In re Grantham

• Decision Date: 07 May 2020
• Docket Number: Case No.: 6:20-bk-11740-WJ
• Citation: 617 B.R. 344
• Parties: IN RE: Wayne GRANTHAM and Lanae Grantham, Debtors.
• Court: U.S. Bankruptcy Court — Central District of California

617 B.R. 344

IN RE: Wayne GRANTHAM and Lanae Grantham, Debtors.

Case No.: 6:20-bk-11740-WJ

United States Bankruptcy Court, C.D. California, Riverside Division.

Signed May 7, 2020

Nguyet M. Tran, Tran Law Offices, Murrieta, CA, for Debtors.

MEMORANDUM OF DECISION REGARDING DISMISSAL OF THE CASE FOR FAILURE TO OBTAIN CREDIT COUNSELING

Wayne Johnson, United States Bankruptcy Judge

I. INTRODUCTION.

The debtors, Wayne and Lanae Grantham ("Debtors"), filed this chapter 7 case and one of them (Lanae Grantham) did not obtain credit counseling prior to filing the case. As a result, hearings are currently scheduled for May 13, 2020 at 10:30 a.m. regarding (1) the motion of the debtors to excuse the requirement to obtain credit counseling as to Mrs. Grantham [docket #10] ("Excusal Motion") and (2) the order of this Court to show cause regarding why the case should not be dismissed for failure to obtain credit counseling ("OSC"). Neither of the debtors has filed opposition to the OSC and the deadline to do so has passed. Therefore, having reviewed the case, the Excusal Motion and the OSC, the Court hereby finds that no oral argument is necessary and, pursuant to Rule 9013-1(j)(3) of the Local Bankruptcy Rules, the Court hereby takes off calendar the hearing and waives appearances. No hearings shall occur.

For the following reasons, the Court shall dismiss the case as to Lanae Grantham only.

II. JURISDICTION

The bankruptcy court has jurisdiction over this contested matter pursuant to 28 U.S.C. §§ 157(b) and 1334(b). The Excusal Motion and the OSC are core proceedings pursuant to 28 U.S.C. §§ 157(b)(2)(A) and (L). Venue is appropriate in this Court. 28 U.S.C. § 1409(a).

With respect to the OSC, case authority provides that a bankruptcy court can dismiss a bankruptcy case sua sponte when a debtor is ineligible for bankruptcy relief due to a failure to obtain pre-petition counseling. Gibson v. Dockery (In re Gibson), 2011 WL 7145612, *4, 2011 Bankr. LEXIS 5084, *14 (9th Cir. BAP 2011) (finding that a bankruptcy court can dismiss a case sua sponte when a debtor fails to obtain pre-petition counseling and stating that the "bankruptcy court's sua sponte order dismissing Debtor's bankruptcy case without prior notice or an opportunity to be heard was appropriate."). The Court entered the OSC on April 3, 2020 and set a hearing regarding the matter for May 13, 2020. The OSC set a deadline of April 29, 2020 for the Debtors to file and serve any opposition to the OSC. No opposition was filed and the deadline has passed.

III. PRE-PETITION CREDIT COUNSELING IS REQUIRED.

A. Applicable Legal Standard.

When the Debtors commenced this bankruptcy case, Mr. Grantham filed a certificate of credit counseling but Mrs. Grantham did not. Instead, the Debtors filed the Excusal Motion seeking an order excusing Mrs. Grantham from obtaining credit counseling.¹ However, applicable law does not provide for an exemption under the circumstances in this case.

Section 109(h)(1) of the Bankruptcy Code provides that no individual may file a bankruptcy case unless that individual has received credit counseling from an approved agency during the 180-day period prior to filing the petition. The credit counseling may be conducted in person, by telephone or internet. 11 U.S.C. § 109(h)(1). Congress wants debtors to receive credit counseling as a condition for bankruptcy relief "so that they will make an informed choice about bankruptcy, its alternatives, and consequences." H.R. Rep. No. 109-31 at 2 (2005), U.S. Code Cong. & Admin. News 2005. With respect to the latter, there are many significant consequences of filing a bankruptcy case including a substantial negative impact on the debtor's credit rating. Given the sometimes harsh results of filing for bankruptcy, Congress not only requires prepetition counseling but also requires financial management training after filing for bankruptcy so that the debtor "can avoid future financial difficulties." Id. at 18. These requirements, which Congress has deemed to be critical, are intended to ensure that debtors have at least a modicum of information from which they can make an informed decision regarding filing for bankruptcy relief. As one bankruptcy court has stated:

"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."

In re Elmendorf, 345 B.R. 486, 490 (Bankr. S.D.N.Y. 2006).

In light of these policy goals, Congress enacted section 109(h) which requires credit counseling prior to filing bankruptcy. The statute is clear. Obtaining credit counseling prepetition is mandatory and the vast majority of published cases conclude that a bankruptcy case must be dismissed when a debtor fails to obtain pre-petition counseling. Gibson v. Dockery (In re Gibson), 2011 WL 7145612, *4, 2011 Bankr. LEXIS 5084, *14 (9th Cir. BAP 2011) ("Debtor did not obtain credit counseling during the 180 days prior to filing her petition. While she completed counseling a few days later, she did not request nor secure bankruptcy court approval to do so post-petition due to any exigent circumstances, nor did she seek an exemption from the counseling requirement under one of the other § 109(h) exceptions. Because Debtor did not comply with the § 109(h) pre-bankruptcy credit counseling requirement, Congress has decreed that she was not eligible to be a chapter 13 debtor, and dismissal of her case by the bankruptcy court was appropriate."); In re Alvarado, 496 B.R. 200, 210 (N.D. Cal. 2013) ("The court concludes as a matter of law that failure to comply with the credit counseling requirement under section 109(h) establishes cause for dismissal ...."); In re Ramey, 558 B.R. 160, 163 (6th Cir. BAP 2016) (affirming dismissal of a chapter 13 case in which a debtor took the credit counseling post-petition and stating that the Bankruptcy Code specifically requires "all individual debtors to complete a pre-petition credit briefing."); Echeverry v. Weiner (In re Echeverry), 720 Fed. Appx. 598, n.1 (11th Cir. 2018) (affirming dismissal of a chapter 13 case in which a debtor, among other things, took the credit counseling post-petition and stating that in failing to take the counseling pre-petition the debtor "failed to comply with the Bankruptcy Code's plain language requirement that a debtor complete the counseling prior to the filing of the case."); In re Elmendorf, 345 B.R. 486, 495 (Bankr. S.D.N.Y. 2006) (" Section 109(h) has been strictly construed by courts, and all courts that have decided the issue have stated that a debtor that does not receive credit-counseling prior to filing for bankruptcy relief, or seek and receive an "extension" pursuant to 11 U.S.C. § 109(h)(3), is ineligible to be a debtor."); In re Alexander, 432 B.R. 41, 44 (Bankr. N.D.N.Y. 2010) (denying a request to waive pre-petition counseling and stating: "Bankruptcy Courts have rarely granted debtor permanent exemptions, and those that have done so have generally reserved such relief for debtors who are severely impaired."); Hedquist v. Fokkena (In re Hedquist), 342 B.R. 295, 300-301 (8th Cir. BAP 2006) (affirming dismissal of a bankruptcy case in which the debtors did not obtain pre-petition counseling and stating that "the new requirements in section 109(h) ... are mandatory" and, therefore, bankruptcy courts "have no discretion but to dismiss the case" when debtors fail to obtain prepetition counseling); Dixon v. LaBarge (In re Dixon), 338 B.R. 383 (8th Cir. BAP 2006) (affirming dismissal of a bankruptcy case in which the debtor did not obtain pre-petition counseling); In re Cleaver, 333 B.R. 430 (Bankr. S.D.Ohio 2005) (dismissing a bankruptcy when the debtor failed to obtain credit counseling pre-petition and proposed to obtain the counseling post-petition); In re Sosa, 336 B.R. 113 (Bankr. W.D.Tex. 2005) (dismissing a bankruptcy case when the debtors failed to obtain credit counseling pre-petition while severely criticizing the statute and Congress); In re Mingueta, 338 B.R. 833, 838 (Bankr. C.D. Cal. 2006) (dismissing a bankruptcy case when the debtors failed to obtain credit counseling and stating that "[a]bsent strict compliance with § 109(h), individual debtors are ineligible for bankruptcy relief."); In re Seaman, 340 B.R. 698, 706 n.3 (Bankr. E.D.N.Y. 2006) (dismissing a case in which the debtor failed to obtain pre-petition counseling and citing dozens of cases in support and stating that "[t]his Court also notes that of the thirty-four decisions addressing ineligibility under Section 109(h) to date, thirty-one have resulted in dismissal.").²

While most courts have followed the statute and dismissed cases without expressing any disapproval of the law, other courts have expressed disagreement with the statute even while following it. See, e.g., In re Elmendorf, 345 B.R. 486, 490 (Bankr. S.D.N.Y. 2006) ("Congress envisioned that credit counseling would provide individuals with the skills necessary to lead financially responsible lives. This facially well-intentioned 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 ... 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...