In re Mendez

• Decision Date: 28 March 2007
• Docket Number: BAP No. EC-06-1267-DMoPa.,Bankruptcy No. 05-62634.
• Citation: 367 B.R. 109
• Parties: In re Elizabeth Rodriguez MENDEZ, Debtor. Elizabeth Rodriguez Mendez, Appellant, v. James E. Salven, Chapter 7, Trustee, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

Page 109

367 B.R. 109

In re Elizabeth Rodriguez MENDEZ, Debtor Elizabeth Rodriguez Mendez, Appellant, v. James E. Salven, Chapter 7, Trustee, Appellee.

BAP No. EC-06-1267-DMoPa.

Bankruptcy No. 05-62634.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted on February 21, 2007.

Filed March 28, 2007.

COPYRIGHT MATERIAL OMITTED

Russell M. Koch, Esq., Visalia, CA, for Appellant.

Beth Maxwell Stratton, Esq., Fresno, CA, for Trustee, Appellee.

Before: DUNN, MONTALI, and PAPPAS, Bankruptcy Judges.

OPINION

DUNN, Bankruptcy Judge.

One of the principal areas of concern among members of the bench, the bar and the public under the recently enacted Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") is the requirement that individuals contemplating bankruptcy obtain credit counseling before they file their bankruptcy petitions. More specific is the question of whether failure to do so leaves the court without jurisdiction over the case, or if such failure is a matter of individual eligibility, subject to traditional principles of waiver and estoppel. Our disposition here represents the first reported appellate decision to answer the question. On appeal of an order denying a debtor's motion to dismiss ("Motion to Dismiss") her own case, we conclude that pre-bankruptcy credit counseling is not a jurisdictional prerequisite, and we AFFIRM.

I. FACTS

The debtor, Elizabeth Rodriguez Mendez ("Debtor"), commenced her chapter 7¹ case with a "bare" or skeleton petition filing on October 17, 2005. On October 26, 2005, the Debtor filed her schedules and a motion to proceed in forma pauperis. That motion was granted on October 27, 2005.

The Debtor asserts that she was induced to file her chapter 7 case by a fellow church member, John DeRosa ("DeRosa"). According to the Debtor, DeRosa told other church members that he was an attorney and advised the Debtor that filing a bankruptcy petition "would solve her debt problems." Debtor further asserts that DeRosa prepared her bankruptcy petition, forged her signature to the petition, and filed it. DeRosa is not listed as an attorney in the records of the State Bar of California.

On December 1, 2005, an order to show cause was issued and served on the Debtor by the bankruptcy court, indicating that no certificate of credit counseling had been filed in the Debtor's case. A hearing on the order to show cause was scheduled for January 4, 2006 ("Show Cause Hearing").

The first of three § 341(a) meetings was held in the Debtor's case on December 5, 2005. The Debtor attended, accompanied by DeRosa, who identified himself as her attorney. Because the trustee ("Trustee") had not received documents required to complete his examination of the Debtor, the § 341(a) meeting was continued to January 26, 2006.

At the Show Cause Hearing on January 4, 2006, the Debtor appeared, without DeRosa, with a credit counseling certificate that she had obtained the day before from an approved credit counseling agency. At the Show Cause Hearing, the bankruptcy court advised the Debtor that if she filed her credit counseling certificate by the following day, January 5, 2006, "your case will go forward. Otherwise it will be dismissed." The Debtor filed her credit counseling certificate with the bankruptcy court the day of the Show Cause Hearing.

At the continued § 341(a) meeting on January 26, 2006 ("Second 341(a)"), the Debtor appeared, again accompanied by DeRosa. At the Second 341(a), the Debtor testified that she had reviewed and signed her bankruptcy petition and schedules and that the information included therein was true and correct to the best of her knowledge. At the Second 341(a), the Trustee asked the Debtor a number of questions about her home and her schedules. The Trustee uncovered some issues with respect to title to the Debtor's home arid the exemption the Debtor claimed in her home.²

After their discussion, the Trustee recommended to the Debtor that she needed to "talk to a lawyer that's well-versed in bankruptcy." The Debtor expressed some frustration with the Trustee's concerns and asked, "Why am I not entitled to do bankruptcy like everyone else?" In light of the issues raised concerning the Debtor's home, the Trustee further continued the § 341(a) meeting to February 23, 2006.

On February 7, 2006, the Trustee filed an objection to the exemption claimed by the Debtor in her home ("Exemption Objection"). The hearing on the Exemption Objection was scheduled for March 8, 2006.

On February 23, 2006, the final session of the Debtor's § 341(a) meeting ("Third 341(a)") took place. The Debtor attended without DeRosa and without counsel. At the Third 341(a), the Trustee discussed with the Debtor the value of her home, the mortgage against it and his continuing concerns about the propriety of the Debtor's exemption claim for the home. The Trustee forcefully reiterated his advice to the Debtor to contact a lawyer. During the Third 341(a), the following exchange took place between the Debtor and the Trustee:

Debtor: "... So that's why I tried to do this, a 7, because that's all I could do. But you're saying that there would be an issue of me still continuing on on [sic] to get the 7?"

Trustee: "No. There's no issue about you getting a discharge. I'm not—"

Debtor: "Oh."

Trustee: "There's no issue on that. The issue is you keeping the house."

Debtor: "Oh, they won't let me keep the house?"

Trustee: "No, I'm not saying that either. What I'm saying is that you need to talk to a lawyer."

On March 7, 2006, the day before the scheduled hearing on the Exemption Objection, the Debtor filed a letter with the bankruptcy court asserting for the first time that her bankruptcy papers had been forged and requesting dismissal of her bankruptcy case. The Debtor did not appear at the hearing on the Exemption Objection, and the bankruptcy court sustained the Trustee's objection, limiting the Debtor's homestead exemption claim to $150,000. The Debtor did not appeal the bankruptcy court's order sustaining the Exemption Objection. Because the Debtor's informal motion to dismiss her case was not properly noticed and scheduled, the bankruptcy court denied it, "without prejudice to a properly noticed hearing on a motion to dismiss."

On May 5, 2006, the Debtor filed the Motion to Dismiss through counsel. The hearing on the Motion to Dismiss was held on May 17, 2006, at which time the bankruptcy court heard testimony from the Debtor and the Trustee, and took the matter under advisement. The bankruptcy court issued its Findings and Conclusions and entered an order denying the Motion to Dismiss on July 17, 2006. Debtor filed a timely notice of appeal on July 27, 2006.

II. JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(b)(1) and (b)(2)(A) and (0). We have jurisdiction pursuant to 28 U.S.C. § 158.

III. ISSUES

(1) Whether the bankruptcy court erred as a matter of law in denying Debtor's Motion to Dismiss, because the Debtor did not obtain pre-bankruptcy credit counseling as required by § 109(h).

(2) Whether the bankruptcy court erred in denying the Debtor's Motion to Dismiss, when the Debtor presented evidence that signatures on her bankruptcy papers, including the petition, were forged, she had not intended to file' bankruptcy, and she did not wish to remain in bankruptcy.

IV. STANDARDS OF REVIEW

We review issues of statutory construction and conclusions of law, including interpretation of provisions of the Bankruptcy Code, de novo. Einstein/Noah Bagel Corp. v. Smith (In re BCE W., L.P.), 319 F.3d 1166, 1170 (9th Cir.2003).

We review the bankruptcy court's factual findings for clear error. Rule 8013. A factual finding is clearly erroneous if the appellate court, after reviewing the record, has a firm and definite conviction that a mistake has been committed. Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985).

We review the bankruptcy court's decision whether or not to dismiss a chapter 7 case for "cause" for abuse of discretion. Sherman v. SEC (In re Sherman), 441 F.3d 794, 813 (9th Cir.2006). "A bankruptcy court necessarily abuses its discretion if it bases its ruling on an erroneous view of the law. The panel also finds an abuse of discretion if it has a definite and firm conviction the court below committed a clear error of judgment in the conclusion it reached." Lopez v. Specialty Rest. Corp. (In re Lopez), 283 B.R. 22, 26 (9th Cir. BAP 2002)(quoting Palm v. Klapperman (In re Cady), 266 B.R. 172, 178 (9th Cir. BAP 2001)).

V. DISCUSSION

A. The Bankruptcy Court Did Not Err in Declining to Dismiss the Debtor's Chapter 7 Case for Failure to Comply Timely With the Credit Counseling Requirements of § 109(h).

The record in this case reflects that the Debtor is a person with debt problems who took advice to seek a solution to her financial difficulties through a chapter 7 bankruptcy. Once in bankruptcy, when she found that a consequence of her filing might be the sale of her home, she wanted out.

The new wrinkle to this commonly encountered scenario is the Debtor's attempt to use the BAPCPA credit counseling requirement offensively, as a ticket to get out of bankruptcy.

The new § 109(h) requires, as a condition to eligibility for bankruptcy relief, that within 180 days prior to an individual debtor's bankruptcy filing, the debtor receive (1) a briefing as to available opportunities for credit counseling, and (2) assistance in performing a budget analysis from a nonprofit credit counseling agency, approved ordinarily by the United States Trustee (collectively, "credit counseling").³ The purpose of these provisions is to require debtors at least to explore the utility of credit counseling as an option before throwing in the towel and seeking a discharge of their debts in bankruptcy.⁴

If a debtor faces "exigent circumstances," under § 109(h)(3), the debtor can obtain a postpetition...