Wednesday, November 4, 2009

Credit Counseling is Mandatory

One of the cases that was heard before mine caught my attention as it demonstrates the harsh new reality of proceeding in bankruptcy under the 2005 Bankruptcy reform laws.
The matter before the judge was a hearing in the case of a man who had filed a Chapter 13 case without first getting his credit counseling certificate. As you may know, the new law requires that any bankruptcy filer must obtain a credit counseling certificate from an approved provider within 180 days of filing or within 5 days after filing. If no certificate is submitted, the court will hold a hearing to determine if the debtor has good cause for not attending pre-filing credit counseling.
The case I am writing about involved what appeared to be an elderly man who had filed a "pro se" (without a lawyer) Chapter 13 case to stop a foreclosure. The debtor was not able to be in court because he was too ill to attend. The debtor appeared by telephone – the courtroom deputy set up a speakerphone in the courtroom and all of us there could hear the proceedings.
The judge (who is a very capable and reasonable person) asked the debtor why he had not obtained the credit counseling. The debtor replied that he had recently had two heart attacks and that his wife had recently suffered a stroke and that he had no transportation to get to credit counseling.
The judge then asked if that was his only reason, and the debtor replied that it was. The judge then ruled that the debtor had not show sufficient reason under the Code for not attending the credit counseling and that the judge would therefore have to dismiss the case.
Code Section 109(h)(4) provides that the credit counseling requirements do not apply to individuals who are "disabled" with "disability" being defined as being "so physically impaired as to be unable, after reasonable effort, to participate in an in person, telephone, or Internet briefing…."
Given the above disability exception, I must admit that I am somewhat puzzled by the judge's ruling. Again, this is a judge who is reasonable, compassionate and very practical. Perhaps the debtor did not convince the judge that he had made a "reasonable effort" to obtain pre-filing credit counseling. Perhaps the judge did not believe that a telephone or Internet briefing was not a reasonable alternative. Finally, perhaps the judge saw this case as one that was not really feasible anyway as a disabled debtor on a fixed income most likely does not have the finaincial resources to make a Chapter 13 work and a dismissal based on credit counseling would be a fast way to save a lot of time and headache for the mortgage lender and the court.
On the other hand, I think it is troubling that a bankruptcy judge would be so quick to slam the doors of the court closed in the face of a disabled debtor. Yes, it is unlikely that a disabled debtor proceeding without a lawyer in what has become a complicated area of practice would succeed with his petition. But is that what bankruptcy has become? A form of debt relief only available to those with enough money and resources to pay a lawyer to help them navigate the intricacies of the new Code?
And this ruling is not unusual.  I read in a recent issue of Consumer Bankruptcy News that a Judge in Florida did the same thing (In re Crystal Davenport).  In the Davenport case, the debtor filed an emergency bankruptcy to stop a vehicle repossession, then received credit counseling two days after filing.  Judge May of the Middle District of Florida said that 2 days post filing is not good enough and that Section 109(h) of the Code gives a judge no discretion.  The case was dismissed.