Kuiana T. Taylor

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
1 The following discussion constitutes the court’s
findings of fact and conclusions of law. 	Fed. R. Bankr. P. 7052
(incorporating by reference Fed. R. Civ. P. 52(a)). 	All chapter,
section and rule references are to the Bankruptcy Code, 11 U.S.C.
§§ 101-1532, and to the Interim Bankruptcy Rules adopted in this
district by General Order 16 as a result of The Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005, Pub. L. 109-8,
-1-
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	)
) 	Bankruptcy Case
KUIANA T. TAYLOR, 	) 	No. 05-35381DM
)
Debtor. 	) 	Chapter 7
___________________________________)
MEMORANDUM DECISION ON MOTION TO DISMISS
FOR FAILURE TO OBTAIN CREDIT COUNSELING
The United States Trustee (“UST”) filed a motion to dismiss
this Chapter 7 case (“Motion”), contending that Kuiana T. Taylor,
the above-named debtor (“Debtor”) is ineligible for Chapter 7
relief because of her failure to comply with Bankruptcy Code
Section 109(h) (11 U.S.C. § 109(h)), requiring individual debtors
seeking bankruptcy relief to obtain, within 180 days before
filing, a briefing that outlines “. . . opportunities for
available credit counseling and assist[s] such individual in
performing a related budget analysis” (“credit counseling”). 1
Signed and Filed: March 09, 2006
________________________________________
DENNIS MONTALI
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
March 09, 2006
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 05-35381 Doc# 24 Filed: 03/09/06 Entered: 03/09/06 13:19:56 Page 1 of 8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28 Apr. 20, 2005, 119 Stat. 23 (“BAPCPA”), which applies in this
case.
-2-
Debtor filed a voluntary Chapter 7 petition on December 2, 2005.
She obtained credit counseling from an approved nonprofit budget
and credit counseling agency on December 19, 2005, and on January
4, 2006, filed evidence of having received such counseling as
required by Section 521(b)(1). 	Although Debtor obtained credit
counseling after the petition date, she did not request a
temporary extension of time to do so based on “exigent
circumstances” as provided in Section 109(h)(3)(A)(i). 	Nor did
she certify that she had requested credit counseling, but was
unable to obtain it during the five day period beginning on the
date in which she made the request, all as required by Section
109(h)(3)(A)(ii) (the “five day rule”).
At a hearing on the Motion on February 3, 2006, the UST
argued that post-petition credit counseling did not satisfy the
requirement of Section 109(h)(1) that such counseling be received
prior to filing bankruptcy. 	The court permitted Debtor to file a
certification under Section 109(h)(3), describing exigent
circumstances that merit a waiver of the requirements of Section
109(h)(1). 	Thereafter Debtor filed (but did not serve) a
response; when the UST learned of Debtor’s response, it filed a
Supplemental Brief supporting the Motion.
The Bankruptcy Code is silent on when a debtor must submit
the certification describing exigent circumstances, describing
attempts to comply with the five day rule, and seeking the court’s
satisfaction with such certification. 	Rule 1007(c) requires the
certification to be filed with the petition but has no prohibition
Case: 05-35381 Doc# 24 Filed: 03/09/06 Entered: 03/09/06 13:19:56 Page 2 of 8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-3-
on a later filing. 	Nor does the rule state any consequences for
filing this certification later. 	Regardless of when the
certification is to be filed, Debtor’s response is deficient in
that it does not set forth either exigent circumstances or
compliance with the five day rule. 	Debtor stated that she did
know of her obligation to obtain the credit counseling until after
she paid her filing fee and filed her petition, and she asked for
the court’s sympathy. 	Debtor has the court’s sympathy, but the
plain words of Section 109(h) and the cases cited by the UST in
the Supplemental Brief lead the court to conclude that Debtor,
although now presumably eligible for bankruptcy relief for 180
days from December 19, 2005, has failed to comply with Section
109(h)(1) and that her attempt to be excused from such compliance
must also fail for the reasons just noted.
The court is further persuaded that the proper remedy is
dismissal of Debtor’s case despite a split in the reported
decisions as to the consequences of a debtor’s failure to obtain
credit counseling before filing a voluntary petition for relief in
the absence of exigent circumstances and compliance with the five
day rule.
The minority remedy is to “strike” or void the petition to
prevent the potentially harsh consequences of dismissal. 	See,
e.g., In re Rios, 336 B.R. 177 (Bankr. S.D.N.Y. 2005). 	One fear
is that financial realities may prompt the debtor or creditors to
file another voluntary or involuntary bankruptcy petition and in
that event Section 362(c)(3) and (c)(4) could limit the duration
of the automatic stay or even prevent it from going into effect.
See 11 U.S.C. §§ 362(c)(3) and (4). 	This could harm the
Case: 05-35381 Doc# 24 Filed: 03/09/06 Entered: 03/09/06 13:19:56 Page 3 of 8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-4-
unfortunate debtor who did not comply with Section 109(h)(1) but
acted in good faith. 	See In re Tomco, ___ B.R. ___, 2006 WL
459347 at pp. *4-5 (Bankr. W.D. Pa.) (pointing out that the very
debtors who try hardest to avoid bankruptcy are those who may not
have planned for bankruptcy by complying with Section 109(h)).
The absence of a stay could also harm creditors by subjecting them
to a winner take all race to judgment and execution. 	Dismissal
under Section 109(h) could harm creditors in other ways as well
because the Bankruptcy Code provides more disclosure,
accountability, and equality of distribution than is generally
available to creditors outside of bankruptcy. 	Finally, there are
ambiguities in BAPCPA that offer some support for the Rios
approach, and the potentially harsh consequences of dismissal do
seem inconsistent with the “Consumer Protection” title of BAPCPA.
See Rios, 366 B.R. at 178-180 (reviewing statute and stating,
“Congress sought to enlarge debtors’ options in the face of
financial difficulty, not limit them.”).
Nevertheless, the court is persuaded by the majority view
that under ordinary principles of statutory construction a
debtor’s non-compliance with, or inability to be excused from, the
requirements of Section 109(h)(1) compel dismissal. 	See, e.g., In
re Ross, ___ B.R. ___, 2006 WL 349654 at pp. *1-4 (Bankr. N.D.
Ga.) (rejecting Rios); Tomco, 2006 WL 459347 at pp. *6-12 (same).
For similar reasons the court does not believe it is appropriate
to determine in this case that the dismissal will be disregarded
in any future case. 	See In re Valdez, 335 B.R. 801 (Bankr. S.D.
Fla. 2005) (stating that future petition by debtor “will be
treated as her first petition, not subject to 11 U.S.C.
Case: 05-35381 Doc# 24 Filed: 03/09/06 Entered: 03/09/06 13:19:56 Page 4 of 8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-5-
§ 362(c)(3) or (c)(4)”). 	That decision treats Section 109
eligibility as a jurisdictional requisite and concludes that the
debtor really was not a debtor, and a “second” case filed after
she obtains credit counseling will be treated as a “first” case.
This court will not engage in such a fiction: an ineligible
debtor’s case must be dismissed, but until then it is a case.
Alternatively, assuming without deciding that the statute is
ambiguous enough to look to Congressional intent, the court is not
persuaded that dismissal is contrary to that intent. 	First,
voiding a petition might do more harm than good. 	It could “cloud
every transaction related to a bankruptcy case” and would be “a
pyrrhic victory if, in the meantime, a creditor has completed a
repossession or foreclosure because of the absence of a stay in
the void case.” 	See Ross at pp. *4-5; Tomco at pp. *11-12
(following Ross).
Second, it is not clear that the consequences under Section
362(c)(3) and (4) are as draconian as they first appear. 	Section
362(c)(3) has been held to apply only to debts and property of the
debtor, not property of estate. 	In re Johnson, 335 B.R. 805
(Bankr. W.D. Tenn. 2006). 	And, although Sections 362(c)(3) and
(4) might entitle a creditor to proceed to judgment in an attempt
to establish in personam liability, that liability will be subject
to any discharge obtained in a second case unless the creditor
establishes grounds for nondischargeability under Section 523.
Section 524 will void “. . . any judgment at any time
obtained . . .” to the extent it is a determination of personal
liability as to a debt discharged. 	See, In re Gurrola, 328 B.R.
128 (9th Cir. BAP 2005).
Case: 05-35381 Doc# 24 Filed: 03/09/06 Entered: 03/09/06 13:19:56 Page 5 of 8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
2 Here, Debtor’s lack of knowledge that she needed credit
counseling, followed by her prompt compliance with Section
109(h)(1), strongly suggests her good faith.
-6-
Section 362(c)(3) also might not permit a creditor to proceed
with a foreclosure action against a debtor’s homestead, for
example. 	Property claimed as exempt does not thereby cease to be
property of the estate and therefore under Johnson’s analysis the
stay would still apply to such property. 	See In re Alsberg, 161
B.R. 680, 683 (9th Cir. BAP 1993), aff’d 68 F.3d 312, 314-15 (9th
Cir. 1995), cert. den., 517 U.S. 1168 (1996).
If Section 362(d)(3)(A) does apply, that is not the end of
the matter. 	The court can extend the stay under Section
362(c)(3)(B) upon a proper showing. 	Each case must be evaluated
on its own merits, but a dismissal under Section 109(h) in cases
such as this does not appear to establish any lack of good faith.
See generally In re Charles, 334 B.R. 207, 213-224 (Bankr. S.D.
Tex. 2005) (reviewing procedural and substantive requirements); In
re Ball, 336 B.R. 268, 273-276 (Bankr. M.D. Ga. 2006) (same, and
listing seven factors to determine good faith); In re Collins, 334
B.R. 655 (Bankr. D. Minn. 2005) (emphasizing need to serve motion
to extend the stay on at least all affected creditors, if not all
creditors in the case). 2
The court expresses no opinion on these matters under Section
362. 	These matters can be addressed if Debtor determines that the
most appropriate course is to file another bankruptcy petition.
She will need to assess the risk that such a filing will be
considered in good faith, sufficient to survive a challenge under
Section 707(b) and whether she needs the automatic stay as to her
Case: 05-35381 Doc# 24 Filed: 03/09/06 Entered: 03/09/06 13:19:56 Page 6 of 8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-7-
property even though that stay may be of limited duration under
Section 362(c)(3)(A) or of no duration at all under Section
362(c)(4). 	Meanwhile, the court must dismiss this case. 	A
separate order to that effect is being issued concurrent with this
Memorandum Decision.
**END OF MEMORANDUM DECISION**
Case: 05-35381 Doc# 24 Filed: 03/09/06 Entered: 03/09/06 13:19:56 Page 7 of 8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-8-
COURT SERVICE LIST
Kuiana T. Taylor
140 Cameron Way
San Francisco, CA 94124
Janina M. Elder
P.O. Box 1657
Santa Rosa, CA 95402
United States Trustee
235 Pine St., Ste. 700
San Francisco, CA 94104
Case: 05-35381 Doc# 24 Filed: 03/09/06 Entered: 03/09/06 13:19:56 Page 8 of 8