Laura B. Bartell, from Debtors' Prisons to Prisoner Debtors: Credit Counseling for the Incarcerated

• Publication year: 2011

ARTICLES

FROM DEBTORS' PRISONS TO PRISONER DEBTORS: CREDIT COUNSELING FOR THE INCARCERATED

Laura B. Bartell^*

The degradations endured by those unable to satisfy their creditors, imposed by English law prior to the middle of the nineteenth century, have been described by the authors of the time,¹and decried by modern scholars.²

Although debtors no longer suffer imprisonment because of their failure to pay their debts, the modern prisoner may still be in no position to satisfy his or her creditors. As a result, those who are incarcerated may seek relief from their debts through a bankruptcy case.

In most respects the Bankruptcy Code³(the "Code") purports to treat prisoners like any other prospective debtor seeking relief from his or her financial obligations. However, application of its ostensibly-neutral provisions has increasingly burdened prisoners attempting to take advantage of those provisions because of their lack of personal autonomy during the period of their imprisonment. In some cases, prisoners have been completely denied access to bankruptcy, despite the absence of any indication that Congress intended such a result.

In this Article I will discuss the new credit counseling requirements in the Code, and how they make it difficult, or even impossible, for imprisoned debtors to get bankruptcy relief due to their incarceration. First, I will examine the new requirements for pre-filing credit counseling and post-filing personal financial management courses. Then I will describe how those provisions have been applied to debtors who were incarcerated at the time of their bankruptcy case. Finally, I will suggest that courts retain discretion to interpret the provisions, and even to waive them, by declining to dismiss a case in which the debtor was unable to comply with the new provisions. I believe that courts should do so when necessary to ensure that inmates retain the protection of the Bankruptcy Code.

I. STATUTORY REQUIREMENTS FOR CREDIT COUNSELING

Section 109 sets forth the eligibility criteria for being a debtor under the Code.⁴For individual debtors, the principal requirement is that he or she "reside[] or [have] a domicile, a place of business, or property in the United States."⁵There are special requirements for a debtor under chapter 13,⁶who must be an "individual with regular income" within the meaning of Sec. 101(30).⁷

Because prisoners often do not meet this requirement during the term of their imprisonment, they are frequently ineligible for chapter 13 bankruptcy (unless their spouses have income).⁸However, because prisoners are not likely to have significant "current monthly income[,]"⁹if they file a chapter 7 petition, in most cases, they will not be subject to a motion to dismiss for abuse under the new "means-testing" provisions of Sec. 707(b).¹⁰

But can a prisoner take advantage of chapter 7 or chapter 13? The new credit counseling requirements, and their limited exceptions, make it especially difficult for these prospective debtors.

A. Prepetition Credit Counseling

Under the Bankruptcy Abuse Prevention and Consumer Protection Act of

2005 ("BAPCPA"),¹¹Congress added a new section, Sec. 109(h), which states that no individual may be a debtor under the Code without receiving credit counseling from an approved nonprofit budget and credit counseling agency within 180 days prior to the date of filing.¹²The ostensible reason for this new requirement was to ensure that the prospective debtor "will make an informed choice about bankruptcy, its alternatives, and consequences."¹³Among the consequences is "the potentially devastating effect [bankruptcy] can have on their credit rating."¹⁴

A debtor demonstrates that he or she has complied with this new eligibility condition by filing

(1) a certificate from the approved nonprofit budget and credit counseling agency that provided the debtor services under section

109(h) describing the services provided to the debtor; and (2) a copy of the debt repayment plan, if any, developed under section 109(h) through the approved nonprofit budget and credit counseling agency.¹⁵

Exhibit D to Official Form 1 (Voluntary Petition) provides a form of certification to be signed by the debtor under penalty of perjury with respect to his or her compliance with the credit counseling requirement, or grounds for permanent or temporary waiver of that requirement.¹⁶Under Federal Rule of

Bankruptcy Procedure 1007(c), the certification must be filed with the bankruptcy petition in a voluntary case.¹⁷

There are only three circumstances in which pre-filing credit counseling is excused under the statute. First, if the district in which the individual resides does not have approved nonprofit budget and credit counseling agencies reasonably able to provide adequate services to individuals required to obtain the counseling, the individual does not need to get the counseling.¹⁸Because of the large number of approved credit counseling agencies, few litigants have used this basis to be excused from pre-filing credit counseling.¹⁹In only one case has a court approved a waiver of the requirement under this provision, and that decision turned on the debtor=s inability to speak or understand any language except Creole (a language in which no credit counseling was available at the time).²⁰

Second, an individual may receive a temporary deferral of the obligation to obtain credit counseling by submitting to the court a certification²¹under

Sec. 109(h)(3)(A). The certification must satisfy the following three requirements: (1) "describe[] exigent circumstances that merit a waiver of the requirements[;]"²²(2) "state[] that the [individual] requested credit counseling from an approved nonprofit budget and credit counseling agency, but was unable" to obtain the services in the five days following the request;²³and (3) the court must find the certification "satisfactory."²⁴

The term "exigent circumstances" is not defined in Sec. 109(h).²⁵In the absence of legislative guidance, many courts have turned to Black=s Law Dictionary for help.²⁶Black=s Law defines "exigent circumstances" as "[a] situation that demands unusual or immediate action and that may allow people to circumvent usual procedures."²⁷This definition suggests that exigent circumstances have a temporal component; something bad has not yet happened, but is about to happen, requiring the person who will be adversely affected to take action to prevent it. Absent a showing that some imminent harm would ensue from a delay in the filing of the bankruptcy petition, courts uniformly decline to find existent circumstances exist.²⁸Indeed, most cases in which debtors assert the existence of exigent circumstances involve repossession of an automobile,²⁹foreclosure on real property,³⁰eviction,³¹or garnishment of wages.³²In these cases, some courts find the prospective loss of one=s asset, before credit counseling can be obtained, sufficient in itself to establish exigent circumstances.³³Other courts criticize this approach as allowing debtors to wait until the last minute to obtain credit counseling, and then seek to excuse their own negligence.³⁴Instead, even in the face of imminent foreclosure, debtors cannot obtain a deferral of the credit counseling requirement from these courts unless they can explain to the court=s satisfaction why they did not seek credit counseling earlier.³⁵

Even if "exigent circumstances" are present, the debtor must also certify that the debtor requested credit counseling from an approved credit counseling agency, and "was unable to obtain the services . . . during the 5-day period beginning on the date on which the debtor made that request."³⁶This separate requirement can, as some courts have noted, impose significant hardships. Even if the debtor faces "exigent circumstances," if the credit counseling agency can provide a briefing within five days of the request for counseling, the debtor is ineligible for a temporary deferral, even though filing after the counseling would not prevent the imminent harm creating the exigent circumstances.³⁷

At least one court has declined to give effect to the literal language of this provision, suggesting that the five-day period referred to in Sec. 109(h)(3)(A)(ii) is intended to mean five days or the period between the request for credit counseling and the time of the bankruptcy filing compelled by exigent circumstances, whichever is shorter.³⁸This interpretation is consistent with the one urged by some leading bankruptcy commentators, who believe the phrase "unable to obtain the services referred to in [Sec. 109(h)(1)]"³⁹refers to prepetition credit counseling, not to credit counseling services in general.⁴⁰

Most courts, however, require the debtor to show both that he or she made a request for credit counseling services before filing a bankruptcy petition,⁴¹ and that the credit counseling services could not be provided within five days of that request.⁴²In the absence of either of these two showings, the debtor is ineligible for bankruptcy.⁴³

Assuming that the debtor includes the required statements in his or her certification, the court must still find the certification "satisfactory" before the pre-filing credit counseling requirement is waived.⁴⁴This requirement has been interpreted merely to invoke judicial review of the adequacy of the statements included in the certification under the statutory requirements of

Sec. 109(h)(A)(i) and (ii).⁴⁵Other courts view the third requirement as permitting the court to pass judgment on the form of the certification itself, rather than its content.⁴⁶

Even if the court accepts the certification and waives the pre-filing credit counseling requirement, the debtor still must get the required credit counseling within thirty days of filing the petition, unless the court, for cause, extends the period for an additional fifteen days.⁴⁷

It is possible for an individual to be permanently excused from the required credit counseling, but only if the...