In re Manalad, LA 05-50112 VZ.

• Decision Date: 25 January 2007
• Docket Number: No. LA 05-50112 VZ.,LA 05-50112 VZ.
• Court: United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Central District of California
• Parties: In re Lope MANALAD, Debtor.

360 B.R. 288

In re Lope MANALAD, Debtor.

No. LA 05-50112 VZ.

United States Bankruptcy Court, C.D. California.

January 25, 2007.

Kenneth Lance Haddix, Los Angeles, CA, for Debtor.

MEMORANDUM OPINION

VINCENT P. ZURZOLO, Bankruptcy Judge.

I. INTRODUCTION

This case involves an individual debtor who filed for relief under Chapter 13 of the Bankruptcy Code¹, did not participate in budget and credit counseling prior to filing for bankruptcy, and did not seek court approval to be exempted from participating in budget and credit counseling (the "Credit Counseling Requirements").² The issues are: (1) if an individual debtor is not in compliance with the Credit Counseling Requirements of § 109(h), is dismissal of the bankruptcy case mandatory, or does the court have jurisdiction and discretion to excuse the ineligibility; and (2) if the court has jurisdiction and discretion to allow a debtor to cure a § 109(h) ineligibility, what is an appropriate standard for determining if a debtor is entitled to a cure?

II. FACTS

On November 21, 2005 ("Petition Date"), Lope Manalad ("Debtor") filed a petition ("Petition") to be a voluntary debtor under chapter 13 together with a chapter 13 plan ("Plan"). The Petition was signed by Kenneth L. Haddix, bankruptcy counsel for Debtor ("Debtor's Counsel"). A hearing ("Confirmation Hearing") was set for February 13, 2006 to determine if Debtor's Plan should be confirmed under § 1325. The Confirmation Hearing was continued to June 12, 2006 to allow the chapter 13 trustee to conduct additional meetings under § 341(a), to obtain documents from Debtor, and to review the Plan. Debtor initially proposed to pay 10% of his creditors' claims, but later amended his Plan to pay 100% of the claims.

Contrary to the requirements of §§ 521(b)(1)-(2),³ Debtor did not file with his Petition a certificate of credit counseling or a debt repayment plan, either of which would certify that Debtor participated in a budget and credit counseling session prior to filing his bankruptcy case as is required by § 109(h)(1).⁴ Debtor also did not seek court approval to participate in budget and credit counseling after filing his Petition as is allowed under certain conditions by § 109(h)(3).⁵ Finally, Debtor or did not request a waiver of participation in budget and credit counseling as is allowed in certain situations by § 109(h)(2)(A)⁶ or § 109(h)(4).⁷ On November 21, 2005, a Case Commencement Deficiency Notice ("CCDN") was generated by the bankruptcy court clerk's office and mailed to Debtor and Debtor's counsel, notifying Debtor that these documents needed to be filed.⁸

On March 15, 2006, the court issued an Order to Show Cause Why Case Should Not Be Dismissed ("OSC") for failure to comply with the. Credit Counseling Requirements and set a hearing on the OSC for April 25, 2006. On April 19, 2006, Debtor filed a response to the OSC ("Debtor's Response"). Debtor's Counsel and counsel for the United States Trustee ("UST")⁹ appeared at the April 25, 2006 hearing. Based upon Debtor's Response and upon arguments of Debtor's Counsel and counsel for the UST, the court continued the hearing on the OSC to June 12, 2006 to give Debtor's Counsel and counsel for the UST an opportunity to brief the issue of an individual's eligibility to be a debtor under Title 11 if not in compliance with the Credit Counseling Requirements.

On May 26, 2006, Debtor filed "Debtor's Statement Re Justification For Not Filing the Required Certificate of Credit Counseling & Debt Repayment Plan" ("Debtor's Justification"). On June 6, 2006, the UST filed a "Reply to Debtor's Statement of Justification" ("UST Reply"). Debtor's Counsel and counsel for the UST appeared at the continued hearing. Based upon Debtor's Justification, the UST Reply, and on arguments made at the continued hearing, the court set a further hearing on the OSC for July 24, 2006 and ordered Debtor to appear at that hearing.¹⁰ The court also ordered Debtor to, prior to the July 24, 2006 hearing, participate in a budget and credit counseling briefing described in § 109(h)(1) and file the certificate of completion and debt repayment plan described in §§ 521(b)(1)-(2).

On July 17, 2006, Debtor participated in a budget and credit counseling briefing, and on July 18, 2006, filed a Certificate of Counseling ("Certificate"). The Certificate indicated that a debt repayment plan was not prepared. Debtor, Debtor's Counsel, and counsel for the UST appeared at the July 24, 2006 hearing. The July 24; 2006 hearing was continued to August 2, 2006 and then again to September 26, 2006. The Plan was confirmed on October 16, 2006.¹¹

Debtor's position is that he was forced to file his Petition on the date that he did because his employer intended to obey a wage garnishment order for past due child support payments. Debtor asserts that the only effective way to treat his creditors' claims is through a chapter 13 plan. Upon advice of Debtor's Counsel, Debtor believed that the Credit Counseling Requirements did not apply to his bankruptcy case because his debts were not consumer debts. Therefore, Debtor asserts that he should be excused from complying with the Credit Counseling Requirements and be allowed to confirm and consummate his Plan.

The position of the UST is that Debtor's bankruptcy case must be dismissed for lack of eligibility because Debtor did not comply with any of the Credit Counseling Requirements. The UST argues that Debtor's ineligibility under Title 11 cannot be cured under any circumstances, and it was not cured by Debtor participating in a budget and credit counseling briefing on July 17, 2006 and filing his Certificate on July 18, 2006.

III. ISSUES

The following issues arise from the facts and applicable law in this case:

1. If an individual debtor is not in compliance with the Credit Counseling Requirements, is dismissal of the bankruptcy case mandatory, or does the court have jurisdiction and discretion to excuse the ineligibility?

2. If the court has jurisdiction and discretion to allow a debtor to cure a § 109(h) ineligibility, what is an appropriate standard for determining if a debtor is entitled to a cure?

IV. ANALYSIS

A. Credit Counseling Requirements

As discussed above, under § 109(h)(1) or subsection (h)(3), an individual must participate in a session of budget and credit counseling within 180 days prior to or within up to 45 days following the filing of a petition under Title 11, depending upon the circumstances under which the individual filed a petition.¹² Under § 521(b) an individual must provide proof of participation in budget and credit counseling by filing a certification of participation and a copy of the debt repayment plan if a debt repayment plan was prepared at the counseling session; the certification is supposed to describe the services that were provided to the debtor and must be provided by the agency that provided the counseling.¹³ Under the version of Rules 1007(b)(3). and 1007(c) in effect on the Petition Date, the time for filing these documents was with the Petition,¹⁴ or within a court approved extended period.¹⁵ Debtor filed his certificate tardily, one day after participating in budget and credit counseling, 239 days after filing his Petition.¹⁶

Under § 109(h)(2)(A) or subsection (h)(4), an individual debtor can be exempted from participation in budget and credit counseling and the filing of a certificate of completion by establishing that (1) the UST determined that adequate credit counseling services were not available in the individual's district, (2) the individual is incapacitated or is disabled, or (3) the individual is on active duty in a military combat zone. None of these exemptions apply to Debtor in this case, and Debtor does not argue that any of them apply.

B. Dismissal and Jurisdiction

The position of the UST is that dismissal is mandatory for Debtor's bankruptcy case or any other bankruptcy case in which the Credit Counseling Requirements are not satisfied, and therefore, the court lacks jurisdiction to fashion a remedy other than dismissal. I disagree with the UST's argument, based upon a review of the Bankruptcy Code, case law concerning jurisdiction and/or dismissal, and consideration of the harsh consequences of dismissal.

1. Jurisdiction and Statutory Construction

In a recent opinion, the Supreme Court analyzed how the absence of jurisdiction differs from a missing element of a claim for relief and what is meant when the language of a statute is silent on jurisdiction. In Arbaugh v. Y & H Corp. dba the Moonlight Cafe, 546 U.S. 500, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006), a female employee brought an action under Title VII of the 1964 Civil Rights Act in federal court against her former employer, charging sexual harassment. The case was tried by a jury, which returned a verdict in favor of the plaintiff. After the conclusion of the trial, the defendant requested dismissal of the action under Federal Rule of Civil Procedure 12(h)(3) for lack of subject matter jurisdiction. The defendant cited the definition of "employer" under 42 U.S.C. § 2000e(b) for the premise that it was not subject to liability under Title VII because the defendant had fewer than fifteen employees and therefore did not meet the definition of an employer for Title VII purposes. This was the first stage of the proceedings at which the defendant raised the issue of jurisdiction or the fifteen employee requirement. The district court determined that the defendant had fewer than fifteen employees and therefore granted the motion to dismiss. The dismissal was affirmed by the Fifth Circuit Court of Appeals.

The Supreme Court granted certiorari to resolve conflicting opinions in Courts of Appeals on the question of whether Title VII's employee numerosity requirement of 42 U.S.C. § 2000e(b) is jurisdictional in nature or simply an element of a plaintiff's claim for relief. In making its determination, the Court looked to the language that Congr...