Cite as: Keith M. Lundin, Lundin On Chapter 13, § 18.1, at ¶ ____, LundinOnChapter13.com (last visited __________).
The basic rules for Chapter 13 eligibility in § 109(e) were not changed by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).1 Chapter 13 relief is limited to individuals2 with regular income3 who are able to make payments under a plan4 and whose noncontingent, liquidated debts, at this writing, are less than $394,725 unsecured and $1,184,200 secured.5 The eligibility of repeat filers is limited by § 109(g) when there has been a prior dismissal following a request for relief from the automatic stay6 or willful failure to abide by a court order or to appear in proper prosecution in a prior case.7
With respect to cases filed on or after October 17, 2005, BAPCPA added a completely misguided speed bump to Chapter 13 access with the enactment of 11 U.S.C. § 109(h). Bankruptcy lawyers routinely call this pit stop “credit counseling,” but the statute calls it a prepetition “briefing.” The misnomenclature may be important someday, but there is no question that prospective Chapter 13 debtors since 2005 have had to get their tickets punched, however briefly, before they traverse the door to Chapter 13.
“Misguided” is in the first sentence above because, with 10 years of data in hand, there is no evidence that § 109(h) does what a few congresspeople said it was supposed to do, and there is substantial evidence that the only thing § 109(h) has done is to (maliciously) increase the cost of access to bankruptcy for folks least able to afford it.8 As amended just a bit in 2009 and again in 2010, § 109(h) says this:
(h)(1) Subject to paragraphs (2) and (3), and notwithstanding any other provision of this section other than paragraph (4) of this subsection,9 an individual may not be a debtor under this title unless such individual has, during the 180-day period ending on10 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).
. . . .
(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) describes 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 7-day11 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).12
The opening phrase, ‘notwithstanding any other provision of this section[,]” telegraphs that an otherwise eligible individual “may not be a debtor” under any chapter of Title 11 unless subsection 109(h) is satisfied.13 Similar language in § 109(g) has generated disagreement whether the “petition” filed by an ineligible individual commences a bankruptcy case, invokes the automatic stay and provides a platform for conversion.14 Absent a temporary exemption15 or permanent waiver,16 the courts have fractured with respect to whether an individual can commence a Chapter 13 case or invoke the automatic stay without a qualified prepetition briefing.17
The gist of § 109(h) is that every Chapter 13 debtor must receive a “briefing” during the 180 days preceding the date of filing the petition.18 The precise timing of this prepetition briefing has been problematic because—notwithstanding a technical amendment in 201019—the statute is not clear whether a briefing qualifies on the day of filing the petition.20 BAPCPA was explicit with respect to the limited nature and content of this “briefing,” but the “briefing” quickly has morphed into a different, more onerous requirement that potential debtors submit to “credit counseling” before filing a Chapter 13 case.21
The briefing can be in person, by phone or on the Internet and can be an individual or group session.22 The briefing must ‘outline” the “opportunities” for available credit counseling and assist the individual in performing a “related budget analysis.”23 The briefing must be delivered by a “nonprofit budget and credit counseling agency” (NBCCA) approved by the U.S. trustee consistent with § 111(a).24
Though awkwardly worded, there are three statutory waivers or exemptions from the prepetition briefing requirement—two permanent25 and one temporary.26 An individual is eligible for Chapter 13 without a prefiling briefing in any district in which the U.S. trustee (or the bankruptcy administrator) determines that the “approved” NBCCAs “are not reasonably able to provide adequate services.”27 The U.S. trustee exercised this prerogative in some Gulf Coast districts after the hurricane season in 2005.28
The prepetition briefing requirement in § 109(h)(1) does not apply if the court determines that the debtor is unable to complete a briefing “because of incapacity, disability, or active military duty in a military combat zone.”29 “Incapacity” and “disability” are narrowly defined, and decisions interpreting these routes to waiver of the prefiling briefing requirement are not encouraging of expansion by interpretation.30
A temporary exemption from the prefiling briefing requirement is available if the debtor certifies “exigent circumstances” that merit a waiver of the briefing requirement, acceptable to the court,31 and the debtor certifies a request for a briefing was made to an NBCCA and a briefing was not available within seven days of the request.32 This temporary exemption has been an endless source of confusion, fomenting mistakes by debtors and their lawyers and resulting in much totally worthless litigation, often with bad outcomes for debtors guilty of no offense.33 There is no agreement with respect to what circumstances are exigent or as to what exigent circumstances merit relief from the prefiling briefing.34 If a temporary exemption is granted based on exigent circumstances, the debtor must satisfy the briefing requirement within 30 days after the petition.35
An individual debtor is required by § 521(b) to file a certificate from an approved NBCCA describing the briefing “services” provided and including a copy of any “debt repayment plan” developed through the NBCCA.36 This certificate is not an eligibility requirement.
Prior to October 2006, Interim Rule 1007(b)(3) contemplated that, with the petition, the debtor would file either a § 521(b) certificate from an approved NBCCA confirming that the debtor received “credit counseling”37 together with a copy of any debt repayment plan that was developed; or the debtor would file a certification consistent with § 109(h)(3) describing exigent circumstances and certifying that the debtor requested a briefing from an NBCCA but was unable to obtain the services during the five-day period after that request.38 Otherwise, the debtor was instructed to file, again with the petition, a request for a determination under § 109(h)(4) that the debtor was unable to complete the prepetition briefing “because of incapacity, disability, or active military duty in a military combat zone.”39
In October 2006, Interim Rule 1007(b)(3) was rewritten to add an optional statement that the debtor received a prepetition briefing but was unable to file the § 521(b) certificate with the petition.40 This change in the Interim Rule was accompanied by a new Exhibit D to Official Form 1 which provided check boxes for all the § 109(h) options.41
In 2008 the Judicial Conference scrapped Interim Rule 1007(b)(3) in favor of this treatment of the prepetition briefing requirement:
(b) Schedules, statements, and other documents required
(3) Unless the United States trustee has determined that the credit counseling requirement of § 109(h) does not apply in the district, an individual debtor must file a statement of compliance with the credit counseling requirement, prepared as prescribed by the appropriate Official Form which must include one of the following:
(A) an attached certificate and debt repayment plan, if any, required by § 521(b);
(B) a statement that the debtor has received the credit counseling briefing required by § 109(h)(1) but does not have the certificate required by § 521(b);
(C) a certification under § 109(h)(3); or
(D) a request for a determination by the court under § 109(h)(4).42
The certificates and statements in Bankruptcy Rule 1007(b)(3) were found in Exhibit D to the petition, Official Form 1, until December 1, 2015. Now the certificates and instructions with respect to the prepetition briefing are found in Part 5 of Official Form 101.
That § 109(h) is worded as an eligibility requirement has generated intense controversy with respect to the consequences of a Chapter 13 filing by an individual who did not get a prepetition briefing and does not qualify for a temporary exemption or permanent waiver. It has been said that the bankruptcy court is without discretion to excuse the failure to comply with the prepetition briefing requirement in § 109(h)—at least in the absence of undefined “extraordinary circumstances.”43 There is disagreement whether the automatic stay is triggered when the petitioner is not eligible because of § 109(h).44 The courts continue to debate whether § 109(h) is “jurisdictional” and whether a ‘case” is commenced when the debtor is shy a § 109(h) briefing.45 There is no consensus whether to “strike” or “dismiss” the petition filed by a § 109(h) ineligible debtor.46 There is a clear message in the § 109(h) cases for debtors and their counsel: the consequences attendant to filing without a prepetition briefing are significant; if you have any choice, get the briefing at least one calendar day before filing a Chapter 13 petition.47
A huge issue for a debtor’s attorney is how to arrange a briefing for each client that will satisfy § 109(h)(1) with the least expense and least disruption of the normal processing of incoming Chapter 13 cases. If potential Chapter 13 debtors have to leave their attorneys’ offices to get a briefing from an NBCCA, some will not return and others will eventually file but perhaps with different counsel. This interruption of the flow of Chapter 13 cases will exacerbate other problems for counsel created by notice, disclosure and contracting requirements in §§ 526, 527 and 528.48
Section 109(h) states that a briefing can be conducted by telephone or Internet—suggesting that debtors’ counsel should be able to avoid sending clients away from their offices. Under § 111(a), the clerk of the bankruptcy court is required to maintain a publicly available list of approved NBCCAs that provide briefing services. The U.S. trustee has posted contact information for approved NBCCAs on its Web page.49
Prepetition briefings, in one form or another, are readily available to potential debtors in most districts. NBCCAs offering briefings over the Internet have been approved by the U.S. trustee, and tech-savvy debtors’ attorneys have integrated an online prepetition briefing into client intake. Some attorneys report that not all debtors can negotiate an online briefing session without assistance from office personnel. Frustration with the fees charged by NBCCAs and difficulties getting § 521(b) certificates of completion have ensnared debtors in reported cases.50
There are good reasons to question whether the briefing requirement in § 109(h) is a legitimate prebankruptcy educational experience or just a speed bump erected by the consumer credit lobby that makes access to bankruptcy more expensive, more complicated and more difficult.51 One early study by a credit counseling industry association indicates that only a tiny percentage of individuals passing through the briefing process have financial wherewithal to do anything except seek bankruptcy relief.52 The plain wording of § 109(h) puts in question whether the U.S. trustee has accurately conceived of the briefing prerequisite to bankruptcy relief in its protocols for approval of NBCCAs to conduct prebankruptcy briefings.53 There is evidence that the NBCCAs approved by the U.S. trustee are sometimes subsidized by the consumer credit lending industry, and the economic vitality of this new briefing enterprise is not certain.54
Perhaps the saddest commentary on § 109(h) is that many perfectly deserving individuals get it wrong and get hurt. Put aside for the moment that millions of debtors and potential debtors have paid hundreds of millions of dollars for little or no meaningful return, many debtors have spent even more money to find out that their bankruptcy cases are in shambles or never existed and refiling will be both doubly expensive and of uncertain content.55 There is a significant burden on those who conceived this obstacle to filing bankruptcy to demonstrate that something worth the expense, time and suffering is actually derived from the § 109(h) prepetition briefing experience.
1 Pub. L. No. 109-8, 119 Stat. 23 (2005).
2 See § 10.1 Debtor Must Be an Individual; Spouses Allowed, § 10.2 Sole Proprietorships Are Eligible, § 10.3 Corporations Are Not Eligible, § 10.4 Partnerships Are Not Eligible, § 10.5 Partners and Corporate Owners May Be Eligible, § 10.6 Partnership and Corporate Debts and Assets May Impact Eligibility, § 10.7 Trust Is Not Eligible, but Trustee May Be Eligible, § 10.8 Eligibility of a Decedent’s Estate and § 10.9 Petitions on Behalf of Others: Incompetents, Next Friends, Powers of Attorney and the Like.
3 See § 11.1 What Is Regular Income?, § 11.2 When Must Debtor Have Regular Income?, § 12.1 Self-Employment, § 12.2 Multiple, Irregular and Seasonal Employment, § 12.3 Farming, Crop and Land Set-Aside or Payment in Kind, § 12.4 Retirement Income, § 12.5 Social Security, § 12.6 Disability Benefits; Workers’ Compensation, § 12.7 Family Assistance, Welfare and Other Entitlements, § 12.8 Unemployment Benefits, Strike Benefits and the Like, § 12.9 Alimony, Maintenance and Child Support, § 12.10 Contributions from Family, Friends, Nonfiling Spouses and Former Spouses; Grants and Awards and § 12.11 Income from Leasing, Selling or Liquidating Assets.
5 See § 13.1 Debtor Must Be Able to Make Payments under a Plan, § 14.1 Dollar Amounts, § 14.2 Time for Determining Debt, § 14.3 Use of Statements and Schedules in Eligibility Calculations, § 14.4 Are Claims Split under 11 U.S.C. § 506(a)?, § 15.1 What Is Noncontingent Debt?, § 15.2 Is Partnership Debt Contingent?, § 15.3 Are Guaranties Contingent?, § 15.4 Are Contract Debts Contingent?, § 15.5 Is Tort Liability Contingent?, § 15.6 Are Claims through and against Debtor’s Corporation Contingent?, § 15.7 Are Prebankruptcy Judgments Contingent?, § 16.1 What Is a Liquidated Debt?, § 16.2 Effect of Defenses and Counterclaims, § 17.1 Disputed Debts, § 17.2 Taxes and Other Priority Claims and § 17.3 Joint Obligations of Spouses and Codebtors; Collateral That Is Not Property of the Estate.
6 See 11 U.S.C. § 109(g)(2), discussed in § 25.3 11 U.S.C. § 109(g)(2)—Voluntary Dismissal after Request for Relief from Stay.
7 See 11 U.S.C. § 109(g)(1), discussed in § 25.2 11 U.S.C. § 109(g)(1)—Willful Failure to Abide by Court Order or to Appear in Proper Prosecution.
8 See, e.g., Michael D. Sousa, Just Punch My Bankruptcy Ticket: A Qualitative Study of Mandatory Debtor Financial Education, 97 Marq. L. Rev. 391, 462–63, 466 (2013) (“If the congressional intent behind the pre-filing credit counseling course was to educate debtors about the options available to addressing their financial situations with the hope of persuading large numbers to forego resorting to bankruptcy, then this ‘goal’ seems to have proven to be a failure. As reported by the 2007 National Consumer Law Center Report, less than 4% of debtors actually enter into a debt management plan. . . . For 96% of . . . debtors, as demonstrated by this and all the other empirical studies, bankruptcy remains the only viable option of rescuing people from crushing indebtedness. . . . [T]he pre-filing credit counseling course comes at a point in time when it is too late to remedy the financial storm experienced by most people. Indeed, debtors are simply ‘too far gone’ financially to utilize bankruptcy alternatives. . . . All of th[e] data taken together, collectively, results in a seemingly generalizable portrait of the mandated education courses. And the portrait is not appealing. In fact, all of this data serves to triangulate in a coherent way the conclusion that the mandated debtor education courses are by and large misguided, and are in desperate need of overhaul and reform.”) (footnotes omitted); Jason J. Kilborn, Still Chasing Chimeras but Finally Slaying Some Dragons in the Quest for Consumer Bankruptcy Reform, 25 Loy. Consumer L. Rev. 1, 5–6 (2012) (“For at least 30 years, consumer debtors in the United States had been delaying or avoiding bankruptcy by trying to work things out with their creditors, often with assistance from private credit counselors. This negotiation and counseling had become all but pointless for most debtors by the mid-1990s . . . . Nonetheless, the 2005 reform bill included an additional obligation for any individual seeking relief under any chapter of the Bankruptcy Code: within 180 days before filing a bankruptcy petition, an individual must attend ‘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.’ Not surprisingly, this search for alternatives to bankruptcy has been an almost complete failure. Credit counseling agencies have reported that only about 3% of these pre-bankruptcy debtors might find solutions to their problems through counseling and budgeting alone, without bankruptcy intervention. . . . The largely ceremonial ‘counseling’ today usually consists of a telephone or internet session in which a counseling provider outlines generalized advice, the debtor inputs financial information that inevitably demonstrates that bankruptcy is the only workable solution to financial trouble spiraling out of control, and the counseling agency produces a certificate of completion in exchange for a $50 fee. This aspect of the reform thus represents little more than a wholesale transfer of wealth from insolvent debtors to the credit counseling industry, while imposing needless delays on debtors seeking bankruptcy relief.”) (footnotes omitted); Andrew P. MacArthur, Pay to Play: The Poor’s Problems in the BAPCPA, 25 Emory Bankr. Dev. J. 407, 429 (2009) (“[T]he credit counseling requirement is costly, unhelpful, and demeaning . . . . [T]here are three serious consequences for debtors that do not comply with it. First, the failure to obtain counseling before filing a bankruptcy petition means that the debtor is not eligible for bankruptcy ‘no matter how dire the circumstances the person finds themselves in at that moment.’ Credit counseling naturally takes time to complete, and this delay could lead to the loss of important assets in the meantime. This result has led one commentator to conclude that credit counseling ‘make[s] it nearly impossible for persons in an emergency situation to get timely relief under chapter 7 or chapter 13.’ Thus, the credit counseling requirement ‘anoint[s] credit counseling agencies the gatekeepers to the bankruptcy courts.’ . . . ‘[T]he [credit counseling] requirement may often serve more as an administrative obstacle than as a timely presentation of meaningful options.’”) (footnotes omitted).
9 “[O]ther than paragraph (4) of this subsection” was added to 11 U.S.C. § 109(h)(1) by Bankruptcy Technical Corrections Act of 2010, Pub. L. No. 111-327, 124 Stat. 3557 (Dec. 22, 2010).
10 “[E]nding on” was substituted for “preceding” in 2010. Bankruptcy Technical Corrections Act of 2010, Pub. L. No. 111-327, 124 Stat. 3557 (Dec. 22, 2010).
11 “7-day” was substituted for “5-day” by the Statutory Time-Periods Technical Amendments Act of 2009, Pub. L. No. 111-16, 123 Stat. 1607 (May 7, 2009).
12 11 U.S.C. § 109(h) (emphasis added).
13 See, e.g., In re Lackey, 352 B.R. 769 (Bankr. N.D. W. Va. Sept. 14, 2006) (Flatley) (That debtor desires to convert from Chapter 13 to Chapter 7 does not excuse failure to satisfy prepetition briefing requirement in § 109(h); briefing requirement applies to both chapters, and conversion is not a ground for exemption.).
15 See § 20.1 In General, § 20.2 Timing, Procedure and Form for Certification of Exigent Circumstances, § 20.3 Which Circumstances Are Exigent and Which Exigent Circumstances Merit a Waiver?, § 20.4 Prepetition Request and § 20.5 Briefing after Temporary Exemption.
18 11 U.S.C. § 109(h)(1).
19 11 U.S.C. § 109(h)(1) was amended in 2010 to substitute “ending on” for “preceding” in response to reported decisions in conflict with respect to whether a briefing on the day of the filing of the petition would satisfy the prepetition briefing requirement. See § 19.2 Timing of Briefing, and see Bankruptcy Technical Corrections Act of 2010, Pub. L. No. 111-327, 124 Stat. 3557 (Dec. 22, 2010). Unfortunately, the 2010 technical amendment did not end the controversy with respect to day-of-petition briefings. See § 19.2 Timing of Briefing.
20 See § 19.2 Timing of Briefing.
21 See § 19.1 What is a Briefing?.
22 See § 19.1 What is a Briefing?.
23 See 11 U.S.C. § 109(h)(1), discussed in § 19.1 What is a Briefing?.
24 See § 19.1 What is a Briefing?.
26 See § 20.1 In General, § 20.2 Timing, Procedure and Form for Certification of Exigent Circumstances, § 20.3 Which Circumstances Are Exigent and Which Exigent Circumstances Merit a Waiver?, § 20.4 Prepetition Request and § 20.5 Briefing after Temporary Exemption.
27 See 11 U.S.C. § 109(h)(2)(A), discussed in § 21.3 11 U.S.C. § 109(h)(2): Inadequate NBCCA Services.
29 11 U.S.C. § 109(h)(4), discussed in § 21.4 11 U.S.C. § 109(h)(4): Incapacity, Disability or Active Military Duty.
31 11 U.S.C. § 109(h)(3)(A), discussed in § 20.1 In General, § 20.2 Timing, Procedure and Form for Certification of Exigent Circumstances, § 20.3 Which Circumstances Are Exigent and Which Exigent Circumstances Merit a Waiver?, § 20.4 Prepetition Request and § 20.5 Briefing after Temporary Exemption.
32 See 11 U.S.C. § 109(h)(3)(A)(ii), discussed in § 20.4 Prepetition Request.
33 See § 20.1 In General, § 20.2 Timing, Procedure and Form for Certification of Exigent Circumstances, § 20.3 Which Circumstances Are Exigent and Which Exigent Circumstances Merit a Waiver?, § 20.4 Prepetition Request and § 20.5 Briefing after Temporary Exemption.
35 11 U.S.C. § 109(h)(3)(B). This 30-day postpetition period in which the exigent circumstances debtor must get a briefing can be extended by the court for cause for an additional 15 days. See § 20.5 Briefing after Temporary Exemption.
37 The drafters of the Interim Rules, without explanation, substituted “credit counseling” for the “briefing” required by § 109(h)(1). See § 19.1 What is a Briefing? and § 36.25 Briefing Requirement and Certificate.
38 Interim Bankr. R. 1007(b)(3) (Oct. 2005) (superseded), discussed in § 36.25 Briefing Requirement and Certificate.
39 Interim Bankr. R. 1007(b)(3) (Oct. 2005) (superseded).
40 Interim Bankr. R. 1007(b)(3)(B) (Oct. 2006) (superseded).
42 Fed. R. Bankr. P. 1007(b)(3).
43 In re Mitrano, 409 B.R. 812 (E.D. Va. Aug. 4, 2009) (Trenga) (Absent “extraordinary circumstances,” bankruptcy court has no discretion to excuse noncompliance with § 109(h); citing § 105, bankruptcy court has authority to dismiss Chapter 13 case sua sponte when filer failed to satisfy § 109(h) and is not eligible to be a debtor.).
47 See § 19.2 Timing of Briefing.
49 See http://www.usdoj.gov/ust.
51 See above in this section, and see § 20.2 Timing, Procedure and Form for Certification of Exigent Circumstances. See also In re Tulper, 345 B.R. 322, 328 (Bankr. D. Colo. May 22, 2006) (Brooks) (“[P]repetition credit counseling serves as a tactic to drive debtors away from bankruptcy, or, at a minimum, away from Chapter 7 liquidations, into Chapter 13 repayment plans. Here, the Debtors have filed for relief under Chapter 13. Consequently, the evident primary goal of Congress is satisfied, here, anyway.”); In re Dansby, 340 B.R. 564, 568 (Bankr. D.S.C. Feb. 10, 2006) (Waites) (“Congress’ goal appears to be to eliminate bankruptcy petitions filed by individuals who have not allowed themselves adequate time (at least five days) to consider a bankruptcy alternative before they file.”).
52 Howard, Margaret, The Law of Unintended Consequences, 31 S. Ill. U. L.J. 451, 453 & n.9 (2007) (“[P]re-filing counseling is identifying a negligible number of debtors who have any viable option other than bankruptcy.”) (citing National Found. for Credit Counseling, Consumer Counseling & Educ. Under BAPCPA: Year One Report (Oct. 16, 2006)).
53 See § 19.1 What is a Briefing? for discussion of 28 C.F.R. Part 58 (Mar. 14, 2013).
54 David A. Lander, A Quick Update on Implementation of BAPCPA’s Pre-filing Briefing Requirement, 1 Norton Bankr. L. Adviser 3 (2006).