In re Seaman

• Decision Date: 30 March 2006
• Docket Number: No. 05-40032-ESS.,05-40032-ESS.
• Citation: 340 B.R. 698
• Parties: In re Charles Edward SEAMAN, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of New York

340 B.R. 698

In re Charles Edward SEAMAN, Debtor.

No. 05-40032-ESS.

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

March 30, 2006.

Charles Edward Seaman, Brooklyn, NY, pro se.

MEMORANDUM DECISION DISMISSING THE DEBTOR'S CHAPTER 7 CASE FOR FAILURE TO COMPLY WITH 11 U.S.C. § 109(h)

ELIZABETH S. STONG, Bankruptcy Judge.

Before the Court is the motion of the United States Trustee, dated December 6, 2005, to dismiss the petition of the above-captioned debtor, Charles Edward Seaman (the "Petitioner") for failure to file payment advices pursuant to Section 521(a)(1) of Title 11 of the United States Code (the "Bankruptcy Code") and for failure to file a certificate from an approved nonprofit budget and credit counseling agency pursuant to Section 109(h)(1) of the Bankruptcy Code (the "Motion to Dismiss"). Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (the "BAPCPA"), an individual who fails to meet the credit counseling requirements of Section 109(h) is ineligible to be a debtor under the Bankruptcy Code. On January 10, 2006, a hearing on the Motion to Dismiss was held, at which counsel for the United States Trustee appeared and was heard. The Petitioner did not file opposition to the Motion to Dismiss and did not appear at the hearing on January 10, 2006.

At the January 10, 2006, hearing, the Court asked the United States Trustee to address the question of whether a bankruptcy petition filed by an individual who is ineligible to be a debtor should be stricken, or alternatively, whether the bankruptcy case should be dismissed. In response to the Court's inquiry, the United States Trustee filed a Memorandum of Law in Further Support of the Motion of the United States Trustee to Dismiss This Case (the "UST Memorandum") on January 25, 2006. A further hearing on the Motion to Dismiss was held on January 31, 2006, at which counsel for the United States Trustee appeared and was heard. The Petitioner did not appear at the hearing on January 31, 2006. Based on the entire record and for the reasons set forth below, the Court finds that the Petitioner is ineligible to be a Chapter 7 debtor and that his case should be dismissed.

Background

On October 23, 2005, the Petitioner, an individual, filed a voluntary petition seeking relief under Chapter 7 of the Bankruptcy Code. The Petitioner neither filed a certificate of credit counseling with his petition pursuant to Section 109(h)(1), nor sought a temporary or permanent exemption pursuant to Sections 109(h)(3) and 109(h)(4). The Petitioner also did not file copies of payment advices or other evidence of payment received within sixty days prior to the date of filing the petition as required by Section 521(a)(1) and Federal Rule of Bankruptcy Procedure 1007. On November 10, 2005, and November 30, 2005, the Clerk of the Court sent notices of deficiency to the Petitioner. See Docket Entries 5, 6.

The United States Trustee filed the Motion to Dismiss on December 6, 2005, citing the failure of the Petitioner to make the required filings as described above. See Docket Entry 7. The Petitioner did not cure the deficiencies or oppose the Motion to Dismiss.

Discussion

A voluntary bankruptcy case "is commenced by the filing with the bankruptcy court of a petition under such chapter by an entity that may be a debtor under such chapter." 11 U.S.C. § 301(a). BAPCPA added a new requirement, effective October 17, 2005, for an individual to be eligible to be a debtor, as follows:

[A]n 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 ... received from an approved nonprofit budget and credit counseling agency ... 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). To demonstrate his or her eligibility, an individual debtor must file a certificate from an approved credit counseling agency and a copy of the debt repayment plan, if any, with the petition. Id. See also FED. R. BANKR. P. 1007(b)(3) and (c). Under exigent circumstances, the court may grant an individual a thirty-day temporary exemption from the credit counseling requirement. 11 U.S.C. § 109(h)(3)(A). This thirty-day exemption may be extended for an additional fifteen days for cause. 11 U.S.C. § 109(h)(3)(B). And an individual who is unable to complete credit counseling due to incapacity, disability, or active military duty, may seek a permanent exemption from the requirements of Section 109(h). 11 U.S.C. § 109(h)(4).

Here, the Petitioner did not file a certificate of credit counseling, or seek a temporary or permanent exemption from the credit counseling requirement. As a result, the Petitioner is ineligible to be a debtor under Chapter 7 of the Bankruptcy Code. See 11 U.S.C. § 109(h).

The United States Trustee has moved to dismiss the Petitioner's case.¹ Section 109(h) does not specify what should happen to the bankruptcy case of a petitioner who is, or proves to be, ineligible to be a debtor. The alternatives are to dismiss the case or to strike or declare void ab initio the petition. The consequences of dismissal include the possibility that the automatic stay will be available only on a limited basis in the event that the petitioner files a subsequent bankruptcy case. That is, if the case is dismissed and the petitioner files another bankruptcy case within one year of the dismissal, then the automatic stay will be in place for only thirty days unless, upon motion by a party in interest and after notice and a hearing, the court extends the stay. 11 U.S.C. §§ 362(c)(3)(A), 362(c)(3)(B).

The consequences of striking the petition are less clear. One question that arises if the petition is stricken is whether the automatic stay would be in effect from when the petition is filed to when the petition is stricken, or whether it would be annulled nunc pro tunc to the date of filing. Another question is whether the automatic stay would be subject to the thirty-day limitation of Section 362(c)(3) in a subsequent case filed within the following year.

The United States Trustee argues that if the petition is stricken, then the automatic stay would be in effect from when the bankruptcy case is filed to when the petition is stricken and subject to annulment nunc pro tunc. UST Memorandum at 11-12. The United States Trustee further argues that this would allow an ineligible petitioner to file a series of bankruptcy petitions and trigger the protections of the automatic stay under Section 362(a) over and over again, thus avoiding the consequences of serial filings that now result from Section 362(c)(3). UST Memorandum at 11-12.

The bankruptcy case of a petitioner who is ineligible to be a debtor under Section 109(h) is subject to termination, whether by dismissal or striking, for two reasons. First, if the petitioner has not received the required credit counseling within 180 days of filing for bankruptcy, that petitioner is ineligible and "may not be a debtor." 11 U.S.C. § 109(h)(1). Second, if the petitioner fails timely to file either a credit counseling certificate or a request for a temporary or permanent exemption from the credit counseling requirement, then that failure to file required documentation may be cause for dismissal. 11 U.S.C. §§ 109(h)(3), 109(h)(4). See 11 U.S.C. §§ 521(b), 707(a). While Section 109(h) is silent as to the appropriate outcome for such cases, guidance is available from several analogous provisions of the Bankruptcy Code and decisions interpreting these provisions.

Termination of Cases Filed by Debtors Who Are Ineligible Under the Bankruptcy Code for Reasons Other than Failure To Satisfy the Credit Counseling Requirement

Section 109 of the Bankruptcy Code, captioned "Who may be a debtor," sets forth eligibility criteria for various types of bankruptcy filings. For example, Section 109(e) addresses who may be a debtor under Chapter 13, and provides that a debtor under this Chapter must have "regular income" and unsecured and secured debts that do not exceed prescribed limits. Courts have, with apparent unanimity, concluded that when a Chapter 13 petitioner is ineligible under Section 109(e), the case should be either voluntarily converted or dismissed. See, e.g., In re Mazzeo, 131 F.3d 295 (2d Cir.1997) (affirming dismissal of case where debtor's unsecured debt exceeded the Section 109(e) limit). See also Dillon v. Texas Comm'n on Envtl. Quality, 138 Fed.Appx. 609, 612 (5th Cir.2005) (dismissal of case was proper where debtor was ineligible); In re Ross, 338 B.R. 134, 136-37 and n. 2 (Bankr.N.D.Ga.2006) ("Almost all courts now recognize that the filing of a chapter 13 petition by a debtor ineligible to do so under § 109(e) nevertheless commences a case that invokes the jurisdiction of the bankruptcy court"); In re Rifkin, 124 B.R. 626, 629 (Bankr. E.D.N.Y.1991) ("Whether the debtor is eligible to proceed under Chapter 13 is in essence a motion to dismiss.").

Courts have similarly dismissed, not stricken, bankruptcy cases filed by petitioners who are ineligible for bankruptcy relief by virtue of their corporate or entity status. See, e.g., In re C-TC 9th Avenue P'ship, 113 F.3d 1304 (2d Cir.1997) (dismissing bankruptcy case of partnership in dissolution that was ineligible to be a Chapter 11 debtor under 11 U.S.C. § 109(d)); In re Westville Distribution and Transp., 293 B.R. 101 (Bankr.D.Conn. 2003) (dismissing bankruptcy case under 11 U.S.C. §§ 109(a), (b), and (d) where entity on whose behalf a petition was filed had no legal corporate existence).

Courts also have dismissed, rather than stricken, bankruptcy cases filed by petitioners who are ineligible under Section 109(g) of the Bankruptcy Code. Section 109(g) provides that an individual is ineligible to be a debtor if h...