In Re Hess
MEMORANDUM OF DECISION
Withdrаwing Orders to Show Cause and Denying Motion to Dismiss
The above referenced debtors each filed a bankruptcy petition without the required proof of pre-petition credit counseling. The plain language of the Bankruptcy Code’s new eligibility provisions appears to mandate dismissal of the cases. However, there are extraordinary circumstances present that beg the question of whether dismissal is mandatory. The Court determines whether, under the totality of the circumstances presented, it has discretion to allow the cases to proceed, notwithstanding the procedural eligibility defect. The Court relies upоn the rules of statutory construction to discern whether the circumstances presented permit the Court to look beyond the plain language of the eligibility statute, and then, finding that they do, examines whether, under the totality of
Procedural History and Background Facts
In re Michael R. Hess
On March 2, 2006, Michael R. Hess filed a petition seeking relief under chapter 7 of the Bankruptcy Code. Mr. Hess marked the box on page 2 of his petition indicating that he had received сonsumer credit counseling during the 180-day period prior to the filing of his case, as required by § 109(h)(1), however, Mr. Hess failed to file a certificate of credit counseling with his petition, as required by Bankruptcy Rule 1007(b)(3) and (c).
On March 2, 2006, the Court issued an order directing Mr. Hess to appear and show cause why his chapter 7 case should not be dismissed due to his apparent ineligibility for relief, as demonstrated by his failure to file a certificate of pre-petition credit counseling. In response, Mr. Hess filed a Motion to Extend Time to Obtain Credit Counseling, indicating that he had obtained credit counseling from the Consumer Credit Counseling Service of New Hampshire & Vermont (“the Counseling Agency”) on December 14, 2005, and filed his petition on March 2, 2006, under the impression that he was in compliance with the requirement for credit counseling within 180 days of the petition. The record indicates that the Counseling Agency informed Mr. Hess’ attorney that it could not issue a certificate for the pre-petition session because it was not an authorized provider as of that date (doc. # 19 Affidavit of Attorney Toscano ¶ 8). The Debtor attended another credit counseling session on March 13, 2006, obtained a certificate of eredit counseling referencing that latter session, and filed that certificate with the Court on Mаrch 13, 2006 (doc. # 14), eleven days after his bankruptcy case was filed. 1
After the hearing, the Court granted the Debtor and the U.S. Trustee an opportunity to investigate the facts set forth by the Debtor and to file memoranda of law addressing the circumstances surrounding the Debtor’s pre-petition counseling session, the Counseling Agency’s refusal to issue a certificate for that session, the Debtor’s failure to file a certificate of pre-petition counseling, and whether the Debt- or’s failure to obtain pre-petition credit counseling and file the required certificate made him ineligible for bankruptcy relief under § 109(h). Based upon her investigation of these issues, the U.S. Trustee decided not to seek dismissal of the Hess ease. Therefore, the only matter pending in this case is the Court’s order to show cause why the case should not be dismissed.
In re Danielle Madore
On February 6, 2006, Danielle Madore filed a petition seeking relief under chapter 7 of the Bankruptcy Code. Like Mr. Hess, Ms. Madore marked the box on page 2 of her petition indicating that she had received consumer credit counseling during the 180-day period prior to the filing of her case, per § 109(h)(1), but failed to file a certificate of credit counseling with her petition, as required by Bankruptcy Rule 1007(b)(3) and (c).
On February 6, 2006, the Court issued an order directing Ms. Madore to appear
Ms. Madore filed a request for an order extending the time within which she could obtain credit counseling (doc. # 11), accompanied by an affirmation by her attorney, Margot Stone (doc. # 13) (collectively, the “Madore Request”), that state the following: Attorney Stone suffered a life threatening mеdical event (advanced breast cancer that required immediate medical intervention, multiple surgeries, and radiation treatments) at the time the Debtor was preparing to file for bankruptcy relief. Attorney Stone went to her law office in the middle of her medical leave for the purpose of meeting with the Debt- or, to obtain the Debtor’s signature on the petition and other documents, and to review with the Debtor the requirements with which the Debtor had to comply before her case could be filed. After the meeting, Attorney Stone placed the signed petition, schedules and cover letter in a priority mail envelope in her office, ready to be sent to court upon receipt of the certificate of credit counseling. As fate would have it, though, while Attorney Stone was out of the office recovering from emergency surgical procedures, an employee found the envelope, presumed the case was ready to be filed and mailed the envelope without the certificate of credit counseling. Attorney Stone points out that she represents Ms. Madore on a pro bono basis and argues that both she and her client did everything each of them could possibly have done to comply with the statute, that the law office error that caused the petition to be filed four days prior to Ms. Madore’s completion of credit counseling was a direct consequence of her extraordinary medical circumstances, and that the Court has discretion to deny dismissal of Ms. Madore’s case under the totality of these circumstances.
The U.S. Trustee’s memorandum of law opposing the Debtor’s request for an extension (doc. # 12) alleges that the Debt- or’s failure to obtain pre-petition counseling, failure to demonstrate compliance with all three prongs of the test for an exemption from the pre-petition credit counsеling requirement, and the Debtor’s resulting ineligibility for relief de facto constitute cause for dismissal under § 707(a).
Issues Presented
Although the Hess and Madore cases present different facts, they have strikingly similar procedural histories, and present identical legal issues: first, whether a debtor’s failure to meet the eligibility requirements set forth in § 109(h) mandates dismissal of a chapter 7 case, or if the bankruptcy court has discretion to grant relief despite technical ineligibility; and second, if the court does have discretion, whether the instant cases present facts
Jurisdiction
It is undisputed that these cоntested matters are core proceedings, and that the Court has jurisdiction over them pursuant to
Discussion
A. Do the Rules of Statutory Construction Permit the Exercise of Discretion?
There are three rules of construction that are particularly apropos to the issues presented. They are in essence, the supremacy of the plain language when a statute is clear, the duty to avoid an application of the statute that would cause injustice and the relevance of context, and Congressional intent when construing a new statute.
1. The Plain Language of the New Eligibility Statute
The Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) requires each individual seeking bankruptcy relief to obtain pre-petition credit counseling and file a certificate thereof as a predicate of eligibility for bankruptcy relief.
(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 crеdit counseling and assisted such individual in performing a related budget analysis.
(h)(3) (A) Subject to subparagraph (B), the [pre-petition credit counseling] requirements of paragraph (1) shall not apply with respect to a debtor who submits to the court a certification that—
(i) describes exigent circumstances that merit a waiver of the requirements of paragraph (1);
(n) 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 (2) during the 5-day period beginning on the date on which the debtor made that request; and
(iii) is satisfactory to the court.
The published decisions that have addressed
The Supreme Court has also recognized that when strict application of the plain language would result in manifest injustice, judicial discretion must be exercised.
See Rector, Etc of Holy Trinity Church v. United States,
Since
2. Judicial Discretion under the Dismissal Statute
Since the U.S. Trustee has moved for relief under § 707(a), we start with an analysis of that provision, which states, in pertinent part:
The court may dismiss a case under [chapter 7] after notice and a hearing, and only for cause, including—
(1) unreasonable delay by the debtor that is prejudicial to creditors;
(2) nonpayment of any fees or charges required under chapter 123 of title 28; and
(3) failure of the debtor in a voluntary case to file .... the information required by paragraph (1) of § 521, but only on a motion by the United States Trustеe.
The decision of whether to grant or deny a motion to dismiss a petition in bankruptcy lies within the discretion of the bankruptcy judge.
In re Sherman,
3. Discretion under Other Eligibility Provisions
The Supreme Court has made clear that the meaning of statutory language, plain or not, depends on context.
In re Cortez,
(g) Notwithstanding any other provision of this seсtion, no individual or family farmer may be a debtor under this title who been a debtor in a case pending under this title at any time in the preceding 180 days if—
(1) the case was dismissed by the court for willful failure of the debtor to abide by order of the court, or to appear before the court in proper prosecution of the case; or
(2) the debtor requested and obtained the voluntary dismissal of the case following the filing of a request for relief from the automatic stay provided by section 362 of this title.
A No Congressional Intent to Restrain Judicial Discretion in the Credit Counseling Requirements
When Congress amended the Bankruptcy Code through BAPCPA, it definitely circumscribed bankruptcy courts’ discretion in certain situations. It used unambiguous terms such as “automatic dismissal” and “the court shall dismiss.” For example, one new provision states “If the debtor fails to comply with [certain enumerated statutory directives],
the Court shall dismiss the case
unless the debtоr demonstrates that the failure to so comply is due to circumstances beyond the control of the debtor.”
See
5. Courts May Exercise Discretion When Enforcing the Credit Counseling Requirements
Based upon its understanding of the rules of statutory сonstruction, the Court concludes that it has authority to exercise discretion when determining whether to dismiss a case based upon a debtor’s failure to meet the eligibility requirement of
B. Under the Totality of Circumstances Dismissal is Not Warranted
When exercising its discretion in connection with a motion under
1. Notwithstanding Eligibility Defects Under
Even though Mr. Hess did not file a certificate of pre-petition counseling, or fulfill the statutory prerequisites for an exemption, the U.S. Trustee concludes that “the United States Trustee does not believe dismissal of the case is appropriate under the facts presented.” See doc. # 20.
In assessing the totality of circumstances Mr. Hess’ case presents, the Court places great weight on the following undisputed facts: the Debtor attended a credit counseling session with an approved counseling agency within 180 days of filing his case, requested the requisite certificate, filed his case reasonably believing that he had complied with the pre-petition counseling requirements, attended a post-petition counseling session in order to obtain a certificate, and filed that certificate eleven days after filing his petition. The Court interprets the fact that the U.S. Trustee, in her independent review of the case, determined that dismissal of the cаse would not be appropriate under the facts
Mr. Hess also filed a motion to extend the time by which to obtain the credit counseling to a date after he filed his case. In light of the Court’s determination that the totality of the circumstances warrants an exemption, the motion to extend the deadline for obtaining the counseling is moot.
2. Notwithstanding Eligibility Defects Under
Like Mr. Hess, Ms. Madorе took all reasonable steps necessary to comply with the pre-petition counseling requirement but found that her petition was filed without the requisite pre-petition counseling as a result of acts and circumstances of others that were both beyond her control and extraordinary. Unlike the Hess case, though, the Madore case is the subject of a motion to dismiss by the U.S. Trustee. Therefore, the Court turns first to an analysis of whether the Debtor satisfied the criteria for an exemption from the pre-petition credit counseling requirement.
The first prong of the test requires proof of exigent circumstances that merit a waiver of the pre-petition counseling requirement. The exigent circumstances that caused Ms. Madore’s case to be filed before she had completed the required counseling have their genesis in her attorney’s suffering a grave, medical emergency. Generally if a debtor suffers adverse legal consequences as a result of an attorney error, the debtor’s recourse is against the attorney, however, there are exceptions to that rule for law office failure,
see In re Pioneer,
The second prong appears to require that a debtor must request credit counseling prior to filing a petition, and may only file her petition without such counseling if she is not able to obtain the counseling within five days of her request. The record is clear that at some point the Debtor did request credit counseling and obtained that counseling four days after the petition was filed. The U.S. Trusteе has not offered any argument in support of dismissal that describes how the Debtor could have called for an appointment at least five days prior to filing her petition when she had no way to know the petition would be filed prematurely, i.e., before she brought in the credit counseling certificate. Nonetheless, the U.S. Trustee is correct that the Debtor has not complied with the procedural specifics of the second prong of exemption criteria in
The third and final prong of this test requires that the Debtor file a certification in support of an exemption that is satisfactory to the court. Based upon thе unique facts of this case and Attorney Stone’s dire circumstances, the Court finds that the certification the Debtor filed in support of her motion for (a) an exemption from the requirement to obtain pre-petition counseling and (b) an extension of time to complete the counseling post-petition, is statutorily sufficient.
Since the Debtor did complete the counseling within 30 days of the filing of the petition, the Court specifically finds that the Debtor has also satisfied the requirements of
Thus, the Court finds, first, that Ms. Madore did not satisfy the requirements of
Although this would also be a sufficient basis for denying the U.S. Trustee’s motion to dismiss, the Court turns to the question of burden of proof to rule on the
In sum, the Court finds Ms. Madore filed her case in good faith, reasonably relied upon her attorney to file the certificate of credit counseling within the time periоd required by the new statute, failed to meet the requirements of
Conclusion
The plain language of
Accordingly, the Court withdraws its order to show cause in each case, grants each debtor an exemption from the pre-petition credit counseling requirement, and denies the U.S. Trustee’s motion to dismiss Ms. Madore’s case.
Notes
. The facts of this case mirror those previously before the Court in
In re Davey,
. if (i) there are no approved credit counseling agencies in the district ..., or (ii) the debtor is incapacitated, disabled or in active military duty in a military combat zone, under subparagraph (h)(4).
. for exigent сircumstances under subpara-graph (h)(3), as is more fully described below.
. At least one court has observed, that designating this as an exemption rather than an extension in
. In