Case Analysis: Bankruptcy Dismissed for Failure to File Credit Counseling Certificate

credit-counselingBoth before and after filing their bankruptcy petitions, consumers are required to participate in counseling sessions, with very, very limited exceptions. This recent case from the Bankruptcy Appellate Panel of the Sixth Circuit Court of Appeal shows two important concepts :1) how a consumer trying to file their own “simple” Chapter 7 Bankruptcy winds up wasting a whole lot of time and money, and gets no discharge of their debts, and 2) how seriously the Courts view the credit counseling requirement. The case is In re: Naomi Kidd Ramey, and you can view the entire by clicking here. (Ohio is one of four states which are included in the appellate jurisdiction of the Sixth Circuit).


On December 2, 2105, the Debtor filed her own “pro se” Chapter 7 bankruptcy petition. She also filed a motion with the Court to waive the pre-petition credit counseling requirement.


By way of background, a credit-counseling session must be completed over the telephone or over the internet prior to filing any bankruptcy. Although you can complete this session over the telephone, there are internet-based sessions which are much less expensive. Some agencies will allow you to come to their office for the required briefing. The session is normally conducted in English, but agencies will accommodate virtually any language the consumer desires. Agencies can also waive their fees in cases they deem true hardship cases, but the fees are normally very modest (less than most extra-large, multi-topping pizzas). Under 11 U.S.C. § 109 (h), the counseling session must be received within the 180-day period prior to the filing date of the bankruptcy.


The Court denied this motion, finding that the consumer had failed to comply with local rules for providing notice to parties. The Court gave her a second chance to comply with the rules, and the consumer tried again, but failed to correct her noticing error. The case was dismissed later in the month, not due to the failure to complete the consumer credit counseling session, but due to her failure to file other documents required by the bankruptcy code.


After the case was dismissed, the consumer filed a credit counselling certificate which was completed after her bankruptcy filing. She also moved the court for an order waiving the requirement to participate in the credit counseling session. She alleged that various medical issues prevented her from completing the session. She ultimately appealed to the Sixth Circuit, seeking to vacate the bankruptcy court’s dismissal of her bankruptcy.


The Sixth Circuit affirmed the bankruptcy court’s dismissal of the consumer’s bankruptcy petition. The appellate court pointed out that someone who has failed to complete the required credit counselling session is not eligible for debt relief through bankruptcy.


While there are exceptions in the statute, they are quite narrow. For example, the debtor may be excused if they are in active military duty in a military combat zone. Or, they may have a disability, but the disability means that “the debtor is physically impaired as to be unable, after reasonable effort, to participate in an in-person, telephone, or Internet briefing required under paragraph (1).” Finally, incapacity is similar, only applicable if “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.” Id.


By completing her briefing, the consumer scuttled any argument that she was disabled or incapacitated and therefore unable to complete the counseling. The session is normally sixty (60) minutes in length or less. In an emergency case, the agency can provide the required counseling immediately.   So the requirement is not onerous. The Court ultimately concluded that the Debtor simply failed to understand that the counseling had to be completed within the 180 days prior to the filing of her bankruptcy.


I have written here about why I think both this credit counseling session, and the post-filing debtor education sessions, are worthless wastes of time. But this is just another one of those situations where it does you no good to debate the merits of the requirement, just complete the session, and send the certificate to your attorney so that they can include it with the filing. Naomi Kidd Ramey tried all of these arguments, and the Court’s answer is the same: policy arguments are for Congress to address. Once it becomes law, the courts can only apply the law as it is written.


You can call me at 216-642-8234 to schedule an appointment to discuss bankruptcy options, and I will make sure that you have all the information you need to complete both the pre- and the post- filing briefing sessions at the lowest possible cost to you. As of the posting of this article, I have filed more than one thousand bankruptcy petitions under the requirement, and not one has been dismissed for failure to file the credit counseling certificate.

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