In re Osborne, 11–38122 (cgm).

• Decision Date: 14 March 2013
• Docket Number: No. 11–38122 (cgm).,11–38122 (cgm).
• Citation: 490 B.R. 75
• Parties: In re Patrisha S. OSBORNE and George R. Osborne, Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

490 B.R. 75

In re Patrisha S. OSBORNE and George R. Osborne, Debtors.

No. 11–38122 (cgm).

United States Bankruptcy Court, S.D. New York.

March 14, 2013.

Mark S. Tulis, White Plains, NY, Chapter 7 Trustee.

George and Patrisha Osborne, Elizaville, NY, Pro Se Debtors.

Eric Small, Albany, NY, Attorney for the United States Trustee.

MEMORANDUM DECISION DENYING DEBTORS' MOTION TO VACATE DISCHARGE

CECELIA G. MORRIS, Chief Judge.

The Debtors bring this motion to vacate their discharge and dismiss their chapter 7 case on the grounds that they are ineligible to be debtors under 11 U.S.C. § 109(h) because they failed to comply with the Bankruptcy Code's credit counseling requirements. In the alternative, Debtors seek reargument of the Court's Order reopening their case. Because the Debtors waived the protections of § 109(h) and are judicially estopped from arguing their ineligibility at this stage of these proceedings, the Court denies this motion in its entirety.

Jurisdiction

This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a) and the Amended Standing Order of Reference signed by Chief Judge Loretta A. Preska dated January 31, 2012. This is a “core proceeding” under 28 U.S.C. § 157(b)(2)(A) (matters concerning the administration of the estate).

Background

The Debtors are repeat filers, having previously filed chapter 11 on August 30, 2010. In re Osborne, No. 10–37606 (Bankr.S.D.N.Y). The prior case was dismissed on March 7, 2011. Subsequently, Ms. Osborne filed her own chapter 11 case on August 8, 2011 through bankruptcy counsel Genova & Malin. In re Osborne, No. 11–37271 (Bankr.S.D.N.Y.) That case was dismissed on December 16, 2011.

The Debtors filed this joint chapter 7 petition on November 9, 2011 without the assistance of an attorney. That same day, the Debtors each filed an “Exhibit D—Individual Debtor's Statement of Compliance with Credit Counseling Requirement” (“Exhibit D”), signed under penalty of perjury. On the Debtors' Exhibit D, they each checked a box that stated “[w]ithin the 180 days before filing of my bankruptcy case, I received a briefing from a credit counseling agency,” and Debtors also acknowledged that a Certificate of Credit Counseling was attached. See Ex. D, ECF No. 2; Ex. D, ECF No. 3.

Despite checking that box, the Debtors did not file a Certificate of Credit Counseling. On November 15, 2011, the Clerk of the Court sent a deficiency notice to the debtors with respect to the unfiled credit counseling certificate. See Request Deficiency Ntc., ECF No. 10. On November 29, 2011, the Debtors filed a Certificate of Credit Counseling. See Cert., ECF No. 16. The Debtors filed a Credit Counseling Certificate that had been filed as part of their previous chapter 11 case on August 30, 2010 and was nearly fifteen months old. See In re Osborne, No. 10–37606–cgm, ECF No. 4 (Aug. 30, 2010 Bankr.S.D.N.Y.) (Certificate of Credit Counseling). This misrepresentation was first brought to the Court's attention when the Debtors filed this Motion.

Although the Debtors filed untimely Certificates of Credit Counseling in this case, it is worth nothing that Ms. Osborne, while represented by counsel, timely filed credit counseling documents as part of her chapter 11 petition, which was filed on August 8, 2011. Ms. Osborne filed both an Individual Debtor's Statement of Compliance with Credit Counseling, which was completed on August 2, 2011 and dated August 8, 2011, and a Certificate of Credit Counseling, which was certified on August 2, 2011 and filed on August 8, 2011. See In re Osborne, No. 11–37271, ECF Docket No. 2 (Statement of Compliance); see also In re Osborne, No. 11–37271, ECF Docket No. 3 (Certificate of Credit Counseling).

The Debtors received a discharge in this chapter 7 case on March 8, 2012, and the case was closed that same day. On October 1, 2012, the former chapter 7 trustee made a motion to reopen the Debtors' case due to the discovery of an asset, namely a multi-million dollar malpractice suit against the Debtors' former attorneys. The Court reopened this case via order dated December 13, 2012, and Mark Tulis was appointed as chapter 7 trustee on December 13, 2012.

On January 2, 2012, the Debtors made this motion to vacate the discharge and dismiss their chapter 7 case. In the alternative, the Debtors seek reargument of the Court's Order reopening their case. The Debtors argue that they are ineligible to be debtors because they filed outdated credit counseling certificates that do not comply with the 180–day timeframe required by § 109(h) of the Bankruptcy Code. As a remedy, they seek to vacate the discharge order and to dismiss or strike their petition.

The chapter 7 trustee opposes the Debtor's motion. He contends that while Mr. Osborne was not eligible as a debtor under § 109, Ms. Osborne was, having completed a timely certification as part of her chapter 11 filing.

Discussion

Jurisdiction and Automatic Dismissal

Section 109 contains a list of requirements that must be satisfied before an entity or individual is eligible for bankruptcy. 11 U.S.C. § 109. Subsection (h) requires debtors to receive credit counseling during the 180–day period preceding the date of filing of the petition. See11 U.S.C. § 109(h). Moreover, 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. 11 U.S.C. § 521(b); In re Manalad, 360 B.R. 288, 292–93 (Bankr.C.D.Cal.2007).

Courts are divided on the issue of whether failure to satisfy § 109 mandates dismissal of a case. Some courts have held that strict compliance with the credit counseling requirement is mandatory and a “[c]ourt simply lacks jurisdiction over a debtor's case where the debtor fails to comply with § 109(h).” In re Giles, 361 B.R. 212, 214 (Bankr.D.Utah 2007); Clippard v. Bass, 365 B.R. 131, 136 (W.D.Tenn.2007); Hedquist v. Fokkena (In re Hedquist), 342 B.R. 295, 298 (8th Cir. BAP 2006). These courts have held that if a debtor does not comply with § 109(h), a court must dismiss the case. Giles, 361 B.R. at 214;Clippard, 365 B.R. at 136;Hedquist, 342 B.R. at 298. These courts believe that § 109 is clear and “ ‘the sole function of the courts is to enforce it according to its terms.’ ” In re Cleaver, 333 B.R. 430, 432 (Bankr.S.D.Ohio 2005) (citing United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989)). These cases hold that dismissal is mandatory even if it leads to harsh or inequitable results. Hedquist, 342 B.R. at 300.

Other courts conclude that bankruptcy courts have discretion to waive a debtor's non-compliance with § 109(h). Mendez v. Salven (In re Mendez), 367 B.R. 109, 118 (9th Cir. BAP 2007); In re Nichols, 362 B.R. 88, 93 (Bankr.S.D.N.Y.2007); In re Parker, 351 B.R. 790, 800–01 (Bankr.N.D.Ga.2006); In re Hess, 347 B.R. 489, 494 (Bankr.D.Vt.2006). These courts believe that the failure to satisfy § 109(h) is an eligibility question as opposed to a jurisdictional issue and that “strict compliance with the credit counseling requirements of § 109(h) can be waived[.]” Mendez, 367 B.R. at 118;see also Collier on Bankruptcy P 109.09[3] (Alan N. Resnick and Henry J. Sommer eds., 16th ed.) (“Section 109 is not characterized in terms of venue or jurisdiction by the statute itself, and it is clear that it is not jurisdictional.”). These courts also hold that bankruptcy courts have discretion to determine whether declining to exercise jurisdiction based on the failure to comply with § 109(h) “would result in manifest injustice.” Nichols, 362 B.R. at 93.

The Second Circuit has held that the eligibility requirements of § 109 are not jurisdictional in nature. See Adams v. Zarnel (In re Zarnel), 619 F.3d 156, 169 (2d Cir.2010) (failure of debtor to obtain credit counseling briefing did not deprive court of jurisdiction over petition). Recent cases have questioned whether the proper remedy for failing to comply with § 109(h) is dismissal or whether striking the bankruptcy petition is preferable. See In re Hubbard, 333 B.R. 377, 388 (Bankr.S.D.Tex.2005); In re Rios, 336 B.R. 177, 179 (Bankr.S.D.N.Y.2005). In In re Zarnel, the Second Circuit remanded to the bankruptcy court ¹ the question of whether dismissal or striking a petition is the appropriate remedy. Zarnel, 619 F.3d at 172.

Those courts that have held that the § 109(h) eligibility requirements are not jurisdictional in nature, have also refused to dismiss a case when the debtor has failed to comply with the eligibility requirements, particularly when the debtor brings the motion “offensively as a ticket to get out of bankruptcy.” Mendez v. Salven (In re Mendez), 367 B.R. 109, 114 (9th Cir. BAP 2007); see also In re Amir, 436 B.R. 1, 22 (6th Cir. BAP 2010) (affirming the bankruptcy court's decision not to dismiss a debtor's case for failing to comply with § 109(h)); In re Fiorillo, 455 B.R. 297 (D.Mass.2011) (estopping debtor from using his failure to comply with § 109(h) where debtor certified under penalty of perjury that he had completed the requirements); In re Jong Hee Kang, 467 B.R. 327, 336 (Bankr.D.N.J.2012) (estopping a debtor from using a predated credit counseling certificate as an “out” from her bankruptcy filing); In re Timmerman, 379 B.R. 838 (Bankr.N.D.Iowa 2007) (estopping debtors from dismissing case due to lack of credit counseling in light of pending objections to discharge); In re Lilliefors, 379 B.R. 608, 611 (Bankr.E.D.Va.2007) (judicially estopping debtor from asserting that the credit counseling requirement was not met since debtor had previously certifiedthat he had received counseling); In re Parker, 351 B.R. 790, 797 (Bankr.N.D.Ga.2006) (denying debtor's motion to dismiss for failure to comply with § 109(h) based on waiver and judicial estoppel); In re Withers, 2007 WL 628078, at *4 (Bankr.N.D.Ca...