Summary of a Recent
Judicial Development in
Bankruptcy

Bankruptcy Petition Dismissed for Failure to
Receive Prepetition Counseling

Patrick Roberts
National AgLaw Center Graduate Assistant

Summary of Decision

In In re Dixon, No. 05-6059EM, 2006 WL 355332 (B.A.P. 8th Cir. Feb. 17, 2006), the United States Bankruptcy Appellate Panel for the Eighth Circuit affirmed a bankruptcy court’s decision to dismiss a debtor’s Chapter 13 bankruptcy petition because the debtor failed to receive a prepetition credit briefing, as required by the Bankruptcy Code, 11 U.S.C. §§ 101-1330, which was amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Pub.L. No. 109-8, 119 Stat. 23 (to be codified in scattered sections of 11 U.S.C.). Dixon arises in a non-agriculture context, but the issue involved– prepetition credit counseling– is notable because it is applicable to agricultural producers who file for bankruptcy protection.

Background

BAPCPA requires, subject to certain exceptions, that “all individual debtors must receive an appropriate briefing during the 180 days preceding the filing” for bankruptcy. Dixon, 2006 WL 355332, at *2 (citing 11 U.S.C. § 109(h)(1)). BAPCA also requires an individual debtor to file a certificate from an approved credit counseling agency of the briefing received. See id. (citing 11 U.S.C. § 521(b)(1)).

There are two exceptions to the prepetition briefing requirement. The first exception excuses a debtor from a prepetition briefing if the United States Trustee certifies that there are no approved agencies available to provide services in a district. See id. (citing 11 U.S.C. § 109(h)(2)). The second exception allows a waiver of the prepetition briefing if a debtor files a certification under 11 U.S.C. § 109(h)(3)(A). See id. (citing 11 U.S.C. § 109(h)(3)(i)). Section 109(h)(3)(A) requires that the certification (i) “describe exigent circumstances that merit waiver”; (ii) show the inability of the debtor to obtain credit counseling within five days of requesting; and (iii) be satisfactory to the court. See id. This waiver is effective for 30 days. See id. (citing 11 U.S.C. § 109(h)(3)(B)).

On November 10, 2005 debtor Keith L. Dixon filed a Chapter 13 petition, which was the same day that his home was scheduled to be foreclosed. See id. at *1. Debtor did not contact an attorney until November 9, 2005 at 6:30 pm. See id. Therefore, debtor failed to receive debt counseling before the filing of his bankruptcy petition. See id. at *1-2. As a result, debtor filed with his petition a “Certification Requesting Waiver of Debt Counseling by Individual Debtor” in hopes the court would find “exigent circumstances” to excuse his failure to receive prepetition credit counseling in accordance with § 109(h)(1). See id. at *2. Debtor relied upon the provisions of § 109(h)(3)(i) waiving the prepetition briefing if a certificate of exigent circumstances under § 109(h)(3)(A) was filed. See id.

Debtor’s certificate requesting waiver of credit counseling provided, in relevant part, that his property was scheduled to be foreclosed the same day he filed, that he was unaware of the prepetition counseling requirement, that an appointment for counseling over the phone took two weeks, that counseling over the internet would not be available for twenty-four hours, and that he lacked access to the internet. See id. at *1. The United States Bankruptcy Court for the Eastern District of Missouri determined that the certificate did not describe exigent circumstances, and, therefore, dismissed Debtor’s petition because he was not an eligible debtor. See id. at *1-2. Debtor appealed the bankruptcy court’s decision to the Bankruptcy Appellate Panel for the Eighth Circuit. See id. at *1.

Analysis and Holding

On appeal, the Panel analyzed § 109(h)(3)(A)’s “satisfactory to the court,” inability to obtain prepetition credit briefing, and “exigent circumstances” exceptions. See id. at *3-4. In addressing the “satisfactory to the court” language, the Panel determined that Congress intended the courts to exercise their discretion in making determinations of the inability to obtain prepetition counseling and the existence of exigent circumstances. See id. at *3. As such, the Panel reviewed the bankruptcy court’s findings of facts for clear error, and the existence of exigent circumstances for an abuse of discretion. See id. The Panel determined that the inability to obtain a prefiling briefing exception was “in large part objective.” See id. The Panel noted that Debtor’s certificate provided that he contacted an approved debt counseling agency and was unable to receive counseling either by phone because of a two week wait or via the internet because of unavailability. See id. The Panel concluded that the bankruptcy court therefore implicitly determined that under the circumstances debtor was unable to obtain the required briefing within five days of his request. See id.

In addressing what the Panel labeled the “most problematic of the requirements,” the Panel explained that two substantive components exist in the determination of exigent circumstances: first, exigent circumstances, and, second, whether the exigent circumstances merit a waiver of the prepetition briefing. See id at *4. In this case, the inability to receive counseling was characterized as an exigent circumstance, but the Panel noted that the bankruptcy court had concluded that the debtor’s exigent circumstances lacked merit. See id. In the bankruptcy court’s opinion the debtor should have sought the required briefing during the statutory 20 day notice of foreclosure period required under Missouri law. See id. The Panel affirmed that decision, holding that the bankruptcy court did not abuse its discretion and that “a review of the reported decisions on facts similar to these . . . discloses that most courts have come to the same conclusion.” Id (citing In re Wallert, 332 B.R. 884, 889 (Bankr. D. Minn. 2005); In re Talib, 335 B.R. at 417, 422 (Bankr. W.D. Mo. 2005); In Re Randolph, No. 05-15752-3P7, 2005 WL 3408043 (Bankr. M.D. Fl. Dec. 2, 2005); In re Rodriguez, 336 B.R. 462 (Bankr. D. Id 2005); and In re DiPinto, No. 06-10112, 2006 WL 213721, at *3 (Bankr. E.D. Pa. Jan. 30, 2006). But see, In re Cleaver, 333 B.R. 430, 435 (Bankr. S.D. Oh. 2005).

The Panel concluded the following:

We think the bankruptcy court did not abuse its discretion in determining that the debtor had not demonstrated exigent circumstances meriting a waiver of the prepetition briefing requirement. We agree with the bankruptcy court’s conclusion that the debtor was therefore not eligible to be a debtor and that, therefore dismissal of his case was appropriate.

See id.

The case was decided on February 17, 2006; this summary was posted Mar. 31, 2006.