§ 21.3 — 11 U.S.C. § 109(h)(2): Inadequate NBCCA Services

Revised: May 5, 2017

[1]

To be eligible for Chapter 13, every debtor must either obtain a prepetition briefing consistent with § 109(h)(1),1 qualify for a temporary exemption under § 109(h)(3)2 or seek a permanent waiver of the briefing requirement under § 109(h)(2)3 or § 109(h)(4).4 The cross-reference to § 109(h)(2) in § 109(h)(1) captures the following permanent waiver of the briefing requirement:

(A) [Section 109(h)(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 [NBCCAs] 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 [§ 109(h)(1)].
(B) The United States trustee (or the bankruptcy administrator, if any) who makes a determination described in subparagraph (A) shall review such determination not later than 1 year after the date of such determination, and not less frequently than annually thereafter. Notwithstanding the preceding sentence, a nonprofit budget and credit counseling agency may be disapproved by the United States trustee (or the bankruptcy administrator, if any) at any time.5
[2]

That § 109(h)(1) “shall not apply” when the determination in § 109(h)(2)(A) is made signals that this is a permanent waiver of the briefing requirement for eligibility. Unlike the temporary exemption in § 109(h)(3),6 the waiver in § 109(h)(2) does not expire and renders an individual eligible for Chapter 13 without a briefing.

[3]

Discussed above,7 effective December 2015, there is no “check box” on Official Form 101 to signal that the debtor claims permanent waiver of the prepetition briefing requirement based on a determination by the U.S. trustee or bankrupcy administrator under § 109(h)(2). In the (rare) circumstance that § 109(h)(2) applies, the debtor should consider adding a check box to Official Form 101, Part 5, and, perhaps, the debtor should file a separate motion of some sort as suggested by the instructions on the Official Form.8

[4]

Section 109(h)(2)(A) is curiously worded that this permanent waiver is only available to a debtor who resides in a district for which the U.S. trustee or bankruptcy administrator determines that approved NBCCAs are not reasonably able to provide adequate services to the additional individuals who would otherwise seek credit counseling by reason of the (briefing) requirement in § 109(h)(1). Venue for an individual bankruptcy case under 28 U.S.C. § 1408 is in the district “in which the domicile, residence, principal place of business . . . or principal assets . . . of the person . . . have been located for the one hundred and eighty days immediately preceding such commencement.”9 Venue for a Chapter 13 case is proper in a district that is not necessarily the district in which the debtor resides. Whether permanent waiver of the briefing requirement in § 109(h)(2) applies is determined by the debtor’s district of residence without regard to where the petition is actually filed.

[5]

There are issues here for Chapter 13 debtors domiciled in one district and residing in another––not an uncommon fact pattern, especially for debtors in the military. For example, a debtor temporarily residing at Fort Campbell, Kentucky, for training whose home and family (“domicile”) are in New Orleans might file a Chapter 13 case in the Eastern District of Louisiana. The availability of the permanent waiver of the briefing requirement under § 109(h)(2)(A) would be determined by the U.S. trustee in Kentucky. This would be a strange outcome if permanent waiver is available for the district in which the debtor filed (Eastern District of Louisiana) but not in the district where the debtor temporarily resides (Western District of Kentucky).

[6]

The permanent waiver in § 109(h)(2)(A) applies only when the U.S. trustee or bankruptcy administrator has approved NBCCAs but then determines that the approved NBCCAs are not reasonably able to provide adequate services. The adequate services that must be in short supply are “to the additional individuals who would otherwise seek credit counseling from such agencies by reason of the requirements of [§ 109(h)(1)].”10 Detailed elsewhere,11 the “requirement” in § 109(h)(1) is that every debtor obtain a prepetition briefing with respect to the opportunities for available credit counseling. There is no requirement in § 109(h)(1) that a debtor receive “credit counseling.”

[7]

Who are the “additional individuals” who would “otherwise seek credit counseling” from an NBCCA because of the prepetition briefing requirement in § 109(h)(1)? How would the U.S. trustee know that the approved NBCCAs are not reasonably able to provide credit counseling services to those “additional individuals”? Is it anticipated that the bar or the public will complain or that the U.S. trustee will conduct investigations to determine whether additional individuals are being inadequately served by the approved NBCCAs? Given that briefing services by telephone or the Internet are approved in most districts,12 what does “adequate services to the additional individuals” mean: the length of telephone delays? response time over the Internet?

[8]

There are 94 federal districts, and the statute contemplates a mechanism in each district by which the U.S. trustee or bankruptcy administrator will make the determination in § 109(h)(2)(A). At this writing, there are no published rules or guidelines by the U.S. trustee or anyone else addressing the determination required by § 109(h)(2)(A).13 How will the U.S. trustee or the bankruptcy administrator determine the demand for credit counseling services in a district? Debtors and debtors’ attorneys have a stake in this issue––quick and efficient access to § 109(h) briefing services will directly affect the time and cost to process Chapter 13 cases.

[9]

Then there is the question, how will a debtor or debtor’s attorney know whether the U.S. trustee has determined that approved NBCCAs in a district are not reasonably able to provide adequate services for § 109(h)(2)(A) purposes? At this writing, a quick look at the Web page for the U.S. Trustee Program did not reveal a link or statement of any districts in which the U.S. trustee has made the § 109(h)(2)(A) determination. A deeper search of the U.S. Department of Justice’s online database unearthed a press release indicating that there are districts in which the U.S. trustee has granted the permanent waiver in § 109(h)(2)(A).14 It is hard to fathom how a pro se debtor or even a busy debtor’s attorney would find this information. Perhaps individual districts will post this information to their Web pages or other places of public information.

[10]

There is one bankruptcy court decision tangentially addressing the U.S. trustee’s determination whether approved NBCCAs are reasonably able to provide adequate services. Soon after the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA),15 in In re Hubbard,16 the debtors alleged that credit counseling services were not adequate in the Southern District of Texas. The bankruptcy court ordered the U.S. trustee to “appear and describe the procedures that had been undertaken by the United States trustee with respect to the United States trustee’s certification obligations under the statute.”17 The outcome of that additional hearing was not reported.

[11]

Hubbard does not look like a particularly efficient or reliable method for implementing a national system to determine whether approved NBCCAs are reasonably able to provide adequate services. Does the issue have to be raised case-by-case, district-by-district? What will be the U.S. trustee’s burden at the hearing contemplated in Hubbard? Will debtors across the country demand that the U.S. trustee present proof with respect to the number of approved NBCCAs, the volume of individuals seeking credit counseling services and prebankruptcy briefings in the district, the delays experienced in the briefing process, and the like?

[12]

The bankruptcy community knows that the U.S. trustee has made the determination contemplated in § 109(h)(2)(A), although how the determination was made and how similar determinations will be made in the future is not known. As mentioned above, after Hurricane Katrina struck the Gulf Coast in September of 2005, the U.S. trustee determined that “approved credit counseling agencies” were “not adequate to serve bankruptcy filers.”18 In a press release, the Executive Office for United States Trustees announced a “temporary waiver of the credit counseling” requirements for bankruptcy filers in the Eastern, Middle and Western Districts of Louisiana and the Southern District of Mississippi. That “temporary waiver” was extended in September of 2006.19 The extension recites, “The Bankruptcy Code requires this determination to be reviewed annually.” There is no archived public announcement by the U.S. Trustee Program in 2007 or after extending or terminating this waiver.

[13]

That the Executive Office for United States Trustees in its press release describes this as a “temporary waiver” is confusing and probably just a poor choice of words. The permanent waiver of the briefing requirement in § 109(h)(2)(A) is always “temporary” in the sense that § 109(h)(2)(B) requires the U.S. trustee or bankruptcy administrator to revisit its determination at least every year. But the waiver in § 109(h)(2)(A) is not temporary in the sense that it does not wear off at any time after a case is commenced even if the “determination” by the U.S. trustee expires or changes.

[14]

The possibility that other judicial districts are or will experience inadequate services by approved NBCCAs is very real. As reported by the National Foundation for Credit Counseling (NFCC) in late 2006, many of its member agencies are approved NBCCAs that supply prepetition briefing services at a significant financial loss to the agencies involved.20 It can be anticipated that some, perhaps many, approved NBCCAs will choose to exit the prebankruptcy briefing marketplace rather than continue to lose money. When they do, the availability of prebankruptcy briefing services will shrink. It can only be hoped that the U.S. trustee will have in place mechanisms to continually monitor the availability of prepetition briefing services in order to quickly and efficiently make the determination whether services are adequate for purposes of the permanent waiver in § 109(h)(2)(A).

[15]

Mentioned above,21 § 109(h)(2)(A) does not preclude the possibility that the U.S. trustee would determine that the approved NBCCAs are not reasonably able to provide adequate services in a district after the filing of a Chapter 13 case by an individual who did not get a prepetition briefing. For example, § 109(h)(3) contemplates that a Chapter 13 debtor can certify exigent circumstances and if the other conditions are satisfied, a temporary exemption is available from the prepetition briefing requirement that can, with court permission, extend for 45 days after the petition.22 If the U.S. trustee determines that the permanent waiver in § 109(h)(2)(A) is available in a district during the period of a debtor’s temporary waiver under § 109(h)(3), the statute does not preclude that the debtor would then be excused from obtaining a (postpetition) briefing.


 

1  See § 18.1  In General and § 19.1  What is a Briefing?.

 

2  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.

 

3  See below in this section, and see § 21.1  In General and § 21.2  Timing, Procedure and Form.

 

4  See § 21.4  11 U.S.C. § 109(h)(4): Incapacity, Disability or Active Military Duty.

 

5  11 U.S.C. § 109(h)(2).

 

6  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.

 

7  See § 21.2  Timing, Procedure and Form.

 

8  See § 21.2  Timing, Procedure and Form.

 

9  28 U.S.C. § 1408(1), discussed in § 37.1  Jurisdiction, Venue and Change of Venue.

 

10  11 U.S.C. § 109(h)(2)(A).

 

11  See § 19.1  What is a Briefing?.

 

12  See § 19.1  What is a Briefing?.

 

13  Other rules with respect to NBCCAs and the briefing process are now found at 28 C.F.R. Part 58.

 

14  See below in this section.

 

15  Pub. L. No. 109-8, 119 Stat. 23 (2005).

 

16  333 B.R. 373 (Bankr. S.D. Tex. 2005).

 

17  In re Hubbard, 333 B.R. at 377.

 

18  http://www.justice.gov/archive/ust/press/docs/pr20051007.htm.

 

19  http://www.justice.gov/archive/ust/press/docs/pr20060921.htm.

 

20  Bankruptcy Petition Preparers See Spike in Business, 47 Bankr. Ct. Dec., Wkly. News & Comment, No. 7, at 5 (Nov. 14, 2006).

 

21  See § 21.2  Timing, Procedure and Form.

 

22  11 U.S.C. § 109(h)(3), 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.