§ 156.5     Instructional Course Requirement
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 156.5, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

BAPCPA added a barrier to entry of discharge at the completion of payments in a Chapter 13 case in § 1328(g):

(g)(1) The court shall not grant a discharge under this section to a debtor unless after filing a petition the debtor has completed an instructional course concerning personal financial management described in section 111.
(2) Paragraph (1) shall not apply with respect to a debtor who is a person described in section 109(h)(4) or who resides in a district for which the United States trustee (or the bankruptcy administrator, if any) determines that the approved instructional courses are not adequate to service the additional individuals who would otherwise be required to complete such instructional course by reason of the requirements of paragraph (1).
(3) The United States trustee (or the bankruptcy administrator, if any) who makes a determination described in paragraph (2) shall review such determination not later than 1 year after the date of such determination, and not less frequently than annually thereafter.1
[2]

Other than repeating the phrase “personal financial management,” new § 111 of the Bankruptcy Code does not “describe” an instructional course concerning personal financial management. The content of the “instructional course concerning personal financial management” is left to the U.S. trustee. The U.S. trustee has approved courses and course givers;2 it is less clear whether the U.S. trustee is policing the content of these courses.

[3]

In any case, new § 1328(g) prohibits granting a discharge in a Chapter 13 case unless the debtor has completed an instructional course described in § 111. There are two exceptions to this new requirement.

[4]

If the debtor is a “person described in § 109(h)(4),” the debtor need not complete an instructional course to get a discharge. Section 109(h)(4) states that the prepetition briefing requirement for eligibility to be a debtor in a Chapter 13 case shall not apply

with respect to a debtor whom the court determines, after notice and a 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 the 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 [§ 109(h)(1)].3
[5]

The gist of new § 1328(g)(2) is that a debtor who would be eligible for Chapter 13 without the prepetition briefing under § 109(h)(4) is also entitled to a discharge at the completion of payments without completing an instructional course concerning financial management under § 1328(g)(1). The exception to the briefing requirement in § 109(h)(4) requires a court determination after notice and a hearing that the debtor is unable to complete the briefing requirement because of incapacity, disability or active military duty in a military combat zone. The same court determination, after notice and a hearing, may apply to determine whether an exception is present to the instructional course requirement under § 1328(g)(2).

[6]

The phrase “a person described in section 109(h)(4)” in § 1328(g)(2) could be interpreted several ways. It could mean that a debtor determined by the court, after notice and a hearing, to be unable to complete the briefing requirement under § 109(h)(4) is automatically excepted from the instructional course requirement in § 1328(g)(1). By this interpretation, if the debtor was found at the beginning of the Chapter 13 case to be excepted from the briefing requirement under § 109(h)(4), then the debtor would not be required to complete an instructional course to receive a discharge under § 1328(g)(2). If the debtor was required to complete a briefing consistent with § 109(h) before filing the Chapter 13 case, § 1328(g)(2) could be interpreted to require the debtor to also complete an instructional course without regard to whether the debtor’s physical or mental circumstances have changed during the Chapter 13 case.

[7]

In the alternative, § 1328(g)(2) could be interpreted to excuse from the instructional course requirement at discharge a person with characteristics that would have excused the briefing requirement under § 109(h)(4). In other words, the reference to § 109(h)(4) in § 1328(g)(2) could be used to incorporate only the characteristics of a person in § 109(h)(4) rather than the actual condition at the time § 109(h)(4) would have applied. This is much the more sensible interpretation given that many months or several years are likely to have passed between the filing of a Chapter 13 case and the time when the debtor becomes eligible for a discharge under § 1328(a). The debtor’s physical and mental circumstances can change a great deal during that time, and the examination described in § 109(h)(4) is meaningful only if timed close to the time when the debtor has to complete the instructional course. It does not make sense that a debtor who becomes incapacitated, who becomes disabled or who is assigned to active military duty in a military combat zone after the filing of a Chapter 13 case would be ineligible to seek relief from the instructional course requirement in § 1328(g).

[8]

The second exception to the instructional course requirement is that the U.S. trustee (or the bankruptcy administrator) has determined that approved instructional courses are not adequate to service “the additional individuals who would otherwise be required to complete such instructional course” under § 1328(a)(1). This would be a determination by the U.S. trustee that instructional course services in a district were inadequate.

[9]

Section 1328(g) does not require a certificate or any particular signal that the debtor has completed the instructional course required for discharge. Unlike the domestic support obligation (DSO) certification required by § 1328(a),4 there is no mention of a certification in § 1328(g). Nor is there any statement in the new statute with respect to when the instructional course must be completed. The debtor is permitted to complete an instructional course at any time before or after the debtor otherwise becomes eligible for discharge in the Chapter 13 case.

[10]

Section 1328(g) conditions granting a discharge that the debtor has completed an instructional course but imposes no penalty or consequence if the debtor does not complete an instructional course. It would not be appropriate for the bankruptcy court to convert or dismiss a Chapter 13 case merely because the debtor failed to complete an instructional course for purposes of § 1328(g). Perhaps bankruptcy courts will close Chapter 13 cases without entry of discharge when the debtor has been eligible for discharge for some time except for completion of an instructional course. In that event, the Chapter 13 case will pass into the same Never Land as a completed plan for a debtor with a DSO when the debtor fails to file the certificate required by new § 1328(a).

[11]

If the bankruptcy court closes a Chapter 13 case that is paid in full and otherwise ready for discharge but with respect to which the debtor has not completed an instructional course, the automatic stay will expire under § 362(c)(2)(A)5 but no discharge injunction will be in effect. Creditors can proceed against the debtor and the debtor’s property. When creditor action is initiated and the debtor realizes that the case was closed without discharge, the debtor might move to reopen the case and prove completion of an instructional course, and a discharge would then be entered. It is anyone’s guess what the rights of creditors and the debtor were during the period after the case was closed and before the case was reopened for entry of discharge.

[12]

It is interesting that the forms drafters quickly stepped in with rules and forms for the instructional course requirement in § 1328(g) but said nothing about the DSO certification required by § 1328(a).6 Interim Rule 1007(b)(7) provides: “An individual debtor in a chapter 7 or chapter 13 case shall file a statement regarding completion of a course in personal financial management, prepared as prescribed by the appropriate Official Form.”7 Official Form 23 was hastily drafted for purposes of Interim Rule 1007(b)(7). Curiously, new Official Form 23 is styled “Debtor’s Certification of Completion of Instructional Course Concerning Personal Financial Management.” Of course, there is no mention of any “certification” in new § 1328(g). And Interim Rule 1007(b)(7) requires the debtor to file “a statement” regarding completion of a course, not a “certification.”

[13]

The certification required by new Official Form 23 includes that the debtor has completed an instructional course, requires the name of the provider, requires the debtor to state that the provider is an “approved” personal financial management instruction provider and requires the debtor to attach a copy of any document that the provider furnished attesting to completion of the instructional course. These requirements go substantially beyond the statutory requirement that the debtor complete an instructional course concerning personal financial management. The requirement that the debtor furnish a copy of any proof of completion of an instructional course provided by the course giver is not supported by the statute and could be a source of prejudice to debtors who failed to get or keep that proof.

[14]

New Official Form 23 contains boxes for the debtor to check if the debtor contends that a personal financial management course is not required because of one of the conditions in § 109(h)(4). New Official Form 23 only requires “certification” of exception to the instructional course mandate. There is no mention of court determination or notice and a hearing in new Official Form 23 or in Interim Rule 1007(b)(7).

[15]

The rules drafters picked the following timing for the filing of new Official Form 23 in a Chapter 13 case: “The statement required by [Interim Rule 1007(b)(7)] shall be filed by the debtor . . . no later than the last payment made by the debtor as required by the plan or the filing of a motion for entry of a discharge under § 1328(b) in a chapter 13 case.”8 The cross-reference to § 1328(b) in this new rule concerns a “hardship discharge” in advance of the completion of payments under the plan.9 In a Chapter 13 case in which the debtor has completed payments under the plan, new Interim Rule 1007(c) specifies that new Official Form 23 shall be filed before the last payment is made by the debtor as required by the plan.

[16]

The Interim Rule answers many of the questions left unanswered by § 1328(g). A new document is required to signal that the debtor has completed an instructional course. Official Form 23 is a more robust certification than the statement described in Interim Rule 1007(b)(7). New Official Form 23 must be filed no later than the last payment made by the debtor as required by the plan.

[17]

The Rule does not answer the question whether there are consequences if the debtor fails to file new Official Form 23. It would be silly to withhold entry of discharge if the debtor filed Official Form 23 after the completion of payments under the plan, notwithstanding that Interim Rule 1007(c) requires that the form be filed before the last payment is made by the debtor under the plan. It is foreseeable that a fair number of Chapter 13 debtors will fail to file Form 23 until pressed to do so by the threat of closing without discharge or perhaps even later by collection action after the case is closed without entry of discharge. It also makes no sense to refuse discharge upon reopening of a Chapter 13 case when the debtor has completed an instructional course, but failed to timely file the required form. All of these fact patterns are likely to play out as practice under BAPCPA matures.

[18]

How will a failure to file new Official Form 23 come to the court’s attention? Put another way, is a determination not to enter a discharge in a Chapter 13 case because there is no statement from the debtor of completion of a instructional course in the nature of an “objection” to discharge that must be filed as a complaint consistent with Bankruptcy Rule 7001(4)? More likely, when the Chapter 13 trustee signals the clerk’s office that payments have been completed and the Chapter 13 case is ready for discharge, review of the docket sheet and comparison to an internal checklist will reveal that the debtor has not filed Official Form 23. Although practice may vary from district to district, it can be predicted that some clerks’ offices will send the debtor and the debtor’s attorney a “notice of deficiency” to prompt the debtor to file the missing Official Form 23. After some period of time, some courts will close Chapter 13 cases without entry of discharge when payments are completed and a final report and account have been filed by the Chapter 13 trustee but there is no statement from the debtor that an instructional course has been completed for purposes of § 1328(g).

[19]

The new requirement that debtors complete an instructional course will present problems for debtors’ attorneys. Debtors will need help finding providers of approved instructional courses. The months or years between the filing of a Chapter 13 case and the likely completion of payments under the plan are ample time for the debtor to find and complete an approved instructional course. It may be too long—debtors will disappear; debtors will fail to get or keep any document from the provider attesting to completion of the course; and some debtors will complete payments under the plan but just forget to complete an instructional course altogether. Finding and completing an instructional course and filing the appropriate new Official Form 23 are additional requirements for completing a Chapter 13 case that will increase the cost of Chapter 13 cases and increase the likelihood that perfectly healthy Chapter 13 cases will not result in entry of discharge at the completion of payments under the plan.


 

1  11 U.S.C. § 1328(g).

 

2  www.usdoj.gov/ust/eo/bapcpa/ccde/de_approved.htm.

 

3  11 U.S.C. § 109(h)(4), discussed in § 373.1 [ Briefing Requirement and Certificate ] § 36.25  Briefing Requirement and Certificate.

 

4  See 11 U.S.C. § 1328(a), discussed in § 545.1 [ New Domestic Support Obligation Certification ] § 156.4  Domestic Support Obligation Certification.

 

5  11 U.S.C. § 362(c)(2)(A), discussed in § 74.1 [ Expiration of Stay ] § 58.14  Expiration of Stay.

 

6  See § 545.1 [ New Domestic Support Obligation Certification ] § 156.4  Domestic Support Obligation Certification.

 

7  Interim Bankr. R. 1007(b)(7).

 

8  Interim Bankr. R. 1007(c).

 

9  See 11 U.S.C. § 1328(b), discussed in § 557.1 [ New Timing, Filing and Procedural Considerations ] § 160.2  Timing, Filing and Procedural Considerations.