Debtor must complete counseling before filing Chapter 13, rules U.S.

Daily Record and the Kansas City Daily News-Press, Feb 27, 2006 by Joy Simmons

A debtor was not eligible for Chapter 13 bankruptcy status when he did not complete required debt counseling prior to filing his case, the U.S. Bankruptcy Appellate Panel for the Eighth Circuit held.

The counseling provision is mandated by the Bankruptcy Abuse Prevention and Consumer Debt Act of 2005 (BAPCPA), which, among other amendments, introduced new eligibility requirements for individuals seeking bankruptcy protection.

Debt counseling is a completely new provision, Diana Daugherty, counsel for the appellee said. It's important to allege specifics under BAPCPA. Almost all new cases involving individuals filing Chapter 13 involve new Section 109 requirements.

At issue in the case was whether the individual met the definition of exigent circumstances under Section 109(h) in order to waive the counseling requirement.

The Eighth Circuit is putting some teeth into the credit counseling requirement of the new code, Ben Prell, an attorney who practices in Armstrong Teasdale's Financial Restructuring, Reorganization and Bankruptcy group, said. 'Exigent circumstances that merit a waiver' will still be up to the bankruptcy judges to decide on a case-by-case basis, but this decision serves as a good example of why it is not wise to file at the last minute. I think the case reinforces one of the underlying themes of the BAPCA, which is to increase expectations of financial responsibility on the part of debtors.

The Feb. 17 decision upheld a ruling by the U.S. Bankruptcy Court of the Eastern District of Missouri. In re Dixon v. LaBarge.

Background

On November 10, 2005 Keith Dixon filed his Chapter 13 case. With his petition, Dixon filed a Certification Requesting Waiver of Debt Counseling by Individual Debtor. The certificate stated that Dixon did not contact an attorney to determine how to stop a foreclosure on his real estate, residence and homestead until 6:30 p.m. the night before the foreclosure was to occur.

Dixon also attested that his counsel advised him to file a Chapter 13 petition and to complete debt counseling before filing bankruptcy. He contacted a debt counseling center and was told it would be two weeks before it could provide him with debt counseling on the phone and 24 hours before it could provide him with counseling via the Internet.

He next attested he had no computer or access to the Internet and it was impossible to complete credit counseling prior to the time set for foreclosure on his home.

Based on these statements, he requested waiver of the counseling requirement prior to his filing based on exigent circumstances.

The bankruptcy court reviewed the certificate and determined that the certificate did not describe exigent circumstances that merited a waiver of the statutory requirement of obtaining a pre-petition briefing. As a result, the bankruptcy court held that Dixon was not eligible to be a debtor. In a subsequent order, the bankruptcy court dismissed the debtor's case.

The Bankruptcy Abuse Prevention and Consumer Debt Act

One of the primary amendments enacted by BAPCPA, was a new eligibility requirement for individual debtors. Specifically, Sec. 109(h)(1) states that, as a general rule, all individual debtors must receive an appropriate briefing during the 180 days preceding the date of filing. The statute indicates which agencies are eligible to provide such a briefing and, in very general terms, what such a briefing should entail.

It is the clear expectation of the statute that all individual debtors receive such a briefing prior to filing, the court said. Section 521(b)(1) of the Bankruptcy Code requires 'an individual debtor to file a certificate from the agency that provided the debtor's services under Sec. 109(h) describing the services provided to the debtor. . . . and presumably, the 'services' in this section refer to the 'briefing' required by Sec. 109(h)(1). See, In re Laporta, 332 B.R. 879, 883 (Bankr. D. Minn. 2005).

According to the court, the requirements of Sec. 109(h)(1) are explicitly subject to at least two exceptions. The first exception is found in Sec. 109(h)(2). If the U.S. trustee certifies there are no approved agencies available to provide adequate services in a district, then debtors in that district are excused from complying with the requirements of ß 109(h). That exception is not applicable here, the court said.

The second exception to Sec. 109(h), applicable to this case, is that the debtor files a certification of exigent circumstances. 11 U.S.C. Sec. 109(h)(3)(i).

Exigent Circumstances

In this context, it is fair to say that 'exigent' indicates that the debtor finds himself in a situation in which adverse events are imminent and will occur before the debtor is able to avail himself of the statutory briefing, the court said. The question for the court in such certifications will usually be whether those exigent circumstances merit the statutory waiver.

In this case, the bankruptcy court found that the certificate filed by the debtor did not merit a waiver. The bankruptcy court observed that Mo. Rev. Stat. Sec. 443.310 requires 20 days notice of foreclosure.