345 B.R. 486 (Bkrtcy.S.D.N.Y. 2006), 05-55048, In re Elmendorf
| Citation | 345 B.R. 486 |
| Party Name | In re Lena M. ELMENDORF, Debtor. In re Diana M. Finlay, Debtor. In re Shayna H. Zarnel, Debtor. |
| Case Date | July 18, 2006 |
| Court | United States Bankruptcy Courts, Second Circuit |
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Eric J. Small, Esq., Office of the United States Trustee, Albany, NY.
MEMORANDUM OPINION ON VARIOUS MOTIONS TO DISMISS CHAPTER 13 CASES FOR CAUSE PURSUANT TO 11 U.S.C. §§ 109(h)(1), 521(a) and (b), and 707(a)
CECELIA G. MORRIS, Bankruptcy Judge.
In this opinion, the Court again determines the proper means of disposing of a bankruptcy petition filed by a debtor who has not undergone the requisite credit
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briefing required by Section 109(h) of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (hereinafter "BAPCPA"). One of the watermark provisions of this much heralded legislation, which took several years to enact, is the credit counseling requirement of 11 U.S.C. § 109(h). Credit counseling was a significant aspect of the new bankruptcy legislation because the requirement was intended to provide debtors with education as to all of their options when experiencing financial difficulty, before a resort to bankruptcy protection was necessary. Congress envisioned that credit counseling would provide individuals with the skills necessary to lead financially responsible lives. This facially well-intentioned 1 section of the BAPCPA has evolved into an expensive, draconian gate-keeping requirement that has prevented many deserving individuals from qualifying for bankruptcy relief. The credit counseling requirement has not proven to be of assistance to debtors in seeking relief outside of the bankruptcy context, as shown by a recent survey 2 of credit counseling agencies performed by the National Association of Consumer Bankruptcy Attorneys. That study determined that of 66,335 consumers served by the participating credit counseling agencies, a paltry 3.3 percent qualified for alternative (i.e.non-bankruptcy) debt management treatment. Additionally, many of these same credit-counseling agencies have come under fire for fraudulent practices; some have lost their not-for-profit status. 3 The requirement that a debtor seek "credit counseling" before being eligible for bankruptcy relief is quickly becoming the most outrageous fleecing of consumer debtors in this Court's memory--a perfunctory exercise with little or no substance which leaves a putative debtor $50-$100 the poorer. The Court has seen at least one example of a "Client Action Plan" provided to a consumer debtor before this Court. See In re Anthony Rios, Case No. 05-55002, ECF Docket No. 11. The Client Action Plan proposed in that case is repetitive, advising the debtor twice to track expenses, and tends to state the obvious, such as recommending that debtor seek a job making higher wages, and referring debtor to the local library for resources on bankruptcy.
Nevertheless, this Court has sworn to uphold the law. It is not the province of this Court to rewrite the law. The Court must enforce the law as the Court presumes Congress intended. In keeping with this responsibility, this Court was obliged to determine whether a debtor's non-compliance with the credit-counseling gate-keeping requirement necessitated dismissal or striking of the debtor's case/petition in In re Rios, 336 B.R. 177 (Bankr.S.D.N.Y.2005). The Court never imagined that the great wave of judicial opinion
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would turn against her on this seemingly innoffensive issue; however, the Court still is of the opinion that dismissal of the petition/case pursuant to 11 U.S.C. § 707(a) is for the most part an inappropriate remedy for a debtor's innocuous failure to obtain counseling, prior to filing a bankruptcy petition, because 1) no case was "commenced" by such a filing, 4 and 2) Congress did not intend for debtors' protections under the BAPCPA to be limited in a future bankruptcy filing where the debtor's failure to comply with § 109(h) was obviously done out of ignorance of the gate-keeping requirement. 5 In other words, the Court does not think that the failure to file a credit counseling certificate alone is "cause" to dismiss. It may be that in some cases, however, the failure to obtain credit counseling, taken together with other circumstances (i.e. multiple filings, or after an extension has been sought and granted), indicates that the failure to obtain such counseling is not due to ignorance but as part of a larger scheme to delay or hinder creditors. In these circumstances, some sort of relief with prejudice may be appropriate in the exercise of the Court's discretion.
JURISDICTION
The Court has jurisdiction over this matter under 28 U.S.C. Sections 1334(a) and 157(a) and the standing order of reference to bankruptcy judges dated July 10, 1984 signed by acting Chief Judge Robert J. Ward. This is a core proceeding under 28 U.S.C. Section 157(b)(1).
BACKGROUND FACTS 6
In re Lena Elmendorf, Case No. 05-55048:
Debtor Lena Elmendorf filed a voluntary Chapter 7 petition on November 29, 2005 through the auspices of retained counsel Patrick F. Moore. This is Ms. Elmendorf's first bankruptcy filing. Her bankruptcy petition was accompanied by bankruptcy schedules A-J, as required by 11 U.S.C. § 521(a)(1). Debtor did not file with her bankruptcy petition a credit-counseling certificate as required by § 521(b), or seek an extension of time to file same pursuant to 11 U.S.C. § 109(h)(3)(A). On February 1, 2006, the United States Trustee's Office filed a Motion to Dismiss Chapter 7 Case for Cause Pursuant to 11 U.S.C. §§ 109(h)(1), 521(b) and 109(h), ECF Docket No. 8 (the "Elmendorf Dismissal Motion"). On March 30, 2006, a Memorandum of Law in Further Support of the United States Motion to Dismiss Chapter 7 Case was filed, ECF Docket No. 11 (the "Supplemental Brief"), and a hearing was held on May 16, 2006. The Court reserved decision on the issue at that time.
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In re Diana Finlay, Case No. 06-35274:
Diana Finlay filed the current Chapter 13 case on April 3, 2006. Ms. Finlay is representing herself in the instant filing. This filing is what is commonly referred to as a "skeletal" filing--Ms. Finlay has filed only the petition and a list of creditors, with no schedules or statement of financial affairs as required by 11 U.S.C. § 521(a)(1) and Fed. R. Bankr.P. 1007(a)(1) (the "Required Schedules"). The Required Schedules were due on April 18, 2006, but have not been submitted. Ms. Finlay did not file a credit-counseling certificate with her pending bankruptcy petition, but did seek an extension of time to file such certificate. The Court denied Debtor's request for an extension in the pending bankruptcy case because Ms. Finlay failed to state in her certification that she attempted to get a credit briefing within five days of her filing, see 11 U.S.C. § 109(h)(3)(A)(ii).
This is Ms. Finlay's third bankruptcy filing in the past year; she filed her first Chapter 13 petition on August 31, 2005, case number 05-37481, which was dismissed on October 24, 2005. Debtor's first bankruptcy case was also filed pro se, without the requisite schedules, and was dismissed for that reason, see 11 U.S.C. § 521(a)(1) and (i). Debtor filed her second Chapter 13 case on November 28, 2005, case number 05-55045. This second case was also a skeletal filing; Debtor Finlay did seek an extension of time to file the credit counseling certificate in that case, which was granted. The credit counseling certificate was not filed with the Court as required by Section 109(h)(3)(B), Debtor's second case was subsequently dismissed for failure to file the requisite schedules and statements required by Section 521(a)(1) pursuant to 11 U.S.C. § 1307(c)(1).
In the present filing, Debtor Finlay's secured lender, Ameriquest Mortgage Company, obtained a "comfort order" on May 9, 2006 pursuant to 11 U.S.C. § 362(j), confirming that no stay came into effect upon the filing of the current petition in accordance with 11 U.S.C. § 362(c)(4) due to the two prior filings, see ECF Docket No. 13. On May 3, 2006, the United States Trustee filed a Motion to Dismiss Chapter 13 Case for Cause Pursuant to 11 U.S.C. Sections 109(h)(1), 521(b) and 1307(c), see ECF Docket No. 11 (the "Finlay Dismissal Motion"). The Court reserved decision on dismissal so that the Finlay Dismissal Motion could be decided together with the Elemendorf Dismissal Motion.
In re Shayna Zarnel, Case No. 06-35189:
Debtor Shayna Zarnel filed the instant Chapter 13 case on March 13, 2006. This case is her first bankruptcy filing, but this Court is very familiar with her husband, Alfred R. Zarnel, who has filed 5 bankruptcy petitions in this Court since January, 2004. 7 Mrs. Zarnel's Chapter 13 petition was filed approximately a month and a half after Mr. Zarnel's last filed bankruptcy case was closed, in continuance of Mr. Zarnel's pattern of instituting a bankruptcy filing, without making any meaningful attempt to reorganize or comply with the provision of the bankruptcy code, and upon any subsequent dismissal, re-filing within two months to stay scheduled foreclosure sales. The Zarnels' secured creditor, Option
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One Mortgage Corporation, has been very active in Mr. Zarnel's cases, and has filed an objection to the confirmation of Mrs. Zarnel's Chapter 13 plan, see ECF Docket No. 19. The Objection to Confirmation states, inter alia, that the Zarnels owe $68,491.09 in pre-petition mortgage arrears; yet Mrs. Zarnel's plan proposes to pay only $360.00 per month in plan payments for 60 months, totaling $21,600; this proposed Chapter 13 plan will leave a shortfall of approximately $47,000 in secured arrearages, and the plan...
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...of claim was a question of law as to which there was no controlling decision of the Supreme Court or Fourth Circuit); In re Elmendorf, 345 B.R. 486, 504 S.D.N.Y. 2006) (only addressing second criteria -- there was split among Second Circuit bankruptcy courts as to whether automatic stay is ......