injury. Thus the Court determined it lacked jurisdiction to determine whether the DRA provisions applied to counsel.

§101(12A)The term ‘debt relief agency’ means any person who provides any bankruptcy assistance to an assisted person in return for the payment of money or other valuable consideration, or who is a bankruptcy petition preparer under section 110, but does not include –

(A) any person who is an officer, director, employee, or agent of a person who provides such assistance or of the bankruptcy petition preparer;

(B) a nonprofit organization that is exempt from taxation under section 501(c)(3) of the Internal Revenue Code of 1986;

(C) a creditor of such assisted person, to the extent that the creditor is assisting such assisted person to restructure any debt owed by such person to the creditor;

(D) a depository institution (as defined in section 3 of the Federal Deposit Insurance Act) or any Federal credit union or State credit union (as those terms are defined in section 101 of the Federal Credit Union Act), or any affiliate of subsidiary of such depository institution or credit union; or

(E) an author, publisher, distributor, or seller of works subject to copyright protection under title 17, when acting in such capacity.

¶1.22 DRA’s must show in all advertisements for bankruptcy assistance or the benefits from bankruptcy directed to the general public (including direct mail, websites, and answering machines) that the services are with respect to bankruptcy relief under Title 11. Thus, advertisements simply stating that federal law may permit reduction of debt or stop foreclosures or the like must disclose that the referenced law is the bankruptcy code. The telephone answering machine message may need to be modified to disclose that the firm is involved in assisting individuals in bankruptcy; while at the same time making clear that the firm is not then offering to assist the caller in any matter. For a definition of bankruptcy assistance, see §101(4A) and related discussion. For further statutory expansion of advertisements subject to these sections, see §528(b).

§528(a) A debt relief agency shall-

(3) clearly and conspicuously disclose in any advertisements of bankruptcy assistance services or of the benefits of bankruptcy directed to the general public (whether in general media, seminars or specific mailings, telephonic messages, or otherwise) that the services or benefits are with respect to bankruptcy relief under this title; and

¶1.23 All advertisements subject to §528(a)(3) also must make the a statement substantially similar to the following in such advertisement. “We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”

§528(a) A debt relief agency shall-

(4) clearly and conspicuously use the following statement in such advertisement: “We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.” or a substantially similar statement.

§528(b)(1) An advertisement of bankruptcy assistance services or of the benefits of bankruptcy directed to the general public includes –

(A) descriptions of bankruptcy assistance in connection with a chapter 13 plan whether or not chapter 13 is specifically mentioned in such advertisement; and

(B) statements such as “federally supervised repayment plan” or “Federal debt restructuring help” or other similar statements that could lead a reasonable consumer to believe that debt counseling was being offered when in fact the services were directed to providing bankruptcy assistance with a chapter 13 plan or other form of bankruptcy relief under this title.

(2) An advertisement, directed to the general public, indicating that the debt relief agency provides assistance with respect to credit defaults, mortgage foreclosures, eviction proceedings, excessive debt, debt collection pressure, or inability to pay any consumer debt shall-

(A) disclose clearly and conspicuously in such advertisement that the assistance may involve bankruptcy relief under this title; and

(B) include the following statement: “We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.” or a substantially similar statement.

¶1.24 DRA’s must perform any service that it informed an assisted person it would perform in connection with a case under this title. §526(a)(1). Thus, if a law firm’s advertisement states same day filing, and it cannot do this for a client that comes in at 5:00pm appointment with none of the required information, that may be a violation of this section. If the ad promises restoration of credit after the bankruptcy, or promises to wipe out debts, or stop foreclosures, or anything related to bankruptcy: and due to the circumstances of the individual case it doesn’t happen: counsel may have violated this section. Therefore it is critical to review any advertising to insure that nothing is promised that cannot be delivered in every case.

§526(a) A debt relief agency shall not-

(1) fail to perform any service that such agency informed an assisted person or prospective assisted person it would provide in connection with a case or proceeding under this title;

¶1.25 It is very important that neither the advertising from counsel nor the initial contact by the staff when the client calls to set an appointment constitutes an offer to provide bankruptcy assistance, since this triggers the additional requirement for the written disclosure of §527(a)(2). Thus, when the law firm gets the call from that client that keeps wanting assurance that counsel can help them before they come in for an appointment, the staff must be firm that the attorney will discuss whether the attorney can help at the appointment, and not before.

¶1.26 DRA’s cannot misrepresent, either directly or by material omission, what services will be provided by the firm and the benefits and risks from filing a bankruptcy. §526(a)(3). ‘Puffing’ or overly optimistic descriptions of what bankruptcy can accomplish, either in advertisements or in oral or written communications with ‘assisted persons’ could violate this section. Be sure you know what your staff is telling potential clients to get them in the door.

§526(a) A debt relief agency shall not-

(3) misrepresent to any assisted person or prospective assisted person, directly or indirectly, affirmatively or by material omission, with respect to –

(A) the services that such agency will provide to such person; or

(B) the benefits and risks that may result if such person becomes a debtor in a case under this title; or

¶ 2 Appointment with Attorney

¶2.1 Limitations on communications:

A DRA is not permitted to recommend that the client/potential client incur additional debt or recommend that such person pay an attorney or bankruptcy petition preparer for services in preparing the petition or representing them in a bankruptcy. Thus, while counsel may recommend that they file bankruptcy, counsel cannot recommend that they pay for it. Counsel may, of course, decline to file the case without payment, can describe the payment that counsel would require to file, but cannot specifically recommend paying such fee. Also, it would appear to be a violation to, for instance, recommend that the client trade in their car for a new car prior to filing. It would even seem to be a violation to recommend that they get insurance on the vehicle or house if any of the insurance is financed. There may be constitutional problems with this section. This section would also seem to prohibit putting a portion of the chapter 13 fee in the plan. Some courts have instituted a procedure determining in the confirmation order that payment of fees in the plan is not a violation of this section. This would then become res judicata preventing future problems in that case on the issue. More courts should be encouraged to emulate such procedure.

§526(a) A debt relief agency shall not-

(4) advise an assisted person or prospective assisted person to incur more debt in contemplation of such person filing a case under this title or to pay an attorney or bankruptcy petition preparer fee or charge for services performed as part of preparing for or representing a debtor in a case under this title.

¶2.2 Written DRA disclosure regarding accuracy of information: within three days of the first date on which counsel offers to provide bankruptcy assistance the firm must provide the written disclosure required by §527(a)(2). This includes a statement that all information on the petition and later disclosures must be true, accurate, and complete; that all assets and liabilities must be disclosed with replacement value of such assets; income and expenses must be disclosed as required, and all information may be audited, and failure to accurately and completely disclose may result not only in dismissal but criminal sanctions. As to replacement value, the point has been raised that the ‘documents filed to commence the case’ is the voluntary petition, which does not show any values. Even a broader interpretation, to include schedules, §527(a)(2)(B) refers to replacement value ‘in those documents where requested’ but since the schedules do not request replacement value, this may be inapplicable.¹

§527(a)(2) to the extent not covered by the written notice described in paragraph (1), and not later than 3 business days after the first date on which a debt relief agency first offers to provide any bankruptcy assistance services to an assisted person, a clear an conspicuous written notice advising assisted persons that –

(A) all information that the assisted person is required to provide with a petition and thereafter during a case under this title is required to be complete, accurate, and truthful;

(B) all assets and all liabilities are required to be completely and accurately disclosed in the documents filed to commence the case, and the replacement value of each asset as defined in section 506 must be stated in those documents where requested after reasonable inquiry to establish such value;

(C) current monthly income, the amounts specified in section 707(b)(2), and, in a case under chapter 13 of this title, disposable income (determined in accordance with section 707(b)(2)), are required to be stated after reasonable inquiry; and

(D) information that an assisted person provides during their case may be audited pursuant to this title, and that failure to provide such information may result in dismissal of the case under this title or other sanction, including criminal sanction.

¶2.3 DRA disclosure re General Bankruptcy Information: at the same time as a DRA provides the §527(a)(1)/342(b)(1) disclosure, a DRA must provide the §527(b) disclosure. In practical terms, all of these should be provided initially to the potential client at the initial appointment with counsel. The section 527(b) disclosure notes that the client can file pro-se, can file with an attorney, or may be able to file with a petition preparer. Attorneys and petition preparers are required to provide a contract with the client showing what they will do and what it will cost. It notes that either the client or the attorney (but not the petition preparer apparently) should analyze the different cases and the clients eligibility for each, mentions some of the filing documents, reaffirmations, chapter 7 and 13 cases, and notes that petition preparers are not permitted to provide legal advice.

§527(b) A debt relief agency providing bankruptcy assistance to an assisted person shall provide each assisted person at the same time as the notices required under subsection (a)(1) the following statement, to the extent applicable, or one substantially similar. The statement shall be clear and conspicuous and shall be in a single document separate from other documents or notices provided to the assisted person:

IMPORTANT INFORMATION ABOUT BANKRUPTCY ASSISTANCE SERVICES FROM AN ATTORNEY OR BANKRUPTCY PETITION PREPARER.

If you decide to seek bankruptcy relief, you can represent yourself, you can hire an attorney to represent you, or you can get help in some localities from a bankruptcy petition preparer who is not an attorney. THE LAW REQUIRES AN ATTORNEY OR BANKRUPTCY PETITION PREPARER TO GIVE YOU A WRITTEN CONTRACT SPCIFYING WHAT THE ATTORNEY OR BANKRUPTCY PETITION PREPARER WILL DO FOR YOU AND HOW MUCH IT WILL COST. Ask to see the contract before you hire anyone.

The following information helps you understand what must be done in a routine bankruptcy case to help you evaluate how much service you need. Although bankruptcy can be complex, many cases are routine.

Before filing a bankruptcy case, either you or your attorney should analyze your eligibility for different forms of debt relief available under the Bankruptcy Code and which form of relief is most likely to be beneficial for you. Be sure you understand the relief you can obtain and its limitations. To file a bankruptcy case, documents called a Petition, Schedules and Statement of Financial Affairs, as well as in some cases a Statement of Intention need to be prepared correctly and filed with the bankruptcy court. You will have to pay a filing fee to the bankruptcy court. Once your case starts, you will have to attend the required first meeting of creditors where you may be questioned by a court official called a ‘trustee’ and by creditors.

If you choose to file a chapter 7 case, you may be asked by a creditor to reaffirm a debt. You may want help deciding whether to do so. A creditor is not permitted to coerce you into reaffirming your debts.

If you choose to file a chapter 13 case in which you repay your creditors what you can afford over 3 to 5 years, you may also want help with preparing your chapter 13 plan and with the confirmation hearing on your plan which will be before a bankruptcy judge.

If you select another type of relief under the Bankruptcy Code other than chapter 7 or Chapter 13, you will want to find out what should be done from someone familiar with that type of relief.

Your bankruptcy case may also involve litigation. You are generally permitted to represent yourself in litigation in bankruptcy court, but only attorneys, not bankruptcy petition preparers, can give you legal advice.

¶2.4 DRA disclosure as to how to fill out information: Unless counsel provides the required information for the petition and schedules itself after a reasonably diligent inquiry, counsel must provide another disclosure to the client describing how the client should value assets at replacement value, determine income and expenses in accordance with §707(b)(2) and related calculations, how to complete the list of creditors including amount owed and how to determine the correct address to use; and how to determine exemptions.

An argument has been raised that while §527(c)(1) requires advice to the ‘assisted person’ of how to value assets at replacement value, that is irrelevant for filling out the schedules in the case. See ¶ 2.2 above.

A number of bankruptcy filing programs have an option to order credit reports and asset reports. This will probably be used more after BAPCPA. However, counsel will still need 6 months of statements from creditors (if possible) to determine the correct address for creditors, and should review payroll records to confirm the income and expenses.

§527(c) Except to the extent the debt relief agency provides the required information itself after reasonably diligent inquiry of the assisted person or others so as to obtain such information reasonably accurately for inclusion on the petition, schedules or statement of financial affairs, a debt relief agency providing bankruptcy assistance to an assisted person, to the extent permitted by nonbankruptcy law, shall provide each assisted person at the time required for the notice required under subsection (a)(1) reasonably sufficient information (which shall be provided in a clear and conspicuous writing) to the assisted person on how to provide all the information the assisted person is required to provide under this title pursuant to section 521, including-

(1) how to value assets at replacement value, determine current monthly income, the amounts specified in section 707(b)(2) and, in a chapter 13 case, how to determine disposable income in accordance with section 707(b)(2) and related calculations;

(2) how to complete the list of creditors, including how to determine what amount is owed and what address for the creditor should be shown; and

(3) how to determine what property is exempt and how to value exempt property at replacement value as defined in section 506.

¶2.5 Retention of DRA disclosures: A DRA is required to retain a copy of all the §527 disclosures for 2 years after the date on which the notice is given. It would seem advisable to have the potential client sign and date each notice, acknowledging receipt of a copy of each. Note that copies of all these forms must be retained whether or not the potential client ever retains the firm. The statute does not require that the original be retained, but rather just a copy, so presumably an electronic copy should suffice.

§527(d) A debt relief agency shall maintain a copy of the notices required under subsection (a) of this section for 2 years after the date on which the notice is given the assisted person.

¶3 Contract:

¶3.1 Within 5 days of the first date on which a DRA provides any bankruptcy assistance services (ie any advice regarding bankruptcy) and prior to filing any case, the DRA must execute a written contract with the person explaining the services the agent will provide and the fee or charges for such services as well as the payment terms. It is critical to note this contract must be provided within 5 days of first making any recommendation to the potential client whether or not counsel is employed within the five days. Thus, best practice would seem to be to provide a separate DRA contract at the initial appointment. If counsel advertises free initial consultation the DRA contract may show no fee for initial DRA advice and also set out the fees and costs for representation in the bankruptcy itself, including contingent fees such as for adversary proceedings.

A copy of this contract must be provided to the petition client.

A strict reading of §101(4A) might require that if an attorney ‘covers’ a 341 or other hearing, that attorney must make a separate DRA contract with the client, and have the client sign it, except that such contract must be executed prior to the bankruptcy petition being filed. Presumably, this might apply if a law firm always has another attorney cover their 341s, but hopefully would not apply where counsel only rarely has other counsel cover a hearing due to illness or a scheduling conflict.

§528(a) A debt relief agency shall-

(1) not later than 5 business days after the first date on which such agency provides any bankruptcy assistance services to an assisted person, but prior to such assisted person’s petition under this title being filed, execute a written contract with such assisted person that explains clearly and conspicuously-

(A) the services such agency will provide to such assisted person; and

(B) the fees or charges for such services, and the terms of payment;

(2) provide the assisted person with a copy of the fully executed and completed contract;

§101(4A) The term “bankruptcy assistance” means any goods or services sold or otherwise provided to an assisted person with the express or implied purpose of providing information, advice, counsel, document preparation, or filing, or attendance at a creditors’ meeting or appearing in a case or proceeding on behalf of another or providing legal representation with respect to a case or proceeding under this title.

¶3.2 In determining the fee to be charged the debtor, the court is now required to consider whether the professional is board certified or has otherwise demonstrated ‘skill and experience’ in the field. Thus, board certified or counsel with demonstrated skill and experience may reasonably charge higher rates in their contract for services.

§330(a)(3) In determining the amount of reasonable compensation to be awarded to an examiner, trustee under chapter 11, or professional person, the court shall consider the nature, the extent, and the value of such services, taking into account all relevant factors, including –

(E) with respect to a professional person, whether the person is board certified or otherwise has demonstrated skill and expertise in the bankruptcy field;….

¶3.3 The contract with the client cannot waive any of the client’s right under §526 related to obligations of Debt Relief Agencies.

§526(b) Any waiver by any assisted person of any protection or right provided under this section shall not be enforceable against the debtor by any Federal or State court or any other person, but may be enforced against a debt relief agency.

¶3.4 Any contract between a DRA and client (including between bankruptcy counsel and client) that does not comply with the requirements of §§526, 527, and 528 is void and unenforceable except as by the client against the firm.

§526(c)(1) Any contract for bankruptcy assistance between a debt relief agency and an assisted person that does not comply with the material requirements of this section, section 527, or section 528 shall be void and may not be enforced by any Federal or State court or by any other person, other than such assisted person.

¶3.5 The notice given to debtors before filing describing the different chapters has changed to include notice regarding the types of services available from credit counseling agencies and warnings regarding the accuracy of the schedules. Since this includes credit counseling disclosures, and is required by the DRA (Debt Relief Agency) disclosure statute, counsel probably should provide this to potential clients prior to or at the time of the initial conference.

§327(a) A debt relief agency providing bankruptcy assistance to an assisted person shall provide –

(1) the written notice required by §342(b)(1),

§342(b) before the commencement of a case under this title by an individual whose debts are primarily consumer debts the clerk shall give to such individual written notice containing –

(1) a brief description of –

(A) chapter 7, 11, 12, and 13 and the general purpose, benefits, and costs of proceeding under each of those chapters; and

(B) the types of services available from credit counseling agencies; and

(2) statements specifying that –

(A) a person who knowingly and fraudulently conceals assets or makes a false oath or statement under penalty of perjury in connection with a case under this title shall be subject to fine, imprisonment, or both; and

(B) all information supplied by a debtor in connection with a case under this title is subject to examination by the Attorney General.

¶4 Sanctions for violation of DRA requirements

¶4.1 If counsel intentionally or negligently fails to comply with the DRA requirements, fails to file any required document resulting in dismissal or conversion of a case, or disregards the material requirements of the Federal Rules of Bankruptcy Procedure applicable to such DRA, then such counsel or firm would be liable to the client for all fees charged, actual damages, and fees and costs. A notice and hearing is required prior to the finding of such liability. Also, the chief law enforcement officer of the state may bring an action to enjoin any violations of §526 (and maybe §527 and 528 through §526(c)(1)) and to seek damages for such violation including fees and costs of such action. State and federal district courts shall have concurrent jurisdiction of such actions. Finally, the Debtor, US trustee, or the court on its own motion may seek an injunction and civil penalty if the court finds that a DRA intentionally violated this section, or engaged in a clear and consistent (though presumably unintentional) pattern or practice of violating this section. Thus, if counsel’s practices are not in conformity with sections 526-528, then they may lose all fees in multiple cases, and face litigation from everyone from their own client, the courts they practice before, and the state attorney general, even if such violation is unintentional.

§526(c)(2) Any debt relief agency shall be liable to an assisted person in the amount of any fees or charges in connection with providing bankruptcy assistance to such person that such debt relief agency has received, for actual damages, and for reasonable attorney’s fees and costs if such agency is found, after notice and a hearing, to have –

(A) intentionally or negligently failed to comply with any provision of this section, section 527, or section 528 with respect to a case or proceeding under this title for such assisted person;

(B) provided bankruptcy assistance to an assisted person in a case or proceeding under this title that is dismissed or converted to a case under another chapter of this title because of such agency’s intentional or negligent failure to file any required document including those specified in section 521; or

(C) intentionally or negligently disregarded the material requirements of this title or the Federal Rules of Bankruptcy Procedure applicable to such agency,

(3) In addition to such other remedies as are provided under State law, whenever the chief law enforcement officer of a State, or an official or agency designated by a State, has reason to believe that any person has violated or is violating this section, the State-

(A) may bring an action to enjoin such violation;

(B) may bring an action on behalf of its residents to recover the actual damages of assisted persons arising from such violation, including any liability under paragraph (2); and

(C) in the case of any successful action under subparagraph (A) or (B), shall be awarded the costs of the action and reasonable attorneys’ fees as determined by the court.

(4) The district courts of the United States for districts located in the State shall have concurrent jurisdiction of any action under subparagraph (A) or (B) of paragraph (3).

(5) Notwithstanding any other provision of Federal law and in addition to any other remedy provided under Federal or State aw, if the court, on its own motion or on the motion of the United States trustee or the debtor, finds that a person intentionally violated this section, or engaged in a clear and consistent pattern or practice of violating this section, the court may-

(A) enjoin the violation of such section; or

(B) impose an appropriate civil penalty against such person,

(d) No provision of this section, section 527, or section 528 shall –

(1) annul, alter, affect, or exempt any person subject to such sections from complying with any law of any State except to the extent that such law is inconsistent with those sections, and tehn only to the extent of the inconsistency; or

(2) be deemed to limit or curtail the authority or ability-

(A) of a State or subdivision or instrumentality thereof, to determine and enforce qualifications for the practice of law under the laws of that State; or

(B) of a Federal court to determine and enforce the qualifications for the practice of law before that court.

¶5 Initial checks

¶5.1 Check whether the debtor has ever filed before. For a national pacer search see https://pacer.login.uscourts.gov/cgi-bin/login.pl?court_id=00idx.

¶5.2 The time between the filing of a prior chapter 7 (or chapter 11) which resulted in discharge and a new chapter 7 has been expanded from 6 to 8 years. (No changes were made to §727(a)(9), thus the time between a prior chapter 12 or 13 and a new chapter 7 remains the same at 6 years or less, if 100% of unsecured were paid or it was the debtors best efforts and 70% of unsecured were paid). [Note, the 2005 Thompson-West Norton quick reference Code and Rules erroneously does not show this change]. Note the changes to the automatic stay as to any prior filings: §§362(c)(3); 362(c)(4).

§727(a) The court shall grant the debtor a discharge unless –

(8) the debtor has been granted a discharge under this section, under section 1141 or this title, or under section 14, 371, or 476 of the Bankruptcy Act, in a case commenced within 8 years before the date of the filing of the petition;

¶5.3 The time between a the filing of a prior 7, 11, or 12 which resulted in discharge and a new chapter 13 has been set to 4 years. The time between a prior 13 and a new 13 has been set for 2 years. This section would not apply if the prior case were dismissed prior to discharge. However, note the changes to the automatic stay as to any prior filings: §§362(c)(3); 362(c)(4).

Case Law:

Arkansas:

Section regarding chapter 13 refilings following prior chapter 13 discharge must be read literally, to prohibit discharge only if new case is filed within 2 years of prior order for relief which ultimately resulted in discharge, not 2 years from prior discharge, In re West, 352 B.R. 482 (Bankr. E.D.Ark. 2006). Prior chapter 13 was filed on 11/29/01, resulting in discharge on 3/22/05; current case was filed on 4/5/06. While recoginizing that it would be rare for a debtor to obtain a discharge in a prior chapter 13 filed less than 2 years before the subsequent case, the plain language of the statute sets this requirement.

Georgia:

The first case under this section found that it is not an eligibility requirement for filing a chapter 13. In re Lewis, 339 B.R. 814 (Bankr. S.D. Ga. 2006). J. Dalis. While §1328(f) prevents issuance of a discharge upon completion of the chapter 13 plan, it is not an eligibility provision. §109(e) establishes the debtor’s eligibility to be a debtor under chapter 13. The trustee also argued that since no discharge can be entered, the case must be considered to be filed in bad faith. However, BAPCPA did not change the good faith factors found in Kitchens v. Georgia Railroad Bank & Trust Company ( In re Kitchens), 702 F.2d 885 (11th Cir.1983). The availability of a discharge is only one factor in determining good faith. Finally, the trustee argued that dismissal is proper under §1307(c)(1), that the case constitutes an unreasonable delay prejudicial to creditors. However, requiring a creditor to wait in pursuing its claim against a debtor until conclusion of the case is not per se unreasonable in and of itself. While this is particularly true of 100% plans, the plan need not pay creditors in full if they are otherwise confirmable. As to secured creditors an orderly distribution of debtor's post-petition income to pay down pre-petition creditor obligations provides for adequate protection of creditor's pre-petition collateral interest and is far superior to a first come first paid race to the courthouse contemplated under non-bankruptcy law. Unsecured creditors have a better chance and more cost-efficient opportunity to be paid in a chapter 13 plan under court supervision than contemplated under available state debt-collection law. Merely because the chapter 13 debtor will not receive a discharge under an otherwise confirmable plan does not establish unreasonable delay that is prejudicial to creditors.

South Carolina:

The four year time period requirement between a prior chapter 7, 11, or 12 discharge and a new chapter 13 discharge is computed backwards from the filing of the later chapter 13 case. In re Ratzlaff, 349 B.R. 443 (Bankr. D.S.C. 2006). The Court rejected Debtor’s argument that the time was computed from the prior discharge to the chapter 13 discharge.

Virginia:

The fact that the prior case was initially filed under chapter 7, and subsequently converted to chapter 13 does not change the analysis: if a subsequent chapter 13 case is filed within 4 years of the date the chapter 7 was filed, it is not eligible for a discharge. In re Sours, 350 B.R. 261 (Bankr. E.D.Va. 2006).

§1328(f) Notwithstanding subsections (a) and (b), the court shall not grant a discharge of all debts provided for in the plan or disallowed under section 502, if the debtor has received a discharge –

(1) in a case filed under chapter 7, 11, or 12 of this title during the 4-year period preceding the date of the order for relief under this chapter; or

(2) in a case filed under chapter 13 of this title during the 2 year period preceding the date of such order.

¶6 Means Test

¶6.1 The means test does not apply, and the case may not be converted under §707(b)(2) if the debtor is a disabled veteran and the debts occurred primarily when the debtor was either on active duty or performing homeland defense activity.

§707(b)(2)(D) Subparagraphs (A) through (C) shall not apply, and the court may not dismiss or convert a case based on any form of means testing, if the debtor is a disabled veteran (as defined in section 3741(1) of title 38), and the indebtedness occurred primarily during a period during which he or she was –

(i) on active duty (as defined in section 101(d)(1) of title 10); or

(ii) performing a homeland defense activity (as defined in section 901(1) of title 32),

¶6.15 The means test does not apply if the debts are not primarily consumer debts.

Ohio:

In computing whether debts are business or consumer for application of §707(b) liability for leases should not be capped pursuant to §502(b). In re Mohr, 425 B.R. 457 (Bankr. S.D.Ohio 2010) (J. Walter). Debtor was liable on a long term lease for his business, which if counted in full, would make over 50% of his debts non-consumer. Court determined that it should use the initial threshold computations in the schedules in determining eligibility and applicability of the means test was appropriate rather than more extensive computations as required to ultimately determine amount of allowed claims. Upon filing the case the Debtor is obligated to accurately schedule debts as they exist upon filing, thus it is cannot be bad faith to schedule the total amount of liability on that date. Further, the statutory limit is only triggered by a postpetition event, ie an objection to the claim.

¶6.2 Next, determine the amount of monthly income, taking the average of the last 6 months ending on the last day of the month prior to filing, excluding social security (and certain rare war crime/terrorism benefits) income. The first issue is what constitutes ‘income’. While the bankruptcy code does not define this term, §101(10A)(A) distinguishes between ‘income from all sources’ and taxable income; this appears to reflect the Internal Revenue Code distinction between ‘gross income’ (26 USC §61(a)) and ‘taxable income’ (26 USC §63(a)). The Internal Revenue Code then sets out what is included in gross income, including gains on dealings with property, interest, rents, royalties, dividends, alimony and maintenance, pensions (26 USC §61(a)(1)-(11)), prizes and awards (26 USC §74), and unemployment compensation (26 USC §85); as well as what is excluded including gifts (26 USC §101), inheritances (26 USC §102), child support payments (26 USC §74(c)), and qualified foster care payments (26 USC §131)². On the other hand, §101(10A)(B) appears to include child support and foster care payments as income, which is specifically backed out of the income computations in §1325(b)(2). Thus courts will be left to decide how much if any of the Internal Revenue Code standards will apply.

Social security income which is not listed includes ssi payments to both adults and children, unemployment benefits may or may not be included if funded through social services block grants to states under title XX.¹ It also includes programs to provide supplemental income to World War II veterans, blind or disabled individuals age 65 or older.² It is also not entirely clear whether the non-spouse’s income is included in an individual case. Despite Reeves, cited below, the means test as now written includes the non-filing spouse’s income initially, then has a entry to remove so much of the income as is not contributed to household expenses (ie the non-filing spouse’s separate credit cards). Presumably, too high a deduction here would be subject to challenge. Income is defined as including only income received on a regular basis for household expenses. Thus, if a household member other than the joint filing spouse helps toward expenses, it is arguably only those funds paid toward household expenses and only if paid on a regular basis that this should be included.

Cases:

9^th Cir: (CA): Private disability insurance is included in CMI. Blausey v US Trustee, 552 F.3d 1124 (9^th Cir., 2009).

10^th Cir:

Court adopts ‘forward looking approach’ which modifies projected means test income over length of plan subject to debtor’s actual circumstances at the time of confirmation to determine applicable median income; but limits an adjustment to require a substantial change of circumstances. In re Lanning, 545 F.3d 1269 (10^th Cir. 2008).

Illinois:

Bankruptcy Court found that monthly loan forgiveness to employee, who as part of the initial employment contract obtained a loan a portion of which was forgiven each month he continued employment, did not constitute income during the six months prior to filing. In re Killian 422 B.R. 903 (Bankr. N.D.Ill. 2009). Court stated it was not bound by tax code’s definition of gross income, but can look to definitions in the tax code to clarify udefined terms in the Bankruptcy Code. Id. at 908. In determing whether an advance is a loan or an advance is whether at the time the advance was made the parties actually intended repayment. Id. at 910. The obligation must be uncontingent and not conditioned on a future event. Thus, under these facts the advance would have counted as income when initially made and does not constitute ongoing income during the employment contract.

Missouri:

In dicta in a pre-BAPCPA case, Judge Dow in Missouri indicated that the code seems to indicate that the spouse’s income should only be considered in a joint case. In re Reeves, 327 B.R. 436 (Bankr. W.D. Mo. 2005) (FN 7).

New York:

Court found that non-recurring income received within the 6 months prior to filing was included in disposable income computations, and could not be backed out as special circumstances. In re Cotto, 425 B.R. 72 (Bankr. E.D.N.Y. 2010). §101(10A) does not distinguish between income that is non-recurring and income that will be received on an on-going basis. A request to eliminate such income as a special circumstance flies in the face of Congresses clear intent to include income from all sources in CMI. Note that the timing of the filing of the case could have avoided this issue, and also chapter 13’s greater emphasis on on-going income also could result in lower payment in converted case.

§101(10A)(A) means the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor’s spouse receive) without regard to whether such income is taxable income, derived during the 6-month period ending on –

(i) the last day of the calendar month immediately preceding the date of the commencement of the case if the debtor files the schedule of current income required by section 521(a)(1)(B)(ii); or

(ii) (ii) the date on which current income is determined by the court for purposes of this title if the debtor does not file the schedule of current income required by section 521(a)(1)(B)(ii) and

(B) includes any amount paid by any entity other than the debtor (or in a joint case the debtor and the debtor’s spouse), on a regular basis for the household expenses of the debtor or the debtor’s dependents (and in a joint case the debtor’s spouse if not otherwise a dependent), but excludes benefits received under the Social Security Act, payments to victims of war crimes or crimes against humanity on account of their status as victims of war crimes, and payments to victims of international terrorism (as defined in section 2331 of title 18) or domestic terrorism (as defined in section 2331 of title 18) on account of their status as victims of terrorism.

¶6.3 Compare debtors income to median family income reported by the census bureau for the ‘then most current year’ or, if not so reported, the last reported year as adjusted for the change in the consumer price index. For the census report see census. If the median income is less than the state average for the size of the household, then the court may not dismiss. See also requirements of §707(b)(6), which also must be met for any party other than the US Trustee to file a motion to dismiss. Subsection (B) states that the spouse’s income shall not be included if the case is not filed jointly, and if the debtors are 1) separated or 2) are living separate and apart other than to evade this section. Query whether there is a difference in the 2 standards, other than that if separated the motive does not matter. In determining household size, an issue may arise as to inclusion of college students who lives away from home most of the year. Arguably, if the permanent address of the student is still at home, and lives at home when not in school, and is at least partially supported when at college such student should be included.¹

§101(39A) The term ‘median family income’ means for any year –

(A) the median family income both calculated and reported by the Bureau of the Census in the then most recent year; and

(B) if not so calculated and reported in the then current year, adjusted annually after such most recent year until the next year in which median family income is both calculated and reported by the Bureau of the Census, to reflect the percentage change in the Consumer Price Index for All Urban Consumers during the period of years occurring after such most recent year and before such current year.

§707(b)(7)(A) No judge, United States trustee (or bankruptcy administrator, if any), trustee, or other party in interest may file a motion under paragraph (2) if the current monthly income of the debtor, including a veteran (as that term is defined in section 101 of title 38), and the debtor’s spouse combined, as of the date of the order for relief when multiplied by 12, is equal to or less than –

(i) in the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner;

(ii) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals; or

(iii) in the case of a debtor in a household exceeding 4 individuals, the highest median income of the applicable State for a family of 4 or fewer individuals, plus $525 per month for each individual in excess of 4.

(B) In a case that is not a joint case, current monthly income of the debtor’s spouse shall not be considered for purposes of subparagraph (A) if –

(i)(I) the debtor and the debtor’s spouse are separated under applicable nonbankruptcy law; or

(II) the debtor and the debtor’s spouse are living separate and apart, other than for the purpose of evading subparagraph (A); and

(ii) the debtor files a statement under penalty of perjury –

(I) specifying that the debtor meets the requirements of subclause (I) or (II) of clause (i); and

(II) disclosing the aggregate, or best estimate of the aggregate, amount of any cash or money payments received from the debtor’s spouse attributed to the debtor’s current monthly income.

¶6.4 In determining whether an abuse exists under §707(b)(1), the court will examine the ‘means test.’ Counsel must run the means test prior to filing the case, and include a copy of the means test with the petition filing (see §707(b)(2)(C)). The test requires the computation of debtors monthly income as determined under §101(39A) above less allowed expenses in the four categories below, to come up with a monthly net available for creditors. If this figure is less than $100, no abuse is presumed. If the figure is greater than $166.67, then abuse is presumed. If between $100 and $166.67, then the debtors unsecured nonpriority claims are totaled and divided by 4. If the monthly available income x 60 is less than ¼ of the unsecured claims, no abuse is presumed. If the monthly available income x 60 is greater than ¼ of the unsecured claims, abuse is presumed.

The categories of allowed expenses are:

1) The applicable National and Local Standards issues by the IRS in effect on the date of the order for relief for the debtor, dependants, and spouse of the debtor. These standards are divided into Food/clothing, housing, and transportation. These are based on the monthly income of the debtor and the number of family members. To this total the debtor can add expenses (arguably only reasonable expenses) allowed as per the IRS Financial Analysis Handbook for health insurance, disability insurance, term life insurance (but not whole life), health savings accounts (for the debtor or any dependant), reasonably necessary expenses to protect the family from family violence, child care, court–ordered payments (including restitution as well as alimony and child support), medical expenses, dental expenses, taxes, other involuntary deductions from the paycheck, telephone and internet service¹ as well as accounting and legal fees, cell phones, student loans, repayment of loans made for payment of federal taxes, educational expenses, and professional association dues.² The food and clothing expense may be increased by 5% if the debtor demonstrates such increase is reasonable and necessary. There is a theory that the court cannot disallow these expenses since the statutory language allows ‘actual monthly expenses for the categories specified.’

The treatment of leased vehicles raises more issues. While the Internal Revenue Manual states as to the transportation allowance provided by the IRS states that if the taxpayer does not own a car, the standard public transportation amount is allowed, the manual also allows an ownership expense for leased vehicles.²

A more complicated situation arises if the debtor uses someone else’s car, a common situation for debtors. It would seem that Current Monthly Income would need to include car payments and contributions toward car expenses by a 3^rd party that the debtor uses; and consequently the debtor should be allowed an automobile allowance for the car expenses if the income is increased based on such contributions.²

Also allowed are any actual and necessary expenses for the care and support of elderly, chronically ill, or disabled household member (apparently whether or not related) or member of the debtor’s immediate family (apparently whether or not incapacitated, and including grandparents, grandchildren, and siblings) who is unable to pay for such reasonable and necessary expenses. Thus, it would seem if the debtor is assisting in supporting a grandparent, even if the grandparent is not living with the debtor, such expense may be allowed if the grandparent is needs such support. Query, if a family member is unemployed but cannot be proven to be unemployable, is that person unable to pay for such expenses?

This section allows a presumed expense of up to 10% of the projected plan payments for chapter 13 trustee administrative expenses. In actual practice this figure will almost always be negligible in the means test computation.

Private school expenses are allowed for each dependent child less than 18 years up to $1500/year if the debtor produces proof of such expense and a detailed explanation of why such expenses are reasonable and necessary, and why the expenses are not already accounted for in the standards allowed in the first paragraph. It is unclear how the debtor would prove whether or not the IRS standards include such expenses.

Additional housing and utilities expenses may be allowed if the debtor produces proof of their actual expenses and demonstrates that such expenses are reasonable and necessary.

Charitable contributions should still be deductible under §707(b)(1) though there should be evidence that such contributions did not commence with the preparation of the budget.

2) Payments due per contract on secured debts over the next 60 months, plus any other payments necessary in a chapter 13 to maintain possession of the debtor’s home, car, or other property necessary for the support of debtor and debtor’s dependants that is collateral for a debt (ie payments toward home arrearage, homeowners fees, insurance/taxes etc) over the next 60 months, all divided by 60. This would have to include payment toward any arrearage paid in the plan. Arguably this would also include any interest that accrued over the life of the plan, ie, on secured tax claims where there is no amortized payment due prepetition.¹

3) Payments to priority claims as of filing, divided by 60. DSO’s are priority, property settlements are not. This may provide an incentive to argue that a given obligation is a DSO so as to reduce net income under the means test. Attorneys fees to be paid in the plan would constitute a priority administrative expense, and so an argument could be made to include these, though since the means test specifically allows the chapter 13 trustee’s fees and does not mention attorneys fees paid through the plan, this argument may well fail.²

Note that the means test only applies to cases filed under chapter 7, not to cases converted from chapter 13 to chapter 7, even if the chapter 13 is filed after the effective date of BAPCPA. Of course, the case could still be subject to dismissal for §707(b)(1) bad faith.

Case Law

See ¶23.31

¶6.41 Vehicle Operating Allowance

Texas:

In re Hardacre, 338 B.R. 718 (Bankr. N.D. Tex. 2006) operating expense for 2 cars for joint debtor was $425 rather than doubling the single allowance of $332.

In re Lara, 347 B.R. 198 (Bankr. S.D. Tex. 2006). In determining debtors were limited to $425 operating allowance, the court cited the National and Local Standards from the IRS manual as made applicable by §707(b)(2)(A)(ii)(I).

¶6.42 Charitable Contributions

New York:

Court disallowed deduction for charitable contributions in chapter 13 means test. In re Diagostino, 347 B.R. 116 (Bankr. N.D.N.Y. 2006). (May be reversed legislatively). Debtors scheduled $100/month for charitable contributions. §1325(b)(2) requires use of §707(b)(2)(A) and (B) to determine debtor’s reasonable expenses if the debtors are above median income. Since charitable contributions are not in the IRS standards, nor in one of the specific allowable subsections in the statute, they could only be allowwed under ‘other expenses.’ To be allowed here, the must provide for the health and welfare of the taxpayer andor his or her family or must be for the production of income. Charitable contributions are necessary if it is a condition of employment or meets the necessary expense test. Citing Internal Revenue Manual §5.15.1.10. Since these conditions are not met, the expense cannot be allowed.

¶6.43 Allowance of secured payments not to be continued

Alabama:

The court rejected allowance of secured payments on a means test when such payments would avoided by surrender of the collateral in the chapter 13 plan. In re Love, 350 B.R. 611 (Bankr. M.D.Ala. 2006). §1325(b)(1)(B) requires debtor to pay all of their projected disposable income. One would not project future secured payments on surrendered collateral. Recognizing that this approach results in a logical inconsistencey of matching historyical income with future expenses; the court determined this was a more accurate reding of the Code.

California:

In chapter 13, deduction not permitted for payments on liens where there is no equity remaining after more senior liens. In re Reyes, 2009 WL 567185 (Bankr. C.D.Cal 2009).

In chapter 13 case, deduction on means test for mortgage to be stripped is not permitted. In re Grant, 423 B.R. 420 (Bankr. S.D. Cal 2010). Means test included deduction for 2^nd mortgage when plan provided for stripping this mortgage. Court rejected debtor’s argument to use a ‘snapshot in time’ in computing the means test. Court also found that debtor argued mortgage was wholly unsecured (as required to strip it) and therefore it was not a secured claim for purposes of deduction of on-going payments contractually due during the 60 months under §707.

Florida:

In Chapter 7 Debtors may include means test expense for .mortgage payment on house to be surrendered. In re Ralston, 400 BR 854 (Bankr. MD Fla. 2009) (J. Williamson). Court indicated this was emerging majority position. Situation in chapter 13 may be distinguished due to different policy concerns in chapter 13. The language of the statute, payments that are scheduled as contractually due, is not ambiguous. To assign a special meaning in bankruptcy is inconsistent with the fact that no reference is made in the statute to the schedules, nor is there any schedule to require the listing of payments contractually due. Payments remain contractually due on the petition date despite the debtor’s intent to surrender the property. In chapter 7, the means test is a snapshot of the debtor’s situation at the time of filing, and is in the nature of a mechanical formula that often relates very little to the actual financial circumstances of the debtor. The bulk of the alloweable deductions are fixed amounts based on the IRS national and local standards rather than actual expenses. As a mechanical formula, it is appropriate that deductions should be a bright line measurement rather than requiring courts to examine the facts and circumstances of ech case. Court also determined that debtors are allowed car allowance despite not owing money on vehicle.

Missouri:

Debtors had ceased payments on the vehicle prior to filing, and stated an intent to surrender the vehicle on the statement of intentions. Debtor’s cited In re Walker, 2006 WL 1314125 (Bankr. N.D. Ga., 2006) for the proposition that §707(b)(2)(A)(ii)(I) allows expenses in effect on the date of the order of relief regardless of the debtor’s intent to surrender. The Court cited the Internal Revenue Manual’s requirement that an ownership expense is only allowed for the purchase and/or lease of a vehicle. The Court also cited the IRS Collection Financial Standards for the proposition that the ownership costs provide the maximum allowance for the lease or purchase of up to two automatobiles if allowed as a necessary expense.

West Virginia

When a secured claim is being bifurcated and paid through the plan, the allowable deduction on the means test in not the contractual due payments, but the payments to be actually paid on such secured claim in the plan. In re McPherson, 350 B.R. 38 (Bankr. W.D.Va. 2006). The over-median income Debtor scheduled the $67.60/month contract payments to Best Buy in the means test, and the trustee objected arguing that the expense attributable to the secured claim under the plan would be $1.82/mo. Projected disposable income means the projected current monthly income less rojected amounts reasonably necessary to be expended for support, with the latter determined under §707(b)(2)(A) & (B). The term ‘contractually due’ does not carry the same meaning in a chapter 13 case as in a chapter 7. The chapter 13 plan constitutes a new agreement between the debtor and each secured creditor. The obligation under the plan is substituted for the original contract with the creditor. Based on the plan, there are no amounts contractually due on Best Buy after bifurcation, therefore only the amount allocated under the plan payment should be used in the means test. Disagreeing with In re Walker, 2006 WL 1314125 (Bankr. N.D.Ga. 2006) and In re Barr, 341 B.R. 181 (Bankr. M.D. N.C. 2006).

Wisconsin

Chapter 13 Debtors entitled to deduction ongoing payments on vehicle to be surrendered. In re Dionne, 2009 WL 1024094 (Bankr. WD Wis, 2009). The fact that debtors intended to surrender the vehicle did not change the fact ath payments were ‘amounts scheduled as contractually due’ on the petition date. This date is the critical date to determine both whether the case is presumptively abusive and whether the proposed plan satisfies the projected disposable income requirements.

¶6.44 Vehicle Ownership Allowance

7^th Cir.

Debtors may take vehicle ownership expense deduction in means test despite not owing any money on vehicle. In re Ross-Tousey, 549 F.3d 1148 (7^th Cir. 2008). US Trustee filed motion to dismiss under §707(b)(2) for the means test and §707(b)(3)(B) ‘totality of the circumstances.’ The district court reversed the bankruptcy court’s ruling in favor of the Debtors, the district court basing its decision solely n §707(b)(2). The 7^th Circuit reversed, and remanded for further proceedings under §707(b)(3)(B). Debtors acknowleged no special circumstances. Court adopts plain language line of cases that ‘applicable’ in applicable montly expense amount refers the the debtor’s geographic region and number of cars, regardless of the actuality of such expense. In order to give plain meaning to all the words of the statute, the term ‘applicable monthly expense amont’ cannot mean the same thing as ‘actual monthly expenses.’ Under the statute, the actual expenses are only relevant with respect to the IRS ‘other necessary expenses.’ This approach also makes sence given §707(b)(2)(A)(ii)(I)’s section prohibiting inclusion of any payments for debts in the monthly expenses. The statute makes reference only to the ‘amounts specified’ in the local standards rather than incorporation of the Internal Revenue Manual or the Fianciail Analysis Handbook. This approach was included in a prior version of the bill and was subsequently removed from the final version. Further, it would be impracticable to consider the broad discretion given to revenue agents by the IRM in applying the bright line test that was intended to eliminate judicial discretion. Policy consideration further support this determination, as ownership expense include insurance, depreciation, licensing fees and taxes. Limiting the allowance to debtors who have a car payment, however small, would be arbitrary and capricious.

Delaware:

Debtor may deduct standard vehicle ownership expenses even though nothing is owed on vehicle. In re Fowler, 349 B.R. 414 (Bankr. D.Del. 2006). US Trustee moved to dismiss case on basis that debtor failed means test due to their allegation that ownership allowance was only available if money was owed on vehicle. The Court cited the National and Local Standards refered to by §707(b)(2)(A)(ii)(I); and the Financial Analysis Handbook containing instructions for analyzing th taxpayer’s financial condition to help IRS field agents determine appropriate case resolution. Under this handbook, the taxpayer is allowed the full amount of the National Standards deductions, regardless of their actual expenses. 5.15.1.8 ¶2. For the Local Standards however, the taxpayer is allowed the local standard or the amount actually paid, whichever is less.

The Court begins with the language of the statute. The plain language of §707(b)(2)(A)(ii)(I) provies that “[t]he debtor’s monthly expenses shall be the debtor’s applicable monthly expense amount specified under the … Local Standards.” There is no reference in that language to the use of the Local Standards as a cap. The fact that Congress did not use the limiting language as provided in the Internal Revenue Manuel evidences that it did not intend the Local Standards to apply as a cap. This is further supported by the fact that the same sentence in §707(b)(2)(A)(ii)(I) Congress expressly provides that a debtor would be entitled to ‘catual monthly expenses’ for Other Necessary Expenses. The use of ‘actual’ with respect to Other Necessary Expenses and ‘applicable’ with respect to the National and Local Standards must mean that Congress intended two different applications.

Further, the legislative history supports the debtor’s interpretation. A prior version of BAPCPA which was not passed defined projected monthly net income to require a calculation of expenses to be determined under the Internal Revenue Service financial analysis. H.R. 3150, 105^th Congress (1998). The fact that this was changed from using the IRS financial analysis to the amount allowed under the National and Local Standards evidences Congress’ intent that the cCourts not be bound by the financial analysis contained in the Internal Revenue Manual.

Florida

Ownership expense allowed despite no debt owed. In re Ralston, 400 BR 854 (Bankr. MD Fla. 2009). The statute uses the term applicable rather than actual. The limits in the Internal Revenue Manual are not in the statute, and are used inconsistently with the rest of the means test. A prior version of the statute specifically referred to the Internal Revenue Manual, but such reference was removed in the statute as passed. Denying the expense to debtors that owned their vehicles outright would lead to arbitrary and unfair results.

Applicable in ownership deduction statute refers to factors listed in the IRS local standards rather than the actual expense of the debtor, therefore allowance applies when no debt is owed on vehicle. In re Bentley, 400 BR 848 (Bankr. MD Fla. 2008) (J Funk). The ownership cost table in the local standards is based on the number of vehicles owned, not whether any debt is owed on the vehicle. Since §707(b)(2)(A)(iii) was enacted to give a separate deduction for the actual car payments, the allowance deduction must be read as meaning something other than the actual payment in order not to read the two provisions as redundant. Use if the Internal Revenue Manual would be inconsistent with the wide discretion used by revenue agents in determining a taxpayer’s ability to pay. This is in accord with policy considerations allowing debtors a deduction for ownership expenses such as depreciation, licensing, insurance and taxes. All evehicles incur ownership expenses regardless of whether paid off, financed, or leased.

Indiana

Asserting that it is following the majority position, Indiana bankruptcy court found that car ownership allowance is permitted only if money is owed on vehicle. In re Hunt, 400 BR 662 (Bankr. S.D. Ind, 2008). Court indicated that result was consistent with both the Code and BAPCPA’s purpose in requiring above-median income debtors to pay more to unsecured creditors.

Rhode Island

Applicable is not same as actual in determining car ownership allowance, therefore debtor is entitled to deduction regarless of existence of an debt on vehicle. In re Burbank, 401 BR 67 (Bankr. D.R.I. 2009). Ownership expenses include licensing, taxes, insurance, and depreciation as well as actual car payments.

Texas

In In re Hardacre, 338 B.R. 718 (Bankr. N.D. Tex. 2006). The court then examined the IRS standard expense allowances to determine that the debtor could only take the higher of the actual car and mortgage payment, or the allowed IRS deductions for housing or vehicles. Here the court examined the provision in §707(b)(2)(A)(ii)(I) providing ‘nothwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debt.’ The court noted that Congress’s intent in enacting BAPCPA was to “ensure that those who can afford to repay some portion of their unsecured debts [be] required to do so.”151 CONG. REC. S2470 (March 10, 2005). The Debtor argued that the language means that in interpreting the local standards for expenses, the court should disregard any payments for debts regardless of anything contrary in the applicable local standards. The Court rejected this interpretation, finding that it would render the ‘notwithstanding’ language superfluous. The local standards are based not on actual expenses but on reasonable necessary amounts regardless of actual expenses. Rather, the Court concluded that the ‘notwithstanding’ provision requires deduction from the local standards for actual expenses for the house and car. However, if the actual secured debt payment is higher than the allowed standard then the Debtor may claim the higher of the two.

The court noted an advantage of this interpretation is to allow a higher dividend to unsecured creditors.

The court also ruled that the debtor is not allowed to claim an allowance for a vehicle on which no debt is owed, based on the IRS Financial Collection Standards. Court determined that car ownership allowance was only available to debtors who owed money on the vehicles.

Subsequent to his decision in Hardacre, Judge Nelms sustained the trustee’s motion to dismiss for bad faith a debtor working 80 hours a week at 2 jobs disallowing proposed deductions in the means test for ownership expenses on a vehicle that was not financed or leased (being owned outright) and repayment on a 401k loan. In re Barazza, 345 B.R. 724 (Bankr. N.D.Tex. 2006). The debtor owns and drives a 1988 pickup that is not liened. The court noted that he lives modestly on a tight budget. The court again referred to the IRS local standards which do not permit an ownership deduction for vehicles that are not financed or leased.

In re Lara, 347 B.R. 198 (Bankr. S.D. Tex. 2006). Court cited Hardacre as authority for disallowing the car ownership allowance if no debt is owed on the car.

¶6.45 Other Expenses

Texas

In re Barazza, 345 B.R. 724 (Bankr. N.D.Tex. 2006). Court cited Financial Analysis Handbook and Hardacre analysis to deny ownership allowance to debtor with 1999 pickup with 125,000 miles, and who indicated a need to replace the vehicle within the next several months. Court also required strict independent proof any any special circumstances to deviate from the means test. In re Oliver, 350 B.R. 294 (Bankr. W.D.Tex. 2006). Debtor also filed a declaration of special circumstances showing he was unsuccessful in making debt payments under a prior debt consolidation program; and that the cost of replacing the vehicle would almost equal the monlthly amount available for chapter 13 according to schedules I and J. Debtor testified that he drives approsiately 3,000 miles per month, which at 15 miles per gallon costs about $600/mo in gas alone. No evidence was produced as to other vehicle expense. Debtor testified as to diagnosis of depression, anxiety and bipolar disorder and the medications prescribed therefore, but did not produce evidence from any physician about the conditions or medications.

In re Hardacre, 338 B.R. 718 (Bankr. N.D. Tex. 2006) Court also discussed allowance of other phone, internet, and additional transportation expenses.

In re Lara, 347 B.R. 198 (Bankr. S.D. Tex. 2006). Court allowed $183/mo expense for cell phones which debtors say are required by their job, absent the trustee showing that comparable services could be obtained for less money. Court disallowed $27 for dial up internet in that debtors did not prove this was necessary for health and welfare of debtors or for production of income. Court also disallowed basic phone service determining this is included in the local housing and utility standard. Court disallowed claim for additional transportation expense on the basis that §707(b)(2)(A)(ii)(I) only permits actual expenses for the categories specified as other necessary expenses issued by the IRS, and that there is no category for transportation expenses in other necessary expenses.

Debtors permitted to deduct payment toward support of elderly parents. In re Clingman, 400 BR 555 (Bankr. SDTex 2009). Debtors were making mortgage payments on home elderly parents live in. Home was in parents name but had been transferred to debtors prior to filing as security for a home equity loan used to make necessary improvements on the property. Court determined that 1)monthly expenses subsidized the care and support of the elderly parents; 2) without the subsidy the parents would be unable to provide for their own lodging; and 3) the subsidy was not commenced in contemplation of the bankruptcy case. Whether an expense is allowed is a separate and independent determination from the effect on the debtor or any particular creditor. Thus the fact that the payments result in an appreciation of the value of the home is irrelevant to the allowance of the expense.

Virginia

Expense for taking care of 40 year old non-disabled daughter not allowed in means test. In re Williams, 424 B.R. 207 (Bankr. W.D.Va. 2010). Court disallowed $200/month deduction on means test for taking care of 40 year old daughter of debtors in absence of showing of physical or mental impairment. Court ruled that to be allowed, expenses must 1) be a continuation of actual expenses paid by the debtor, and 2) be reasonable and necessary for the care of an elderly, chronically ill, or disabled (a) household member who is unable to pay for such expenses; or (b) member of debtor’s immediate family who is unable to pay for such expenses. Court granted trustee’s motion to dismiss with leave to convert to chapter 13.

Wisconsin

Property tax and insurance expenses required to be paid by mortgage are allowable deductions for means test. In re Bermann, 399 B.R. 213 (Bankr. E.D. Wis., 2009). Trustee objected to confirmation of amended plan based on debtor having taken deduction on line 47 of means test for projected property tax and property insurance payments since such payments are not contractually due to mortgage holder. The court overruled the objection, finding that if the payment is not made, the mortgage allows the lender to make the payment to protect its security and add it to the debt; thus it is owed to the lender. The court also notes that the Internal Revenue Manual allows such a deduction. The existence of an escrow is immaterial since such payments are only funneled through the account, and are not owed to the creditor until they ultimately reach the insurance provider or taxing authority.

¶6.46 Mandatory Deductions

In re Barazza, 345 B.R. 724 (Bankr. N.D.Tex. 2006). The debtor claimed the 401k loan deductions as mandatory payroll deductions, noting the exeption from the automatic stay of §362(b)(19) and that §1322(f) expressly provides that such repayments do not constitute disposable income for purposes of chapter 13. The Court determined it was error to focus on the language of the form in lieu of the statutory language. Despite evidence from the debtor that both plans require repayment through payroll deduction, the Court determined that the expenses were not mandatory in the same vein as uniforms or shoes, and hypothecating that the debtor probably would not be fired for ceasing such distributions, but rather would simply be subject to a tax liability, disallowed the deduction. The court examined the Internal Revenue Manual (apparently giving it more statutory deference than the official bankruptcy forms) but found no appropriate section allowing these deductions.

§707(b)(2)(A)(i) In considering under paragraph (1) whether the granting of relief would be an abuse of the provisions of this chapter, the court shall presume abuse exists if the debtor’s current monthly income reduced by the amounts determined under clauses (ii), (iii), and (iv), and multiplied by 60 is not less than the lesser of -

(I) 25 percent of the debtor’s nonpriority unsecured claims in the case, or $6,000, whichever is greater; or

(II) $10,000.

(ii)(I) The debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor’s actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides, as in effect on the date of the order for relief, for the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case, if the spouse is not otherwise a dependent. Such expenses shall include reasonably necessary health insurance, disability insurance, and health savings account expenses for the debtor, the spouse for the debtor, or the dependents of the debtor. Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts. In addition, the debtor’s monthly expenses shall include the debtor’s reasonably necessary expenses incurred to maintain the safety of the debtor and the family of the debtor from family violence as identified under section 309 of the Family Violence Prevention and Services Act, or other applicable Federal law. The expenses included in the debtor’s monthly expenses may also include an additional allowance for food and clothing of up to 5 percent of the food and clothing categories as specified by the National Standards issued by the Internal Revenue service.

(II) In addition, the debtor’s monthly expenses may include, if applicable, the continuation of actual expenses paid by the debtor that are reasonable and necessary for care and support of an elderly, chronically ill, or disabled household member or member of the debtor’s immediate family (including parents, grandparents, siblings, children, and grandchildren of the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case who is not a dependent) and who is unable to pay for such reasonable and necessary expenses.

(III) In addition, for a debtor eligible for chapter 13, the debtor’s monthly expenses may include the actual administrative expenses of administering a chapter 13 plan for the district in which the debtor resides, up to an amount of 10 percent of the projected plan payments, as determined under schedules issued by the Executive Office for the United States Trustees.

(IV) In addition, the debtor’s monthly expenses may include the actual administrative expenses of administering a chapter 13 plan for the district in which the debtor resides, up to an amount of 10 percent of the projected plan payments, as determined under schedules issued by the Executive Office for United States Trustees.

(V) In addition, the debtor’s monthly expenses may include an allowance for housing and utilities, in excess of the allowance specified by the Local Standards for housing and utilities issued by the Internal Revenue Service, based on the actual expenses for home energy costs if the debtor provides documentation of such actual expenses and demonstrates that such actual expenses are reasonable and necessary.

(iii) The debtor’s average monthly payments on account of secured debts shall be calculated as the sum of –

(I) the total of all amounts scheduled as contractually due to secured creditors in each month of the 60 months following the date of the petition; and

(II) an additional payments to secured creditors necessary for the debtor, in filing a plan under chapter 13 of this title, to maintain possession of the debtor’s primary residence, motor vehicle, or other property necessary for the support of the debtor and the debtor’s dependents, that serves as collateral for secured debts;

divided by 60.

(iv) The debtor’s expenses for payment of all priority claims (including priority child support and alimony claims) shall be calculated as the total amount of debts entitled to priority, divided by 60.

¶6.5 Rebuttal of means test presumption of abuse: Special circumstances.

In order to rebut the presumption of abuse under §707(b)(1)(A), the debtor must show special circumstances that justify additional expenses or adjustments of current monthly income. Such circumstances must be itemized, documented, and explained as to why such adjustment is both necessary and reasonable. This information shall be attested to by the debtor under oath. Further, the adjustment provided by the special circumstance must result in the means test computation showing a lack of abuse, thus the computations must be run a second time with the adjusted figures included.

Case Law:

Iowa:

Unusually high vehicle operating costs can constitute special circumstances rebutting the presumption of abuse under the meants test. In re Batzkiel, 349 B.R. 581 (Bankr. N.D.Iowa 2006). Debtors live in rural Iowa and each drives a significant distance to their place of employment. The husband drives through ares heavily populated by deer, and leaves home at 4:30 a.m., which has resulted in numerous collisions with deer, causing the insurance company to threated cancellation if any further claims are filed related to such collisions. Therefore the debtor has been doing his own repair work on the vehicle. The fact that one vehicle may be inoperable due to deer collisions also warrants consideration for expenses for two vehicles for the debtor husband. Further, the IRS standards for transportation are too low for the debtors since fuel costs have continued to rise after announcement of the standards, and the fact that debtor’s vehicles get low mileage. Debtors documented these increased expenses.

In considering special circumstances to rebut a presumption of abuse under the means test, any legitimate expense that is out of the ordinary for an average family, or that may have increased since the IRS guidelines were calculated, could be considered. In order to claim such expenses, the debtor must justify the actual expenses in the amount claimed, drawn from the type of expenses defrined in the Internal Revenue Manual, and must itemize such expenses, provide documentation, and explain the special circumstances that demonstrate that the expenses are reasonable and necessary. The court finds that the debtors have met their burden of establishing the special circumstances and therefore have rebutted the presumption of abuse.

§707(b)(2)(B)(i) In any proceeding brought under this subsection, the presumption of abuse may only be rebutted by demonstrating special circumstances, such as a serious medical condition or a call or order to active duty in the Armed Forces, to the extent such special circumstances that justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative.

(ii) In order to establish special circumstances, the debtor shall be required to itemize each additional expense or adjustment of income and to provide –

(I) documentation for such expense or adjustment to income; and

(II) a detailed explanation of the special circumstances that make such expenses or adjustments to income necessary and reasonable.

(iii) the debtor shall attest under oath to the accuracy of any information provided to demonstrate that additional expenses or adjustments too income are required.

(iv) The presumption of abuse may only be rebutted if the additional expenses or adjustments to income referred to in clause (i) cause the product of the debtor’s current monthly income reduced by the amounts determined under clauses (ii), (iii), and (iv) of subparagraph (A) when multiplied by 60 to be less than the lesser of –

(I) 25 percent of the debtor’s nonpriority unsecured claims, or $6,000, whichever is greater; or

(II) $10,000.

¶7 Requirements for Debtor prior to filing:

¶7.1 The debtor generally must have received a briefing (telephonic or in person) from an approved credit counseling agency within 180 days before the case is filed, unless the trustee determines there are insufficient credit counseling resources in the district, or the debtor is unable to get counseling due to incapacity, disability, or active military duty in a combat zone. The debtor may file first and obtain counseling within 30 days if the debtor sought counseling but was unable to obtain it within five days, and circumstances require filing before such counseling can be obtained. Query, if debtor first sees counsel the day before the foreclosure sale, is he barred from filing due to not being able to wait the five days after seeking counseling? If the counselor indicates they could give counseling in 4 days? Or only in 6 days? Does the debtor need to certify simply that they sought counseling from one agency and were unable to get it within five days, or must they certify that they tried all the approved counseling agencies, and none could provide counseling within five days? Does failure of an individual to voluntarily get credit counseling prevent an involuntary case from being filed against them?

While some cases have struck the petitions, thereby eliminating the ‘first strike’ prejudice of having a refiling rather than an original case, it has been argued that §109 is not a jurisdictional bar to filing, but rather a filing defect that is cured upon confirmation of a chapter 13 plan or discharge. Since it is not jurisdictional, it would therefore be improper to strike the petition. However, courts may determine not to dismiss cases absent an objection or motion by a party in interest; and courts may set a low bar for showing good faith on refiling after a §109(h) dismissal.

Cases:

8^th Cir. BAP:

In what appears to be the first appellate decision on BAPCPA, the court sustained a dismissal for failure to obtain prepetition credit counseling. In re Hedquist, 342 B.R. 295 (8^th Cir. BAP (Minn), 2006). The debtors had been attempting to work out a settlement with the mortgage company, and waited until the day prior to the foreclosure sale to file bankruptcy. There was no evidence that the debtors sought credit counseling. The BAP found that the bankruptcy court did not abuse it’s discretion in finding that waiting until the day prior to the foreclosure sale to seek bankruptcy protection when they had adequate notice of the foreclosure did not meet the requirements for exigent circumstances. The BAP also rejected the debtor’s argument that the dismissal must be done by the district rather than the bankruptcy court. Dismissal for failure to comply with the requirements for filing is a core matter subject to determination by the bankruptcy court. Debtor next argued that requiring individual debtors but not corporations to obtain credit counseling violated the equal protection clause. The BAP determined that individuals and corporations were not similarly situated as required for equal protection violations; and that intent of the statute to force them to obtain education and counseling regarding both the consequences of filing for bankruptcy and the non-bankruptcy alternatives available to the debtor to rebuild his or her financial health did not evidence an unlawful attempt to discriminate against individuals. The BAP also found no due process violation in that individual debtors as opposed to corporate debtors are not a suspect class; and that there is no constitutional right to obtain a discharge of ones debt in bankruptcy. Finally the debtor argued that the courts should grant pro-se litigants leniency with regard to their pleadings. The BAP rejected this argument in that the requirements of §109(h) are clear and mandatory, and the debtor clearly failed to meet the requirements.

Arkansas

The court denied a request for extension of time to obtain credit counseling and dismissed the case when the Debtor acknowledged that she had not sought counseling prior to the filing of the case in In re Wallace, 338 B.R. 399 (Bankr. E.D. Ark. 2006). The debtor’s argument that the clerk had not timely posted a list of approved credit counselors did not avail her. The statute clearly requires that the debtor seek counseling prior to the case. Further, upon inquiry of the clerk’s office, she had been provided such a list. Having failed to meet the strictures of the statute, the case had to be dismissed.

In a rare debtor victory under the credit counseling litigation, Judge Mixon ruled that credit counseling obtained the same day of, but prior to, the bankruptcy filing complied with the statutory requirement. In re Warren, 339 B.R. 475 (Bankr. E.D. Ark. 2006). Three problems were raised by the trustee. First, the language of the statute refers to obtaining counseling within the 180 days prior to filing, thus, according to the trustee, implying that counseling must be obtained the day prior to filing. Second, the certificate was dated well after the filing. Third, the certificate was issued after the case was filed. Debtor testified that they completed counseling prior to filing, but had difficulty getting the agency to accept payment, attempting first a prepaid mastercard which was not successful; then sending a money order which was not credited until after the case was filed. The debtor had sought and obtained an extension of time to file the certificate of counseling.

Since the code does not provide for automatic dismissal upon failure to file the credit counseling certificate. §707(a). Further, the absence of a credit counseling certificate, like that of the debtor’s signature on a pleading, is a matter of form, not substance.

The trustee’s argument as to needing to complete counseling the day prior to filing is based on their interpretation of the word ‘date’ as a calendar day. However, the law and dictionaries also recognize reference to date to mean a particular time on the day. The court interprets date under §109(h) as meaning the time and day of filing. This is in accord with bankruptcy practice as setting the time of filing as setting the rights of the parties. No waiting period after counseling is mentioned in the legislative history.

California:

Another dismissal of a pro-se bankruptcy for failure to obtain the credit counseling requirement, and failure to comply with the requirements for an extension was announced in In re Mingueta, 338 B.R. 833 (Bankr. C.D. Cal. 2006). The debtor had checked the box on the petition requesting an extension to obtain credit counseling, but did not attach any certification or other document was attached explaining the exigent circumstances. The court scheduled an order to show cause why the case should not be dismissed, but the debtor did not appear at the hearing.

A rare grant of a temporary waiver of the credit counseling requirement was entered in In re Romero, 349 B.R. 616 (Bankr. N.D.Cal. 2006). Concurrently with the filing of the petition, debtor filed a request for temporary waiver of the counseling requirement with a certification that the debtor was the sole wage earner for the family, and that he faced imminent garnishment of his wages. The certification further alleged that they had attempted to obtain credit counseling before filing but were unable to do so. The debtors completed credit counseling seven days after filing. In a supplemental sworn declaration, debtors alleged they had contacted an approved counselor 3 days prior to filing, but were told they were unable to obtain the counseling until seven days after their request. The court found that the threat of serious creditor action before the credit counseling can be obtained generally is sufficient to establish exigent circumstances. Advance knowledge of the threatened creditor action should not preclude a finding of exigent circumstances.

Colorado:

If a debtor is ineligible under §109(h) then the §362 stay does not come into effect. In re Anderson, 341 B.R. 365 (Bankr. Colo. 2006). The debtor was ineligible to be a debtor under chapter 13 due to her failure to obtain the requisite credit counseling briefing. The debtor filed a false affidavit that such counseling had been obtained. The foreclosure sale on debtor’s homestead occurred prior to the bankruptcy, but the writ of eviction was issued after the filing. No notice was given to foreclosure counsel of the filing. Courts have the power to annul the automatic stay retroactively for cause in order to rehabilitate stay violations.

District of Columbia:

Credit counseling must be obtained at least one calendar day prior to filing petition. In re Mills, 341 B.R. 106 (Bankr. Dist.Col. 2006). §109(h) does not simply require the debtor to obtain credit counseling prior to filing the bankruptcy petition, it requires the debtor to obtain such counseling prior to ‘the date of the filing of the petition’. When a statute requires a specific act to be done within a specified number of days prior to a fixed date, the last day (ie the fixed date) is excluded in making the calculation. The legislation's credit counseling provisions are intended to give consumers in financial distress an opportunity to learn about the consequences of bankruptcy-such as the potentially devastating effect it can have on their credit rating-before they decide to file for bankruptcy relief. The court also rejected the debtor’s request to strike the petition rather than dismiss the case. The court denied this, finding that the filing of a petition by an ineligible debtor created a case for the limited purpose of the court determining whether it had subject matter jurisdiction over the case. During that determination the stay would remain in effect unless the §362(b)(21)(A) exception applied. If the court were to strike the petition ab-initio, it would make the §362(b)(21)(A) exception unnecessary.

The credit counseling requirement may be met by obtaining a credit counseling course from an approved agency that met the general requirements of the code even though it was not the specific course set up by the agency for pre-bankruptcy counseling under §109(h). In re Hawkins, 340 B.R. 642 (Bankr. D.Dist.Col. 2006). The debtor obtained credit counseling through an approved agency (CCCS) prior to filing the bankruptcy, however, the course was not the pre-bankruptcy course provided by such agency. The court had issued its own order to show cause why the case should not be dismissed based on the debtor’s failure to file a credit counseling certificate. The debtor submitted a letter from the counselor showing the services provided included a personal financial summary reviewing debtor’s income and expenses, a net worth analysis, a debt summary, a debt analysis (showing the benefits of repaying the debt through CCCS’s program), and an action plan setting forth recommendations for the debtor. The court found that these could be viewed as satisfying the analysis required by the statute. A separate evidentiary hearing would be set if a party files a motion to dismiss the case, as to whether the counseling actually met the requirements of the statute. The court determined it did have jurisdiction to take the case based on debtor’s allegations as to the content of the counseling received.

The court also determined that §362(b)(21) must be read that the automatic stay is in effect while the court determines the threshold issue of jurisdiction. Thus pre-petition credit counseling is a pre-requisite the granting the court subject matter jurisdiction.

Counseling must be obtained at least the day prior to the filing of the bankruptcy, however, since counsel inadvertently filed another document labeled as the petition, the case was not commenced until the day after the initial documents were filed. In re Murphy 342 B.R. 671 (Bankr. D.Dist.Col. 2006). Court would allow mislabeled ‘amended’ petition to correct erroneous initial filing so as to allow filing fee to apply to instant case. Court also lifted stay as to mortgage since petition was ultimately filed after foreclosure sale even though initial documents including document labeled as petition was filed prior to sale.

Florida:

Yet another debtor’s attempt to seek waiver or delay of the credit counseling requirement without first seeking such counseling failed in In re Davenport, 335 BR 218 (Bankr. M.D. Fla. 2005) (J. May). In this case the Debtor established exigent circumstances from the fact that a creditor was actively seeking to repossess the family vehicle. Further, the debtor in fact obtained counseling two days after the bankruptcy was filed. However, since the debtor had not sought counseling prior to filing, as is required by §109(h)(3)(A)(ii) the court was required to deny the motion and dismiss the case.

A very similar situation arose in In re Randolph, 2005 WL 3408043 (Bankr. M.D. Fla. 2005) (J. Proctor). While the motion asserted that the debtor was unable to contact the credit counseling agency in a timely manner, it failed to make the required assertion that counseling was unavailable within five days of the initial request. The Court noted that there were 11 approved counseling agencies for the district, and expressed skepticism as to the extent of Debtor’s efforts to obtain such counseling. Therefore the Court denied the motion and dismissed the case.

In what is apparently the first reported decision ruling that the dismissal for failure to obtain credit counseling would not prejudice the debtor’s right to the automatic stay under §362(c)(3) in a subsequent case, Judge Cristol dismissed a pro-se chapter 13 in In re Valdez, 335 BR 801 (Bankr. S.D. Fla. 2005). As usual in these cases, the Debtor failed to allege that she was unable to obtain credit counseling within five days prior to filing, instead alleging that as a pro-se debtor she was unaware of the requirement. While ruling that ignorance of the law is no excuse, the Judge did note some skepticism of Congress’ intent in the statute. “The Court wonders what exactly was intended by Congress in regard to this Code section. Is it the intent of Congress that poor, ignorant persons who do not know the law and cannot afford to obtain the advice of counsel are to be denied protection and assistance of the Bankruptcy Code which is available to more affluent and better educated persons? Or, is it the intent of Congress that decent, honest, hardworking persons, who have suffered financial misfortune or tragedy, be educated by budget and credit counseling services to help them determine if there is a more appropriate way to deal with their financial problems? Sadly, the language in the Code does not clearly reveal Congress' intent; either the Code language was inartfully drafted or the congressional intent was indeed the former less compassionate, harsher result, rather than the latter.”

Rather than the usual dismissal, causing the automatic stay to disappear after 30 days in the new case pursuant to §362(c)(3), Judge Cristol ruled that the credit counseling requirement of §109(h) was jurisdictional, therefore the first case was not an effective filing, such that the refiled case could still be considered a first case for purposes of §362(c)(3) or (c)(4).

A rare case where the Debtor convinced the court that counseling was not available was when the debtor just spoke Creole in In re Petit-Louis, 338 BR 132 (Bankr. S.D. Fla. 2006) (J. Cristol). The debtor was fluent in Creole, and spoke very limited English. The Debtor had sent a letter to the trustee which the court treated as a motion to waive the credit counseling requirement. Finding that none of the credit counseling agencies in the area spoke Creole, the Court waived the counseling requirement. The US Trustee indicated that since the individual was not yet a debtor at the time of the counseling requirement, they were unable to provide translators. The debtor’s counsel provided a translator for conversations with the attorney but indicated that they should not have to provide translators for access to the court system.

Georgia:

Judge Bonapfel in Georgia agreed with what appears to be the majority of decisions that the filing of a bankruptcy without first obtaining credit counsel does commence a case, and that the remedy is to dismiss rather than declare the case void ab-initio. In re Ross, 338 B.R. 134 (Bankr. N.D. Ga. 2006). The court concluded that §109 in general, and §109(h) in particular is not jurisdictional, and therefore does not preclude the filing of a petition proper. There is no indication in the statute that the remedy for violation of §109(h) is different from the remedies determined for violation of the other sections of §109. While there is a dispute as to whether §109(g) is jurisdictional, BAPCPA treats this subsection as not being a jurisdictional bar to filing. This is reflected in §362(b)(21)(A)’s exception to the automatic stay as to foreclosure sales when the debtor is ineligible under §109(g). Congress specifically dealt with the effect of serial filings in §§362(c)(3) and (c)(4). A problem with ruling that §109(h) prevents the filing of a proper petition is the uncertainty it would create in creditors or others determining whether a valid case exists. By determining that a case is validly filed even without the credit counseling required by §109(h), this uncertainty is eliminated and the case will proceed until dismissed by definite order of the court.

Idaho:

Last minute unsuccessful attempts to obtain credit counseling were determined not to warrant a waiver of the credit counseling requirement in In re Rodriguez, 336 B.R. 462 (Bankr. D.Idaho, 2005). Facing an imminent wage garnishment, debtors attempted to contact two different counseling agencies. The first agency, which was accessed over the internet, required a phone call to obtain a username and password. Upon attempting to call the agency the phone was not answered. The second agency, again contacted over the internet, required entry to a ‘chat room’ for assistance, but no one was there. Debtor then contacted the agency by telephone and was advised that information would be retrieved in an hour and that the agency would call back the debtor then. The motion to waive was not signed by the debtor and no affidavit or similar submission supporting the request was filed. Subsequent to the hearing on the motion, Debtors filed a certificate in support of the motion, stating in part ‘I was unable to obtain services for an individual or group briefing outlining the opportunities for available credit counseling and assisting me in performing a related budget analysis during the 5-day period beginning on November 2, 2005.’ The debtors then submitted a second certification detailing the attempts to obtain counseling the day of the filing, ending with a note that they did not have the $100 fee charged by the counseling agency for such counseling (though noting that counsel could have paid it with the firm’s debit card.’

The court initially determined that the request for waiver of credit counseling must include a certification in compliance with 28 USC

§1746, which reads in part:

Whenever, under any law of the United States ... any matter is required or permitted to be supported, evidenced, established or proved by the sworn declaration, verification, certificate, ... [the following form may be used]:
...
(2) If executed within the United States, its territories, possessions or commonwealths: "I declare (or certify, verify or state) under penalty of perjury that the foregoing is true and correct. Executed on (date)."

Such certification must establish 1) exigent circumstances that merit the exception; 2) that the Debtor requested counseling from an approved agency but was unable to obtain it within five days; 3) and that the certification be satisfactory to the Court.

The court concluded that the initial motion was defective in containing no certification by the debtor. The first certification was inadequate for not providing any detail of the pertinent facts. The second certification was inadequate for not showing that counseling would be unavailable for five days. The court also noted that debtors were aware of the lawsuit well prior to November 2 and did not seek counseling earlier.

Kentucky:

A generous reading of the requirement to have sought counseling but have been unable to obtain it within five days was set forth in In re Graham, 336 BR 292 (Bankr. W.D. Ky. 2005). First analyzing the requirements for the certification seeking an extension, the court found that this was met simply by having the debtor sign the request for extension. Seeming to reject the Talib decision requiring an explanation why counseling was not sought earlier, the Court indicated that it would be inclined to be reasonably lenient in finding exigent circumstances for meeting §109(h) if there is impending creditor action that will affect the debtor or debtor’s dependents. This court went further than prior published decisions in defining what is required to meet the 2^nd prong of §109, certifying that the debtor sought credit counseling but was unable to obtain it within five days. Judge Fulton ruled that this analysis must take into account the particular situation of the debtor and nature of the pending exigent circumstances.

“In this regard, the Court finds no express requirement in § 109(h) that a debtor exhaust all credit counseling options or that a debtor absolutely accept any offer of counseling, no matter how inconvenient or onerous. Rather, the Court believes that whether credit counseling can be “obtained” by a debtor within the requisite time period should be judged by what a debtor can reasonably accomplish in light or his or her particular, and likely exigent, circumstances. Conversely, whether credit counseling can be “obtained” should not be determined simply by looking at what a credit counseling agency offers a debtor.”

Maryland:

The Maryland bankruptcy judges issued a joint decision in five pending cases requesting an extension for credit counseling. The decision, setting forth the requirements for extensions under §109(h) in Maryland, determined that such requests do not need to be under oath, must contain a brief explanation of the exigent circumstances requiring the immediate filing, must state that the debtor sought credit counseling within 180 days of filing, and that debtor was unable to obtain such counseling within five days of such request. The court found that the requirements to find exigent circumstances were minimal: requiring only the existence of some looming event that renders prepetition credit counseling to be infeasible. The requirement to allege seeking credit counseling and being unable to obtain it is more of a problem. Only one of the debtors in these cases alleged that he was unable to obtain credit counseling within five days of the request. Even in this case the exact reason for such inability was not explained, only that he was advised to seek counseling on October 20, which he did (the court appears to conclude that this meant he sought counseling on the 20^th, though this is not entirely clear either), and that he was unable to obtain an appointment for credit counseling until November 26 (no allegation was made as to the options of seeking telephonic or on-line counseling). The court concluded that this last affirmation was sufficient to qualify for an extension of time to obtain credit counseling, and dismissed all the other cases. In re Childs, 335 B.R. 623 (Bankr. D. Md. 2005).

Credit counseling need not be obtained the day prior to the day the bankruptcy is filed. In re Hudson, 352 B.R. 391 (Bankr. D.Md. 2006). The debtor filed ch 13 the same day as he obtained credit counseling. The court distinguished the term ‘date’ used in the statute form the alternative ‘day’, and found that in common usage, ‘date’ may encompass the concept of a moment in time. Upon examining the use of the work elsewhere in the code, the Court noted in §348(f)(1)(A) property of the estate in a converted case shall consist of property of the estate ‘as of the date of filing of the petition’ referring to the moment of conversion. This is contrasted with the use of the terms ‘days’ in §547(b)(4)(A) authorizing the trustee to recover transfers of property made ‘on or within 90 days’ of the filing of the petition. Under this section, the time period includes the full day of the 90^th day. Further, it would be inconsistent to penalize a debtor who went through the effort to obtain counseling vis a vis a debtor who sought an extension of time to obtain counseling.

Michigan:

A certification by the debtor that she had sought to obtain credit counseling but was unable to obtain the same prior to filing was found insufficient without the additional assertion that such counseling was unavailable within five days after such request. In re Burrell, 339 B.R. 664 (Bankr. W.D.Mich. 2006). The credit counseling requirement is an eligibility requirement under BAPCPA. While the code allows an extension, such extension also has strict requirements, including a certification showing exigent circumstances, that the debtor sought counseling and was unable to obtain it within five days, and that the certification is satisfactory to the court. While the impending foreclosure sale described by the debtor met the exigent circumstance requirement, there was no showing that counseling could not have been obtained within five days of the initial request. The court specifically noted that waiting until the last minute to seek bankruptcy was a common reality and should be the type of exigent circumstance anticipated by the statue, appearing to disagree with the DiPinto line of cases. By failing to meet the specific requirement of the statute, the certification also must fail the third test of being satisfactory to the court. A further problem was that the extension was requested more than 30 days after the case was filed, thus even if a certification complying with §109(h)(3)(A) had been filed, the extension would have to be denied under §109(h)(3)(B) since the counseling must be obtained within 30 days after filing in the absence of a further request for extension within such 30 days.

Minnesota:

A Minnesota bankruptcy court dismissed a pro-se case where the debtor filed a statement explaining that it was too far for her to travel to take a credit counseling course, but that she was willing to take a free one over the internet. The court ruled that this was not the certification required by §109(h)(3) that she had requested services required to grant an extension of time to obtain credit counseling, and that the statute was clear that this was an eligibility requirement to be in bankruptcy. In re LaPorta, 332 BR 879 (Bankr. D. Minn. 2005).

The fact that the debtor’s house was about to be sold at foreclosure was found to satisfy the exigent test of §109(h)(3), but the statement that debtor had attempted to contact credit counseling agencies but had been informed that she could not obtain counseling services on such short notice failed to satisfy the second requirement to waive the prepetition counseling requirement in In re Wallert, 332 BR 884 (Bankr. D. Minn., 2005). The debtor’s allegations were made in a separate ‘Certificate Requesting Exemption from Credit Counseling Briefing.’ In this document, which was subscribed under oath, debtor alleged that a foreclosure on her home was scheduled for Nov 2 at 10:00 a.m. (though this is inconsistent with later allegations and may be in error), that she was first advised to seek bankruptcy relief from a legal aid society on Nov. 2 at 2:00 pm. She first spoke with counsel that filed the case on Nov. 2 at 3:00pm, and was advised to seek credit counseling. At that point she sought counseling from Lutheran Social Services and was advised that she could not obtain immediate counseling and was advised to set an appointment for counseling at a later date. She then contacted Springboard Non-profit Consumer Credit Management, Inc. and was advised that there was a $50 fee for counseling. Determining that she was unable to obtain immediately counseling debtor and counsel proceeded with filing the chapter 13 case. Finally she certified that she had no prior knowledge of the need to obtain credit counseling, that she believed she could obtain it within 30 days, and that she believes cause exists not to dismiss the case.

Judge Kishel set the requirements of the §109(h)(3) certificate as 1) describing the exigent circumstances meriting waiver of the prepetition counseling requirement; 2) state that debtor attempted to obtain counseling from an agency but was unable to obtain counseling within 5 days of the initial request; 3) that the certification be satisfactory to the court. While the sale described met the exigent requirement, and inference can be made that she sought counseling from the certification debtor filed, she failed to show or allege that she was unable to obtain counseling within 5 days of the request. Finding such defect incurable, the court dismissed the case. The court went on to note that if the debtor first sought counseling 3 days prior to filing, but was told counseling would not be available until 6 days after the request, such a certification would satisfy §109(h)(3)(A). The court engaged in an extensive analysis of the possible congressional policies and consequences of the 5 day requirement.

Missouri:

Another court ruled similarly that the motion for extension must show that the debtor actually sought credit counseling within the 5 days prior to filing but was unable to obtain it. In re Gee, 332 BR 602 (Bankr. W.D. Mo. 2005). (J. Dow). This involved an emergency filing prior to a foreclosure sale. On reconsideration of the courts initial unpublished ruling the counsel both described the financial hardship, the problems the debtor had in traveling to counsel’s office, and communications problems. Further, the motion discussed how one of the credit counseling agencies was unable to provide a certificate the same day as it was initially contacted. This court seems to be strictly interpreting the requirement that the debtor prove that they would be unable to get a counseling within five days of the initial request in order to qualify for the extension.

The McGee case raises an interesting question. If the problem is solely of getting a certificate, and if the counseling itself could be done prepetition it appears this would satisfy §109(h), even if the certificate is sent post-petition.

The first case setting forth a requirement that the debtor show why counseling was sought at the last minute is In re Talib, 335 BR 417 (Bankr. W.D. Mo. 2005) (J. Dow). The court first examined the requirements for a certification under §109(h)(3). Examining the dictionary definition of certification: a written statement that the signer affirms or attests to be true, the court found that a simple statement signed by the debtor and counsel would suffice, despite not being under penalty of perjury. The certification must set forth the facts underlying the alleged exigent circumstances, the date credit counseling was requested, which agencies were contacted, why debtor believes such services could not be obtained prior to filing, and when the services are reasonably likely to be obtained.

In the case at issue, the debtor gave no explanation of why she did not seek credit counseling until 24 hours prior to the sale; at which time she was advised it would require two days to obtain such counseling. Based on this alone, the court indicated that such certification may be inadequate even to show exigent circumstances, in that the exigent circumstances were caused by the debtor’s own procrastination. The court stressed that any certification reflecting a last minute attempt to obtain counseling must show the reason why counseling was not sought earlier. Since this was the first announcement of this requirement for certification, the court accepted the exigent circumstance certification in this case but indicated it would not do so in future cases without such further explanation described above.

The court then examined the issue of when a certification shows counseling was sought and could be obtained within five days but not prior to the deadline to file, if such certification satisfied §109(h)(3). The court noted it must follow the literal language of the statute unless such application would produce an absurd result or one demonstrably at odds with the intent of the drafters (citing United States v. Ron Pair Enterprises, Inc., 489 US 235, 242, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989)). Since Congress may have imposed this requirement to discourage hastily filed bankruptcy petitions the court is obligated to follow the literal language. Therefore the court was required to dismiss the case. In a footnote the court also noted that if the debtor had contacted a different credit counseling agency, which had indicated that counseling would not be available for seven days, certification of such facts would satisfy §109(h)(3).

The first appellate decision on the issue found that the bankruptcy court was justified in refusing to find exigent circumstances when a foreclosure sale was scheduled the following day. In In re Dixon, 338 B.R. 383 (8^th Cir. BAP, 2006) the court found that the prior notices given to the debtor regarding foreclosure gave adequate warning of the sale. The court noted that Virtually, all of the cases in which the exigent circumstances certificate is filed will, in fact, involve exigent circumstances. After all, the reason that such debtors are filing bankruptcy quickly and before they receive the briefing is because they feel that they are unable to wait. The real question for the court in such certifications will usually be whether or not those exigent circumstances merit the statutory waiver. Missouri law requires a minimum 20 day notice prior to any foreclosure sale. There was adequate basis for the bankruptcy court’s finding under the abuse of discretion standard, so the appellate court could not reverse the finding.

New York:

Also electing to strike the petition rather than dismiss it, Judge Morris found §109(h) to be an eligibility requirement in In re Rios, 336 BR 177 (Bankr. S.D. N.Y. 2005). Debtor did not seek prepetition counseling, and in opposition to a motion to dismiss plead ignorance of the requirement. Though counseling was obtained postpetition, this did not meet the requirements of §109(h). The Court cited §301 stating that a voluntary case is commenced by filing with the bankruptcy court of a petition under such chapter by an entity that may be a debtor under such chapter. Since §109(h) provides that an individual may not be a debtor absent compliance with such section, no cases were effectively commenced when §109(h) was not complied with. Citing H.R. Rep. 109-31(I) at 89 ‘(“[BAPCPA] requires debtors to receive credit counseling before they can be eligible for bankruptcy relief so that they will make an informed choice about bankruptcy, its alternatives, and consequences.”) and at 104 (2005) (“[t]he legislation's credit counseling provisions are intended to give consumers in financial distress an opportunity to learn about the consequences of bankruptcy-such as the potentially devastating effect it can have on their credit rating-before they decide to file for bankruptcy relief.”) (emphasis supplied).’ Because dismissal would have the effect of prejudicing debtors under §362(c)(3) and (c)(4); and since failure to comply with §109(h) is not a basis for dismissal under §707, Judge Morris concluded that dismissal was contrary to Congressional intent regarding this section. “Congress sought to enlarge debtors' options in the face of financial difficulty, not limit them. Congress intended that debtors would inform themselves of their options prior to bankruptcy filing by participating in credit counseling, and if bankruptcy continued to be the best option, debtors could avail themselves of that alternative. It is therefore apparent that Congress did not intend the credit-counseling requirement to limit the availability or extent of bankruptcy relief for debtors, which dismissal would accomplish, and thus, dismissal is inappropriate. The Court instead finds that because the Debtor was ineligible for bankruptcy relief; the bankruptcy case was never properly commenced and is therefore stricken.”

A Pro-se chapter 13 debtor requested a post-petition extension of time to comply with the credit counseling requirement on the basis that she needed counsel to advise her of her rights. In re Henderson, 339 B.R. 34 (Bankr. E.D. N.Y. 2006). The court noted that the request for an extension, while not signed under penalty of perjury may not be presented for an improper purpose and must have evidentiary support. The form of the request in the court’s district requires the debtor to explain the exigent circumstances and requires the debtor to state that they sought counseling from an approved agency but were unable to obtain it within five days. While noting that the standard for exigent circumstances is not overwhelmingly high, especially for a pro-se debtor; at a minimum it should show circumstances particular to the debtor that that show the debtor was confronted with an urgent situation rendering them unable to comply with the counseling requirement prior to filing. The only exigent circumstance alleged by the debtor was the need to obtain counsel. The Court found this was not an urgent situation requiring a prompt filing to avoid some calamity in the debtor’s life. Further, the need for legal assistance does not distinguish this case from the thousands of others who are compelled to seek bankruptcy relief without the assistance of counsel. Based on these conclusions the court denied the extension of time to obtain counseling, but allowed additional time for counsel to obtain counsel and refile a request for extension in compliance with §109(h).

Where debtor failed both to file payment advices or to file certificate of credit counseling, debtor was ineligible to be a chapter 7 debtor, and case should be dismissed rather than stricken. In re Seaman, 340 B.R. 698 (Bankr. E.D.N.Y. 2006). US Trustee sought dismissal for failure to comply with payment advice and credit counseling requirements, and debtor did not appear at hearing. §109(h) does not specify what happens to the bankruptcy case of a debtor that fails to comply with its requirements. The issue is whether the case should be declared void ab initio or dismissed. If dismissed, then the stay limitations of §362(c)(3) or (c)(4) are triggered. On the other hand, if the case is stricken, then the issue arises whether the stay came into existence between the filing date and the date the court struck the petition. If it did come into effect, this would enable an ineligible debtor to trigger a series of bankruptcies improperly availing himself of the automatic stay. While §109(e) requires a chapter 13 debtor to have regular income, virtually all courts recognize that the filing of a chapter 13 petition by a debtor without regular income still commences a case that invokes the jurisdiction of the bankruptcy court. The court also cited the argument that to void a case ab initio would create uncertainty to secured creditors as to the existence of the stay. Further, other sections of the code dealing with failure to file documents, such as §707(a)(3), §1307(c)(9), and §1112(e) set a penalty of dismissal rather than stricking the petition. Under the BAPCPA, Congressional intent is clear that credit counseling is required prior to filing, as a prerequisite for bankruptcy relief, to provide putative debtors with the opportunity to make informed choices as to financial alternatives available, including the possibility of seeking bankruptcy protection. If a case is dismissed rather than stricken, then the debtor may not be able to take advantage of the full panoply of protections afforded under §362 if they refile after obtaining credit counseling. If a case were void ab-initio there would be no purpose for §362(b)(21)(A).

Filing bankruptcy without first complying with credit counseling requirement 1) does nto trigger automatic stay; 2) court may decide on case by case basis whether to strike petition for such failure; 3) court determined to strike both chapter 7 and chapter 13 cases. Court certified question to Court of Appeals. Extensive discussion of case law on issues. In re Elmendorf, 345 B.R. 466 (Bankr. S.D.N.Y. 2006).

Ohio:

The requirement for certification of a request for waiver were examined, and a less strict standard propounded in In re Cleaver, 333 BR 430 (Bankr., S.D. Ohio 2005) (J. Walter). While the motion was ultimately denied for not stating that prepetition counseling was ever sought, the court determined that a motion without separate affidavit or other certification qualified for the form of the request under §109(h)(3)(A). The motion, filed on the same day as the chapter 13 filing (November 3, 2005), stated that a sheriff’s sale of debtor’s property was scheduled the next day, and that there was insufficient time to obtain the counseling. Debtor subsequently filed a certificate that he obtained the counseling briefing on 11 November. The court examined the ‘certification’ requirement of §109(h)(3)(A), and based on Black’s Law Dictionary and Webster’s Third New International Dictionary determined to minimally require a written statement that the signer affirms or attests to be true. Under this definition, no affidavit or oath is required in the motion, nor any separate certification from the motion itself. Judge Walter found the requirements for the §109(h)(3)(A) certification to be 1) a description of the exigent circumstances that merit waiver of the prepetition briefing requirement; 2) That the debtor requested credit counseling services from an approved provided but was unable to obtain it within five days, 3) that the certification is accepted by the Court. Since the debtor did not allege that he sought counseling prior to the filing, the motion was denied and case dismissed.

Pennsylvania:

An issue regarding what constitutes the ‘certification’ of the credit counseling briefing arose in In re Miller, 336 B.R. 232 (Bankr. W.D. Pa. 2006). In this case, the debtor filed a certificate of exigent circumstances explaining why she could not obtain counseling prior to the filing (relating to a sheriff’s sale of the property). There was no discussion in the decision of the efforts, if any, the debtor made to obtain prepetition counseling. After obtaining a post-petition extension to obtain counseling, the debtor filed a ‘certification’ on the letterhead of an approved counseling agency with a hand written statement that she had obtained such counseling, but that the agency would not issue the certificate until its $50 fee was paid. Upon examining dictionary definitions of ‘certification’, Judge Deller ruled that a certification must at a minimum be written instrument which, in an official manner, assures to the reader that 1) that the statements in the certificate are truthful; 2) that the acts or requirements that are the subject of the certification have (or have not) been done. Since the certification filed by the debtor in this case is not shown to have been signed by an authorized officer of the counseling agency, and there is no affirmation that the statements therein are true and correct, and since the document appears not to have been intended by the creator to be presented to the court, it does not qualify as a certification. The court allowed additional time for the debtor to obtain proper certification.

An amplification of the requirement that the exigent circumstances are such as to merit a waiver of the credit counseling requirement was enunciated in In re DiPinto, 336 B.R. 693 (Bankr. E.D. Pa. 2006). The certification in support of the request for credit counseling recited that debtor approached counsel at 7:30 pm the day prior to a sheriff’s sale of the homestead, that the debtor attempted to obtain counseling but was advised that the earliest available date was over 20 days later; and that counsel advised the debtor to attempt to obtain counseling earlier. Judge Raslavich first determined that the purported certification did not comply with 28 U.S.C. §1746, and therefore failed to meet the certify requirement in the statute since the counsel rather than the debtor signed the certification. However, Judge Raslavich went further to determine whether the request would have met the exigent circumstances requirement even if the certification had been proper. Acknowledging that an impending foreclosure sale had been found by courts to constitute exigent circumstances, the court examined a second requirement, that the exigent circumstances merit a waiver of the prepetition counseling requirement.

The ‘merit a waiver’ requirement suggests that the court should consider all the facts and circumstances relating to the debtor's alleged inability to obtain credit counseling prior to filing a petition for relief. In other words, the focus should be not so much on the imminence of the event that threatens the debtor with loss of property and requires filing of the petition for relief in order to invoke the automatic stay, but on the reasons why the debtor was unable to obtain the required credit counseling prior to having to file for relief. Debtor’s statement that he had found a last minute buyer for the property failed to meet this requirement. Debtor had sufficient advance notice of the creditor action, waiting until the last minute to address the prerequisites to bankruptcy filing makes the injury self-inflicting and therefore not meriting a waiver of the prepetition credit counseling requirement.

The court also questioned the debtors efforts to obtain counseling, noting that they sought counseling from only 1 of 14 approved agencies, and did not allege attempting to obtain counseling by telephone or internet.

A request for extension for credit counseling was again denied for failure of the debtor to even seek such counseling prior to filing in In re Tomco, 339 B.R. 145 (Bankr. W.D. Pa. 2006). Judge Deller further found that he was required to dismiss the case rather than strike it. The debtor filed just prior to a foreclosure sale on the homestead. The court noted the practical problems of requiring unsophisticated debtors to obtain counseling prior to the filing, but found that there was a rational basis for the legislation such that it could not be ignored. The court defined the inquiry under the extension section to be whether the debtor was actually precluded by his or her circumstances from obtaining the credit counseling briefing. This is a fact-specific inquiry into the good faith of the debtor, in which knowledge of the law may be a factor. However, this analysis does not change the requirement that the debtor seek counseling prior to filing and be unable to obtain it within five days.

The court rejected the debtor’s argument to strike the petition as done by the court in Rios rather than dismiss the case. The court found that the plain language of §362(c)(3) set forth the only limitations on its applicability, and Congress could have but did not include dismissals due to credit counseling as a basis for waiving waiving the limitations on the stay. §109(h) does not affect the Court’s jurisdiction over a case. The court was granted jurisdiction over the case upon filing by title 28 USC. Further, practicality argues for the initial validity of a case filed in violation of §109(h), as otherwise there would be no automatic stay ab-initio. If a case proceeds when §109(h) was not complied with, its orders remain valid despite such noncompliance.

South Carolina:

Request for credit counseling must be made at least five days prior to filing of the petition in order for court to grant waiver. In re Dansby, 340 B.R. 565 (Bankr. S.C. 2006). While debtor filed a certification with the petition that he could not obtain credit counseling within five days of his request, in fact debtor had an appointment with an approved counselor on the 5^th day after filing. The fact that there was a foreclosure sale prior to the 5^th day did not change the legal requirement. While noting that the certification should be in the form of an oath, the court did not deny the motion on that ground. Citing Cleaver for the proposition that §109(h)(3)(A)(ii) appears to require a five day waiting period prior to filing the petition. Congress intended to provide debtors with an alternative to filing bankruptcy, and to discourage hasty filings. This goal is not met if the debtor waits until just prior to filing to seek credit counseling. The court noted that debtors are not required to ‘scour’ the list of approved counselors prior to seeking an extension, they would be well advised to check with other counselors to avoid dismissal.

Tennessee:

An exception to the usual rule that petitions are deemed filed when received by the bankruptcy clerk’s office was enunciated in In re Looper, 334 BR 596 (Bankr. E.D. Tenn. 2005). The Debtor here was a prisoner. Citing Houston v. Lack, 487 U.S. 266, 108 S.Ct. 2379, 2382, 101 L.Ed.2d 245 (1988), the court ruled that under the “prisoner mailroom or mailbox filing rule,” a document to be filed by a pro se prisoner is deemed “filed” with a court on the date the prisoner delivers the document to prison officials for forwarding to the court. Since the bankruptcy petition was delivered to the prison officials prior to the effective date of BAPCPA, the debtor was not required to comply with the credit counseling requirements of §109(h).

Examining whether there was any basis to determine if there was a basis to correct or reinterpret the statute requiring prepetition credit counseling, and determining that legal precedent required strict compliance, Judge Stair found himself required to dismiss a number of cases for failing to obtain prepetition counseling in In re Fields, 337 B.R. 173 (Bankr. E.D. Tenn. 2005). The US Trustee has sought dismissal of a number of pro-se cases, many of whom used paralegal services, but none of whom had obtained the prepetition counseling. Finding that the language of the statute was plain and unambiguous. The only grounds to waive the requirement are set forth in the section itself.

Texas:

A Texas court has published 3 decisions on this issue in the same case. In In re Hubbard, 332 B.R. 285 (Bankr. S.D. Tex. 2005) it ruled similarly to the other reported decisions in rejecting an extension where the motion failed to file a certification (a motion was insufficient) that explained the exigent circumstances, the date the counseling was sought, which agencies were contacted, why debtor believes that the services could not be obtained prior to filing, and when the services are reasonably likely to be obtained. The court stressed that in the absence of a certification that debtor actually sought counseling services, any such motion must fail. Upon reconsideration, the court sua sponte examined the possibility for relief under §109(h)(2), finding that the motions in a few cases before raised the issue as to whether credit counseling was available in the Southern District of Texas. The court found that if credit counseling is, in fact, not available in the that district, the U.S. Trustee is required to make such certification under §109(h)(2). The Court therefore issued an order for the U.S. Trustee to appear before him and describe the procedures undertaken regarding its certification obligations on the statute. In re Hubbard, 333 BR 373 (Bankr. S.D. Tex. 2005). J. Isgur. At this hearing the Court ruled that credit counseling was available. This final ruling determined that credit counseling was available, and debtors failed to meet the statutory requirements for extension. However, Judge Isgur also determined that since §109(h) specifically specifies that ‘an individual may not be a debtor under this chapter’ unless he meets the credit counseling requirements; and since §301 provides that a voluntary case is ‘commenced by the filing with the bankruptcy court of a petition under such chapter by an entity that may be a debtor under such chapter’, the commencement of a case without compliance with §109(h) does not successfully commence a voluntary case. Since no case was commenced in the Hubbard and related cases, there is no case to dismiss. Therefore, the Court stuck the petitions rather than dismissing them. This, of course, would also have the effect of not triggering the stay provisions of §362(c)(3) or (c)(4). The court determined that fee charged by the Debtor’s counsel exceeded the reasonable value of counsel’s services in the Hubbard and related cases and entered an order to show cause why such fees and expenses should not be returned to the debtors. In re Hubbard, 333 B.R. 377 (Bankr. S.D. Tex. 2005).

Another court very critical of BAPCPA in general and the credit counseling requirement in particular discussed the criticisms in In re Sosa, 336 BR 113 (Bankr. W.D. Tex. 2005). J. Monroe. “Those responsible for the passing of the Act did all in their power to avoid the proffered input from sitting United States Bankruptcy Judges, various professors of bankruptcy law at distinguished universities, and many professional associations filled with the best of the bankruptcy lawyers in the country as to the perceived flaws in the Act. This is because the parties pushing the passage of the Act had their own agenda. It was apparently an agenda to make more money off the backs of the consumers in this country. It is not surprising, therefore, that the Act has been highly criticized across the country. In this writer's opinion, to call the Act a “consumer protection” Act is the grossest of misnomers.”

And subsequently in the decision: “[o]ne Debtor has now substantially complied with the intent of the Act by undergoing the required credit counseling. One has not but still could within the time limit if a waiver could be granted. However, because the Debtors did not request such counseling before they filed their case, Congress says they are ineligible for relief under the Act. Can any rational human being make a cogent argument that this makes any sense at all?
But let's not stop there. If the Debtors' case is dismissed and they re-file a new case within the next year, it may be that some creditor will take the position that the new case should be presumed to be filed not in good faith. See 11 U.S.C. § 362(c)(3)(C). Section 362 further states that if subsection (c)(3)(C) applies, then the stay in that second case will only be good for thirty days unless the debtor (i) files a motion, (ii) obtains a hearing and ruling by the Court within such thirty-day period and (iii) proves by clear and convincing evidence that the second case was filed in good faith. It should be obvious to the reader at this point how truly concerned Congress is for the individual consumers of this country. Apparently, it is not the individual consumers of this country that make the donations to the members of Congress that allow them to be elected and re-elected and re-elected and re-elected.”

The facts of the case are similar to most reported decisions. The debtors filed at the last minute to avoid a foreclosure sale; putting of the filing in this case due to negotiations with the mortgage company regarding a cure and a last minute rejection by the mortgage company of a cure offer. The debtors admitted not seeking credit counseling prior to filing the bankruptcy case. Finding his hands tied by the act, the court found itself required to dismiss the case. The court appears to have specifically declined to rule on whether a new filing would trigger the stay limitations of §362(c)(3) or (c)(4).

Disagreeing with In re Ross and In re Tomco Judge Isgur determined that a bankruptcy filing by debtors that did not meet the pre-bankruptcy credit counseling requirements of §109(h) does not trigger the automatic stay, and therefore a post-petition foreclosure sale was neither void nor voidable. In re Salazar, 339 B.R. 622 (Bankr. S.D. Tex. 2006). The court determined that it was implausible to believe that Congress specifically identified people to exclude from the bankruptcy process under §109(h) for failure to obtain credit counseling, yet permitted those same people to benefit from bankruptcy’s most powerful protection: the automatic stay. §362(a) provides that the automatic stay takes effect when a petition is filed under §§301, 302, or 303 of the code. §302 (the relevant section for the bankruptcy at issue) provides that a case is commenced with the filing of a petition by an individual that may be a debtor under such chapter. §109(h) provides that an individual may not be a debtor under this title unless the met the credit counseling requirement. Thus, as read together, unless an individual met the credit counseling requirement, they are ineligible to file a proper petition for bankruptcy or to be eligible for the automatic stay. The statute gives no room for an equitable exception to the rule. The court noted that this could create uncertainty in some circumstances, but noted the code provides mechanisms both to punish creditors that act in violation of the stay and to punish debtors that attempt to avail themselves of bankruptcy proection when they are ineligible. The court noted that the Fifth Circuit’s position that stay violations are voidable rather than void also reflects a code interpretion allowing a certain degree of uncertainty until a final decision is reached. Other instances where the applicablility of the stay is subject to court review were note by the court. Congressional intent must also support the conclusion. Congress intended that individuals learn about the consequences of bankruptcy before they file. Not including the credit counseling certificate in the list of deficiencies that result in automatic dismissal under §521(i) also could reflect Congressional intent that there is no case to be dismissed in the absence of compliance with the credit counseling requirements. The debtors argued that §362(b)(21) would be surplusage if the automatic stay never arose upon failure to comply with §109(h). The court rejected this argument, finding that §362(b)(21) was adopted by Congress to overrule those decisions finding that ineligible debtors could still file a petition triggering the automatic stay. Lastly, the court distinguished between dismissing a case and dismissing (or striking) the bankruptcy petition. §941(c) and (d) provide for dismissal of petitions. Dismissal of a petition pursuant to §109 results in dismissal prior to commencement of a case, and therefore would not trigger the stay limitation of §362(c)(3) or §362(c)(4) in a subsequent case. The court certified the decision for direct appeal to the Fifth Circuit Court of Appeals.

Utah:

In In re Sukmungsa, 333 B.R, 875 (Bankr. D. Utah 2005) the court rejected an attempt to use Rule 60(b) to extend the time to seek credit counseling. Debtor’s counsel asserted that the Debtors told him they had completed credit counseling prior to filing. The original filing included a certification by the debtors that they had completed credit counseling, three days prior to filing, but no certificate from any approved credit counseling agency. An actual credit counseling certificate was later filed seven days after the bankruptcy, showing counseling received that same day. A corrected certificate of credit counseling was filed after the hearing on the motion to extend showing that counseling was had with an approved provider six days prepetition. The Court looked to Pioneer Investment Services Company v. Brunswick Associates Limited Partnership et al., 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993) for the standards to show excusable neglect. The court found that counsel had a duty under Rule 9011 to make a reasonably inquiry that the factual contentions in the petition have evidentiary support. The court found that the Debtors never explained the discrepancies in the dates of credit counseling. The court ruled that the excusable neglect standard was not met in that debtors never adequately explained why the Debtors failed to timely certify the completion of the credit counseling. Further, counsel should have taken reasonable steps to verify the debtors assertions of completion of the counseling.

Virginia:

In In re Watson, 332 B.R. 740 (Bankr. E.D. Va. 2005) Judge St. John ruled the debtor must show both exigent circumstances and that he requested credit counseling from an approved agency; and that such showing is satisfactory to the court. Thus, even if the court finds that circumstances were sufficiently exigent to warrant not seeking credit counseling, the motion still must be denied and the case dismissed unless the debtor actually sought credit counseling from an approved agency within 5 days of filing. In this decision the court also rejected an equal protection argument made by the individual chapter 13 debtor that if he had chosen a corporate structure rather than a sole proprietorship, the corporation would not have to meet the credit counseling requirement. The court determined that the disadvantaged class – sole proprietorships – were not a suspect class for discrimination purposes. Further, that there was a rational basis for congress distinguishing individuals from corporations in making the credit counseling requirement.

Wisconsin:

One of the rare cases when a motion for extension was granted is the unpublished decision in In re Reed, 05-45739-pp (Bankr. E.D. Wis.. 14 November, 2005) (J. Pepper). In this case the Debtor filed a motion alleging that they sought credit counseling five days prior to filing, but were told that the first available appointment would not be for substantially more than five days. While they did not assert exigent circumstances, the court granted the motion and allowed 30 days after the filing of the case for the debtors to obtain such counseling.

A factual situation nearly identical to Looper was announced in In re Luedtke, 337 B.R. 918 (Bankr. E.D. Wis. 2006). Again, a petition was mailed by a prisoner prior to October 17, but received by the bankruptcy clerk after October 17. This court also cited the prisoner mailbox rule to determine that the petition was deemed filed when delivered to the prison mailbox, rather than when received by the bankruptcy clerk.

§109(h)(1) Subject to paragraphs (2) and (3), and notwithstanding any other provision of this section, an individual may not be a debtor under this title unless such individual has, during the 180-day period preceding the date of filing of the petition by such individual, received from an approved nonprofit budget and credit counseling agency described in section 111(a) an individual or group briefing (including a briefing conducted by telephone or on the Internet) that outlined the opportunities for available credit counseling and assisted such individual in performing a related budget analysis.

(2)(A) Paragraph (1) shall not apply with respect to a debtor who resides in a district for which the United States trustee (or the bankruptcy administrator, if any) 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 requirements of paragraph (1).

(B) The united states trustee (or the bankruptcy administrator, if any) who makes a determination described in subparagraph (A) shall review such determination not later than 1 year after the date of such determination, and not less frequently than annually thereafter. Notwithstanding the preceding sentence, a nonprofit budget and credit counseling agency may be disapproved by the United States trustee (or the bankruptcy administrator, if any) at any time.

(3)(A) Subject to subparagraph (B), the requirements of paragraph (1) shall not apply with respect to a debtor who submits to the court a certification that –

(i) described exigent circumstances that merit a waiver of the requirements of paragraph (1);

(ii) states that the debtor requested credit counseling services from an approved nonprofit budget and credit counseling agency, but was unable to obtain the services referred to in paragraph (1) during the 5-day period beginning on the date on which the debtor made that request; and

(iii) is satisfactory to the court.

(B) With respect to a debtor, an exemption under subparagraph (A) shall cease to apply to that debtor on the date on which the debtor meets the requirements of paragraph (1), but in no case may the exemption apply to that debtor after the date that is 30 days after the debtor files a petition except that the court, for cause, may order an additional 15 days.

(4) The requirements of paragraph (1) shall not apply with respect to a debtor whom the court determines, after notice and hearing, is unable to complete those requirements because of incapacity, disability, or active military duty in a military combat zone. For the purposes of this paragraph, 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).

¶8 Appointment to Sign Schedules

¶8.1 It is a violation of §526(a)(2) for a DRA to make a statement or advise a client (or potential client) to make any statement that is untrue and misleading, or that counsel should have known was untrue and misleading. This puts some burden on counsel to exercise reasonable care to insure that no statements by counsel or by the client are inaccurate and misleading. Note, the statements must be both untrue and misleading, hence while no one would recommend putting untrue statements on the schedules, the fact that a statement, while true, might be misleading, could not be the basis for sanctions under this section. There remains a question whether any affirmative investigation is required or whether counsel simply must not know that any statements are misleading. Since the section does not state ‘upon reasonable investigation’ as it does in §xxx, then presumably no investigation is required. This also only applies to written documents filed in a bankruptcy.

§526(a) A debt relief agency shall not –

(2) make any statement, or counsel or advise any assisted person or prospective assisted person to make any statement in a document filed in a case or proceeding under this title, that is untrue and misleading, or that upon the exercise of reasonable care, should have been known by such agency to be untrue or misleading;

¶8.2 Schedules and documents filed with petition: in addition to the schedules and statement of financial affairs, the code now requires a statement by the debtor’s attorney that counsel has delivered the §342(b) [notice of available chapters and statements regarding the accuracy of the forms] to the debtor. (This only requires delivery of the notice, not that the notice was read, contrast to §521(a)(1)(B)(iii)(II) where pro-se debtors are actually required to read the notice). Also the initial filing must include copies of pay stubs from the debtors from the last 60 days prior to filing, and a statement of any reasonably anticipated increase in income or expenditures (though not of any decrease in income or expenditures?) in the 12 months following the filing of the case.

If these documents are not filed within 45 days after the case is filed, the case is automatically dismissed on the 46^th day according to §521(i)(1); yet according to §521(i)(2) it shall be dismissed within 5 days after a request by a party in interest. Subsection (1) defers to subsection 2, thereby implying a defacto dismissal formalized by the procedures described in subsection (2). The debtor may request an extension of time of up to another 45 days but the request must be filed within the initial 45 day period. Also, the trustee (but not the debtor or any other party in interest) may request that the case not be dismissed if such request is made prior to the expiration of the time period and if the court finds that the debtor attempted in good faith to file all the information required and that the best interests of the creditors would be served by administration of the case.

Query wouldn’t this allow the debtor who decided after the filing of the case that it wanted out of bankruptcy to simply refuse to file such documents, thereby requiring dismissal of the case under this subsection regardless of the best interests of creditors?

Cases:

Colorado:

Excusable neglect is not a basis to waive the filing deadlines of §521(i)(1). In re Ott, 2006 wl 1152339 (Bankr. D.Colo. 2006). Debtor’s counsel did not advise debtor of the deadline to file the payment advices, and the advices were not filed within the deadline set by BAPCPA. The bankruptcy itself was filed just 2 days after BAPCPA took effect. Debtor sought to vacate the order dismissing on the basis that the delay in filing was caused by counsel’s mistake or omission, and the confusion of the new bankruptcy law. The court noted that the legislative history seemed to reflect that Congress viewed bankruptcy as morally similar to shoplifting, and set a number of self–executing, unforgiving, and inflexible provisions in the new law. The case is automatically dimissed on the 46^th day if the documents are not filed. Once that occurs, no other excuses or exceptions can apply to reinstate the case. The court did note that it may be possible to extend the time prior to the termination of the 45^th day, including by the court’s own initiative. The court also noted that if circumstances made it impossible to comply with the 45 day deadline, a different result might apply.

Florida:

A pro – se debtor sought reconsideration of dismissal of his case for failure to file the §521(a)(1) documents within 45 days. Judge McEwen ruled that the court had no discretion to grant an extension of time to file those documents, and that dismissal was required. The case is automatically dismissed under §521(a)(7)(i)(1) on the 46^th day after filing. The extension permitted under §521(i)(3) requires that such extension request be filed prior to the expiration of the 45 days. Once that time p