In re Hess, 06-10068.

• Decision Date: 14 August 2006
• Docket Number: No. 06-10068.,No. 06-10026.,06-10068.,06-10026.
• Citation: 347 B.R. 489
• Court: U.S. Bankruptcy Court — District of Vermont
• Parties: In re Michael R. HESS, Debtor. In re Danielle Madore f/k/a Danielle Jones, Debtor.

347 B.R. 489

In re Michael R. HESS, Debtor.

In re Danielle Madore f/k/a Danielle Jones, Debtor.

No. 06-10068.

No. 06-10026.

United States Bankruptcy Court, D. Vermont.

August 14, 2006.

COPYRIGHT MATERIAL OMITTED

John Darcy Toscano, Esq., Bennington, VT, Margot L. Stone, Esq., Harris & Stone, P.C., Brattleboro, VT, for Debtors.

Kevin Purcell, Esq., Office of the U.S. Trustee, Albany, NY, for U.S. Trustee.

MEMORANDUM OF DECISION

COLLEEN A. BROWN, Bankruptcy Judge.

WITHDRAWING ORDERS TO SHOW CAUSE AND DENYING MOTION TO DISMISS

The above referenced debtors each filed a bankruptcy petition without the required proof of pre-petition credit counseling. The plain language of the Bankruptcy Code's new eligibility provisions appears to mandate dismissal of the cases. However, there are extraordinary circumstances present that beg the question of whether dismissal is mandatory. The Court determines whether, under the totality of the circumstances presented, it has discretion to allow the cases to proceed, notwithstanding the procedural eligibility defect. The Court relies upon the rules of statutory construction to discern whether the circumstances presented permit the Court to look beyond the plain language of the eligibility statute, and then, finding that they do, examines whether, under the totality of circumstances in each case, dismissal is proper. For the reasons set forth below, the Court grants each debtor an exemption from the pre-petition credit counseling requirement and denies dismissal of both cases.

PROCEDURAL HISTORY AND BACKGROUND FACTS

In re Michael R. Hess

On March 2, 2006, Michael R. Hess filed a petition seeking relief under chapter 7 of the Bankruptcy Code. Mr. Hess marked the box on page 2 of his petition indicating that he had received consumer credit counseling during the 180-day period prior to the filing of his case, as required by § 109(h)(1), however, Mr. Hess failed to file a certificate of credit counseling with his petition, as required by Bankruptcy Rule 1007(b)(3) and (c).

On March 2, 2006, the Court issued an order directing Mr. Hess to appear and show cause why his chapter 7 case should not be dismissed due to his apparent ineligibility for relief, as demonstrated by his failure to file a certificate of pre-petition credit counseling. In response, Mr. Hess filed a Motion to Extend Time to Obtain Credit Counseling, indicating that he had obtained credit counseling from the Consumer Credit Counseling Service of New Hampshire & Vermont ("the Counseling Agency") on December 14, 2005, and filed his petition on March 2, 2006, under the impression that he was in compliance with the requirement for credit counseling within 180 days of the petition. The record indicates that the Counseling Agency informed Mr. Hess' attorney that it could not issue a certificate for the pre-petition session because it was not an authorized provider as of that date (doc. # 19 Affidavit of Attorney Toscano ¶ 8). The Debtor attended another credit counseling session on March 13, 2006, obtained a certificate of credit counseling referencing that latter session, and filed that certificate with the Court on March 13, 2006 (doc. # 14), eleven days after his bankruptcy case was filed.¹

After the hearing, the Court granted the Debtor and the U.S. Trustee an opportunity to investigate the facts set forth by the Debtor and to file memoranda of law addressing the circumstances surrounding the Debtor's pre-petition counseling session, the Counseling Agency's refusal to issue a certificate for that session, the Debtor's failure to file a certificate of prepetition counseling, and whether the Debtor's failure to obtain pre-petition credit counseling and file the required certificate made him ineligible for bankruptcy relief under § 109(h). Based upon her investigation of these issues, the U.S. Trustee decided not to seek dismissal of the Hess case. Therefore, the only matter pending in this case is the Court's order to show cause why the case should not be dismissed.

In re Danielle Madore

On February 6, 2006, Danielle Madore filed a petition seeking relief under chapter 7 of the Bankruptcy Code. Like Mr. Hess, Ms. Madore marked the box on page 2 of her petition indicating that she had received consumer credit counseling during the 180-day period prior to the filing of her case, per § 109(h)(1), but failed to file a certificate of credit counseling with her petition, as required by Bankruptcy Rule 1007(b)(3) and (c).

On February 6, 2006, the Court issued an order directing Ms. Madore to appear and show cause why her chapter 7 case should not be dismissed based upon her apparent ineligibility for relief, as demonstrated by her failure to file a certificate of pre-petition credit counseling (doc. # 8). In response, Ms. Madore filed a certificate of credit counseling dated February 10, 2006 (doc. # 7), showing that the Debtor obtained credit counseling from an approved agency four days after she filed her petition. On February 22, 2006, the Court issued another order directing the Debtor to show cause why the case should not be dismissed based upon the Debtor's failure to obtain pre-petition counseling (doc. # 8). The U.S. Trustee filed a memorandum of law seeking dismissal of the case under § 707(a) asserting that "cause" exists to dismiss the case based upon the Debtor's failure to obtain pre-petition credit counseling, and her failure to demonstrate eligibility for an exemption from the prepetition credit counseling requirement (doc. # 10).

Ms. Madore filed a request for an order extending the time within which she could obtain credit counseling (doc. # 11), accompanied by an affirmation by her attorney, Margot Stone (doc. # 13) (collectively, the "Madore Request"), that state the following: Attorney Stone suffered a life threatening medical event (advanced breast cancer that required immediate medical intervention, multiple surgeries, and radiation treatments) at the time the Debtor was preparing to file for bankruptcy relief. Attorney Stone went to her law office in the middle of her medical leave for the purpose of meeting with the Debtor, to obtain the Debtor's signature on the petition and other documents, and to review with the Debtor the requirements with which the Debtor had to comply before her case could be filed. After the meeting, Attorney Stone placed the signed petition, schedules and cover letter in a priority mail envelope in her office, ready to be sent to court upon receipt of the certificate of credit counseling. As fate would have it, though, while Attorney Stone was out of the office recovering from emergency surgical procedures, an employee found the envelope, presumed the case was ready to be filed and mailed the envelope without the certificate of credit counseling. Attorney Stone points out that she represents Ms. Madore on a pro bono basis and argues that both she and her client did everything each of them could possibly have done to comply with the statute, that the law office error that caused the petition to be filed four days prior to Ms. Madore's completion of credit counseling was a direct consequence of her extraordinary medical circumstances, and that the Court has discretion to deny dismissal of Ms. Madore's case under the totality of these circumstances.

The U.S. Trustee's memorandum of law opposing the Debtor's request for an extension (doc. # 12) alleges that the Debtor's failure to obtain pre-petition counseling, failure to demonstrate compliance with all three prongs of the test for an exemption from the pre-petition credit counseling requirement, and the Debtor's resulting ineligibility for relief de facto constitute cause for dismissal under § 707(a).

ISSUES PRESENTED

Although the Hess and Madore cases present different facts, they have strikingly similar procedural histories, and present identical legal issues: first, whether a debtor's failure to meet the eligibility requirements set forth in § 109(h) mandates dismissal of a chapter 7 case, or if the bankruptcy court has discretion to grant relief despite technical ineligibility; and second, if the court does have discretion, whether the instant cases present facts that justify an exemption from the prepetition credit counseling requirement.

JURISDICTION

It is undisputed that these contested matters are core proceedings, and that the Court has jurisdiction over them pursuant to 28 U.S.C. § 157(b)(1).

DISCUSSION

A. DO THE RULES OF STATUTORY CONSTRUCTION PERMIT THE EXERCISE OF DISCRETION?

There are three rules of construction that are particularly apropos to the issues presented. They are in essence, the supremacy of the plain language when a statute is clear, the duty to avoid an application of the statute that would cause injustice and the relevance of context, and Congressional intent when construing a new statute.

1. The Plain Language of the New Eligibility Statute

The Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA") requires each individual seeking bankruptcy relief to obtain pre-petition credit counseling and file a certificate thereof as a predicate of eligibility for bankruptcy relief.

(h)(1) Subject to paragraphs (2) and (3), and notwithstanding any other provision of this section, an individual may not be a debtor under this title unless such individual has, during the 180-day period preceding the date of filing of the petition by such individual, received from an approved nonprofit budget and credit counseling agency described in section 111(a) an individual or group briefing (including a briefing conducted by telephone or on the Internet) that outlined the opportunities for available credit counseling and assisted such individual in performing a related budget analysis.

11 U.S.C. § 109(h)(1); see also In re Henderson, 339 B.R. 34, 37 (Bankr. E.D.N.Y.2006). However, the requirement for pre-petition credit counseling is not absolute. Section 109(h) provides that, under certain...