November 25, 2017

Credit Counseling on the Day of Your Bankruptcy Filing May be Invalid

Consumer Bankruptcy News recently published an article discussing the holding of a Tennessee Chapter 13 case called In re Cole in which the Bankruptcy Judge dismissed a case because the debtor filed his consumer bankruptcy case the same day as he received his credit counseling.

Judge Richard Stair held that Section 109(h)(1) of the Bankruptcy Code provides that a debtor must obtain credit counseling “during the 180 day period preceeding the date of filing of the petition.”   Judge Stair interpreted the phrase “preceding the date of filing” to not include the actual day of the filing.  If Congress had meant to include the date of filing, the statute would have said “on or within the 180 day period.”  Judge Stair further observed that the credit counseling requirement was intended to give debtors a chance to think about their actions and that filing bankruptcy that same day gave little time for such contemplation.

Judge Stair’s decision is yet another example of the absurd application of our new bankruptcy laws.  Bankruptcy Court statistics show that less than 5% of potential bankruptcy filers end up not filing because of the mandatory credit counseling.  As a practical matter, therefore, the credit counseling requirement simply serves as a $30 to $50 tax on debtors and provides limited if any benefit.

My own clients report that the credit counseling is basically a waste of time.  If Courts around the country adopt Judge Stair’s reasoning, deserving but unfortunate debtors – especially those facing home foreclosure – will find the doors of the courthouse closed to them.

According to the SplitCircuits blog, several other bankruptcy judges have refused to follow Judge Stair’s interpretation of Bankruptcy Code Section 109(h)(1).  Until we see how this shakes out, my advice is to get your credit counseling early and avoid this 109(h) issue altogether.

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