Tracey A. Brown

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
at Baltimore
In re: :
Tracey A. Brown : CASE NO. 06-10534-DK
CHAPTER 13
Debtor :
_____________________________________________________________________
Memorandum of Decision
This matter has come before the court on the court’s own Order To Show Cause Why
Foreclosure Sale Should Not Be Found Void As A Violation Of The Automatic Stay (the “Order to
Show Cause”). The specific issue for decision is the validity of a foreclosure sale that was conducted
after the petition date and before dismissal, where the debtor was subsequently found to be ineligible
for bankruptcy relief pursuant to Section 109(h) of the Bankruptcy Code, as enacted by the
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), Pub. L. No.
109-8, 11 Stat. 23, which became effective October 17, 2005.
The court held a hearing on the Order to Show Cause on April 4, 2006, and for the
reasons set forth on the record, as well as in this Memorandum of Decision, the court holds that all of
the actions of John S. Burson, the substitute trustee under the deed of trust (hereinafter referred to as
Date signed May 08, 2006
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1The property foreclosed upon is located at 929 Foxcroft Lane, Baltimore, Maryland
21221 (hereinafter referred to as the “Property”).
2The Motion was reviewed by the Court as a certification under Section 109(h)(3),
hereinafter referred to as “Certification Requesting Waiver.”
3Section 109(h)(3)(A) provides:
Subject to subparagraph (B), the requirements of paragraph (1) shall not apply
with respect to a debtor who submits to the court a certification that-- ( I )
describes exigent circumstances that merit a waiver of the requirements of
paragraph (1);
(ii) states that the debtor requested credit counseling services from an
approved nonprofit budget and credit counseling agency, but was unable to obtain
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“Burson”) to foreclose on the Debtor’s home1 after the date of the Debtor’s petition, were a violation
of the automatic stay. Consequently, the sale is void. Further, certain conduct by Burson taken in
connection with the foreclosure warrants imposition of sanctions on Burson pursuant to Section
362(k)(1).
Background
Tracey A. Brown (“Debtor”), by counsel using the court’s electronic case filing system
(“CM/ECF”), filed a voluntarybankruptcy petition under chapter 13 on February 2, 2006. Appended
to the Debtor’s petition were the statement of financial affairs, schedules and creditor matrix.
Approximately thirty minutes later, Debtor, again by counsel, filed an amended voluntary petition to
correct a formatting error. At that time, counsel also submitted Debtor’s chapter 13 plan. Finally, two
hours later (still on February 2, 2006), counsel submitted a second amended voluntary petition which
included Debtor’s Motion to Waive Budget and Credit Counseling.2
On February 9, 2006, the court reviewed the Certification Requesting Waiver, and upon
finding that it did not comply with Section 109(h)(3)(A),3 entered an Order Finding Certification Not
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the services referred to in paragraph (1) during the 5-day period beginning on the
date on which the debtor made that request; and
(iii) is satisfactory to the court.
4The Debtor’s Motion did not assert that the court erred in finding that the Certification
Requesting Waiver did not satisfy the requirements of Section 109(h)(3). Rather Debtor’s Motion
argued that the post-petition counseling should be sufficient to enable Debtor to have the case
reinstated.
5No motion for relief from stay, or to determine existence of the automatic stay was filed
by Burson or any other party at any time.
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Satisfactory and Dismissing Case (the “Dismissal Order”). Debtor thereafter filed a Motion to
Reinstate Case and Vacate Order of Dismissal on February 22, 2006, and in support thereof
submitted a certificate documenting that she had received credit counseling on February 16, 2006.
Burson filed an Opposition to the Debtor’s Motion.
Because Debtor had received the credit counseling post-petition, and in accordance with
this court’s opinion in In re Childs, 335 B.R. 623 (Bankr. D. Md. 2005), the court denied the
Debtor’s Motion and found that the case could not be reinstated because Debtor was ineligible under
Section 109(h).4
Both the Debtor’s Motion and Burson’s Opposition thereto informed this court that after
the filing of this bankruptcy case and while the Certification Requesting Waiver was pending before
this court, Burson proceeded to auction the Property at foreclosure with full knowledge of the filings
described hereinabove.5
Discussion
There is no dispute that Burson’s action in conducting the foreclosure auction after the filing
of the petition instituting this bankruptcy case would violate a stay imposed by Section 362(a)(1) and
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6According to Burson’s response, after being informed of the bankruptcy filing and after
a review of the case docket revealed no certificate of credit counseling, a person in Burson’s firm
spoke with counsel for Debtor to “advise that the sale would not be stopped without a credit
counseling certificate and to confirm that there was no mistake.” Burson’s Response to Order to
Show Cause, filed March 31, 2006, at p.2., ¶4.
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(4). Burson instead asserts that because Debtor filed this case without complying with Section
109(h)(1)6 and because the Certification Requesting Waiver did not appear to meet the requirements
of Section 109(h)(3)(A), no automatic stay was created by the filing of the petition instituting this case.
Although not set forth in Burson’s Response to the Order to Show Cause, at the hearing upon the
Order to Show Cause, Burson argued that the filing of a petition by a debtor who is not eligible under
Section 109(h)(1), or alternatively Section 109(h)(3)(A), did not create an automatic stay under
Section 362(a), notwithstanding that the question of eligibility pursuant to a Certification Requesting
Waiver was pending a determination by the court.
Section 362(a) mandates that except as provided in subsection (b) of that Section, “a
petition filed under section 301. . . operates as a stay, applicable to all entities. . . .”
Section 301 of the Bankruptcy Code provides:
(a) A voluntary case under a chapter of this title 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.
(b) The commencement of a voluntary case under a chapter of this title
constitutes an order for relief under such chapter.
11 U.S.C. § 301 (2005) (emphasis added). It is argued by Burson that the automatic stay arises only
upon the filing of a petition by a person that meets the eligibility requirements of Section 109.
The question of the effect of a filing of a petition by an ineligible debtor has been addressed
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7Section 109(e) provides that only an individual with regular income that owes
noncontingent, liquidated debts of less than the limits set therein, may be a debtor under chapter
13.
8The United States District Court in Shaw v. Ehrlich (In re Shaw), 294 B.R. 260
(W.D.Va. 2003), explained:
If the automatic stay were not in fact “automatic” upon the filing of a petition, but
instead relied on a decision of a bankruptcy court as to the merits of the debtor’s
petition, the race to collect that Congress feared in the absence of the automatic
stay could still occur. . . . The burden would be on the debtor to petition the court
and prove his eligibility under the chapter in which he filed. Until the debtor acted,
creditors could claim ignorance as to the debtor’s eligibility and act to collect on
their claims in hopes that the bankruptcy court would find no merit in the debtor’s
petition.
Id. at 267-68. The court continued:
The Fourth Circuit has not made exceptions of the immediate and automatic
application of the stay, even in cases of a petitioner seeking to cause creditors
hardship or delay by abusing the protections of the bankruptcy system and filing
in bad faith. . . . If the Fourth Circuit views bad faith petitioners as eligible for the
protections of the automatic stay until their petitions are dismissed, mistaken filers
who are eligible for some form of relief under Title 11 but file under a different
chapter should certainly be protected by the automatic stay until a bankruptcy
court reaches the merits of their petitions.
Id. at 268 (citing Carolin Corp. v. Miller, 886 F.2d 693 (4th Cir. 1989)).
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by courts prior to the changes wrought by BAPCPA. Most often the issue of eligibility arose under
either Section 109(e) or Section 109(g). Most courts agreed that the automatic stay arose upon the
filing of a petition under chapter 13 by a debtor that was later determined to be ineligible pursuant to
Section 109(e),7 as the question of eligibility was not always determinable at the time of filing and
required further evidence and court action.8 E.g., Shaw v. Erlich (In re Shaw), 294 B.R. 260 (W.D.
Va. 2003), aff’d sub nom., In re Wiencko, 99 Fed. Appx. 466 (4th Cir. 2004)(unpublished); In re
Verdunn, 210 B.R. 621 (Bankr. M.D.Fla. 1997); Franklin Fed. Bancorp v. Lochamy (In re
Lochamy), 197 B.R. 384 (Bankr. N.D.Ga. 1995). See also In re Tatsis, 72 B.R. 908 (Bankr.
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9Section 109(g) states:
Notwithstanding any other provision of this section, no individual or family farmer
may be a debtor under this title who has been a debtor in a case pending under this
title at any time in the preceding 180 days if --
(1)the case was dismissed by the court for willful failure of the debtor to
abide by orders of the court, or to appear before the court in proper prosecution
of the case; or
(2) the debtor requested and obtained the voluntary dismissal of the case
following the filing of a request for relief from the automatic stay provided by
section 362 of this title.
11 U.S.C. § 109(g).
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W.D.N.C. 1987)(permitting debtor ineligible for chapter 13 under Section 109(e) to convert case
to chapter 7 and rejecting creditor’s argument that the filing was a nullity due to ineligibility).
However, courts remained divided over whether an automatic stay arose upon the filing
of a petition filed in violation of Section 109(g).9 Some courts determined that a filing by an ineligible
debtor did not “commence” a case as described in Section 301 and therefore the petition was
stricken. E.g., Rowe v. Ocwen Federal Bank & Trust, 220 B.R. 591 (E.D. Tex. 1997)(discussing
a “dismissal” of the case, but otherwise finding the filing a “nullity”); In re McKay, 268 B.R. 908
(Bankr. W.D. Va. 2001); In re Hollberg, 208 B.R. 755 (Bankr. D.D.C. 1997)(but see In re
Hawkins, __ B.R. __, 2006 WL 1071682 (Bankr. D.D.C. 2006)); In re Pelletier, 2000 WL
33673780 (Bankr. M.D.N.C. 2000); In re Miller, 143 B.R. 815 (Bankr. E.D. Pa. 1994); In re
Prud’Homme, 161 B.R. 747 (Bankr. E.D.N.Y. 1993). Other courts disagreed and found that a case
was commenced and subsequently was terminated by dismissal. E.g., In re Flores, 291 B.R. 44
(Bankr. S.D.N.Y. 2003); In re Stuart, 297 B.R. 665 (Bankr. S.D. Ga. 2003).
Subsequent to the BAPCPA amendments, which include new subsection (h) to Section
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10Interestingly, the Rios court’s holding was largely based upon the stated purpose of
protecting the debtor from the effect of recent changes to the Bankruptcy Code limiting the duration
and availability of the automatic stay in accordance with Sections 362(c)(3) and (c)(4). Rios, 336
B.R. at 180. The court cautioned that parties-in-interest should proceed with caution and cannot
be certain that there is no automatic stay until such time as the court has stricken the petition. Rios,
336 B.R. at 180 n2. See also Hubbard, 333 B.R. at 388 (“‘dismissal’ of a case under the new
Act may have substantially different implications than the ‘striking’ of a petition, [therefore] the
Court must consider the appropriate remedy.”).
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109, courts have addressed the issue of the effect of the filing of a petition by a debtor that is ineligible
under this new subsection. As with the pre-BAPCPA cases, the courts’ decisions have varied. In
In re Rios, 336 B.R. 177 (Bankr. S.D.N.Y. 2005) and In re Hubbard, 333 B.R. 377 (Bankr. S.D.
Tex. 2005), the courts found that a petition by an ineligible debtor must be stricken, rather than
dismissed, so as to void the filing ab initio.10 However, other courts have disagreed and held that
dismissal was the proper remedy upon determination that the credit counseling requirement had not
been satisfied and that the exigency certification was deficient, as opposed to the petitions being
stricken, ab initio. E.g., In re Tomco, 339 B.R. 145 (Bankr. W.D. Pa. 2006); In re Ross, 338 B.R.
134 (Bankr. N.D. Ga. 2006).
Since this court’s oral ruling at hearing, two additional courts have issued decisions directly
addressing the effect of the filing of a bankruptcy petition by a debtor not eligible pursuant to Section
109(h). The two opinions highlight the judicial split that has developed.
In In re Salazar, 339 B.R.622 (Bankr. S.D. Tex. 2006), the debtors filed a petition
without having obtained pre-petition credit counseling. Their home was foreclosed upon after the filing
of the petition and without any entry of order that would have terminated or modified an automatic
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11The Salazar case was a joint case, the commencement of which was governed by
Section 302. Section 301, with virtually identical language, governs the commencement of a case
by a single individual debtor.
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stay. The court decided that no automatic stay had been created by the filing of the petition and hence
the foreclosure was not in violation of such stay. Contrary to the interpretation found by the court in
In re Tomco, the Salazar court interpreted Section 30211 to mean that a bankruptcy case was not
commenced if a petition is filed by a debtor that is ineligible to be a debtor under the Chapter for which
the petition was filed. In reaching this determination, the Salazar court appears to give a narrow
reading of Section 302 which reading would be inconsistent with the outcome of numerous cases
involving ineligibility under Section 109(e).
In contrast, the other recent opinion is In re Hawkins, __ B.R. __, 2006 WL 1071682
(Bankr. D.D.C. 2006). In Hawkins, the court had before it a case where it did not initially appear
that the debtor had fulfilled the prepetition credit counseling requirement of Section 109(h). The court
concluded that the filing of a case by a debtor that may be ineligible under Section 109(h) does confer
subject matter jurisdiction on the court to determine the question of eligibility. Further, Hawkins holds
that:
Section 362(b)(21) must be read as implying that the automatic stay is in effect
while the court makes this threshold determination of jurisdiction. A petition by
an ineligible debtor gives rise to a case in this limited sense and to an automatic
stay until the case is dismissed. In other words, § 362 must be read as giving
rise to an automatic stay when a petition is asserted to be filed under §§ 301,
302, or 303.
Id. at *3.
The ruling by this court in the case sub judice is consistent with the decision expressed by
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the United States Bankruptcy Court for the District of Columbia in Hawkins and this court respectfully
finds the decision in Salazar unpersuasive. This court holds that Congress has decided with surgical
clarity, the question of whether the filing of a petition by a debtor that is not eligible under Section 109
creates an automatic stay. Section 362(b)(21) was added to the Bankruptcy Code by BAPCPA and
reads as follows:
The filing of a petition under section 301. . . does not operate as a stay---
under section (a), of any act to enforce any lien against or security interest in
real property --
(A) if the debtor is ineligible under section 109(g) to be a debtor
under this title; or
(B) if the case under this title was filed in violation of a bankruptcy
court order in a prior case under this title prohibiting the debtor from being a
debtor in another case under this title. . . .
11 U.S.C. § 362(b)(21).
This Section explicitly provides that where the debtor is ineligible under Subsection (g), the
automatic stay does not stay “any act to enforce any lien against or security interest in real property.”
This provision would be completely superfluous if no automatic stay arose as a result of the filing by
a debtor who was ineligible under any part of Section 109 (including subsection (h)), to be a debtor
under the chapter selected in the petition. It is a common rule of statutory construction that no section
should be construed so as to render another section superfluous. See e.g., Hibbs v. Winn, 542 U.S.
88, 101, 124 S.Ct. 2276, 2286, 159 L.Ed.2d 172 (2004); Kawaauhau v. Geiger, 523 U.S. 57, 61-
62, 118 S.Ct. 974, 977, 140 L.Ed.2d 90 (1998); U.S. v. Ryan-Webster, 353 F.3d 353 (4th Cir.
2003).
The result reached by the court in Salazar cannot be reconciled with Section 362(b)(21)
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as enacted by Congress. The exception from the effect of the automatic stay set forth in this provision
is limited to where a debtor is ineligible under Subsection (g) of Section 109 and therefore is expressly
not applicable to a debtor ineligible under Section 109(h) or (e). The result found in Salazar would,
in effect, eliminate the expressed “(g)” from Section 362(b)(21)(A). This court, to the contrary, finds
that if Congress had intended that no stay arise by the filing of a petition by a debtor found to be
ineligible under any provision of Section 109, Congress would not have expressly enacted the
limitation in Section 362(b)(21). Congress limited the exception to the automatic stay to cases filed
by debtors that are ineligible under subsection (g) of Section 109 and even in such cases the exception
allows only acts to enforce a lien or security interest in real property. The Salazar decision would
completely eliminate both restrictions.
Congress has shown that it is both able and willing to restrict the effect of the automatic stay
where it intends to do so, not only under the twenty-eight subparts of Section 362(b), but under other
provisions including Section 362(c)(4) and Section 362(n). Congress obviously knew of the issue
raised by conflicting opinions pre-BAPCPA as to the effect of the filing by an ineligible debtor under
Section 109. It has legislated a carefully defined exception to the stay thus also clearly indicating what
are the limits of such exception.
The distinction between the effect of a filing by an ineligible debtor under Section 109(h)
as opposed to Section 109(g) is not illogical , nor does it lead to an absurd result. Where a debtor
files a petition under circumstances rendering the debtor ineligible under Section 109(g), all facts
necessary for a creditor or other party-in-interest to correctly assess the ineligibility of the debtor are
matters of public record and not subject to factual dispute or pending court decision. Ineligibility under
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12See In re Jarboe, 177 B.R. 242 (Bankr. D. Md. 1995)(discussing Section 109(g)).
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Section 109(g) is triggered by the dismissal of a prior case within 180 days of the filing of the petition
in the subsequent case and the dismissal was for reason of disobedience of a court order, or after a
motion for relief from stay had been filed in the prior case.12 All predicate prior events for the
triggering of the ineligibility under Subsection (g) are reflected in the public records of the prior case
accessible by any creditor including through the PACER System. Therefore, Section 362(b)(21)
creates no confusion or uncertainty in the subsequent case.
However, ineligibility under Section 109(e) or Section 109(h) cannot be ascertained by
a creditor until a ruling by the court. Whether a debtor is eligible to be a debtor under Chapter 13
under the debt limits set forth in Section 109(e), is often disputed. An issue is frequently litigated as
to whether or not certain debts must be included within a calculation of the limitations, or excluded
under the provisions requiring such debts to be non-contingent and liquidated.
Ineligibility under Section 109(h)(1) occurs where the debtor has not received a required
briefing on credit counseling within 180 days proceeding the filing of the petition and is not granted a
waiver under Section 109(h)(3). Even where the debtor has not filed a certificate of credit counseling
or certification requesting waiver, there is no indisputable and unambiguous indication of the debtor’s
ineligibility. Eligibility under Section109(h) is not dependent upon the filing of a certificate of credit
counseling. Rather, the debtor is not eligible if the debtor did not receive the credit counseling and is
not entitled to a waiver.
Section 521(b) requires the debtor to file a certificate fromthe approved non-profit budget
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13The fact that Burson guessed correctly as to what would subsequently be the court’s
finding as to the request contained in the Certification Requesting Waiver is immaterial.
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and credit counseling agency that provided the services required by Section 109(h), as well as a copy
of any debt repayment plan developed through that agency. Rules 1007(b) and (c) of the interim rules
adopted by this Court’s Administrative Order 05-02, require that the certificate of credit counseling
and debt repayment plan be filed with the petition, or that a certification requesting waiver be filed with
the petition.
Generally this court will by order dismiss a case for reason of apparent lack of eligibility
under Section 109(h) if no certificate of credit counseling, or certification requesting waiver, is filed.
However, numerous cases have been filed in this district since the effective date of BAPCPA in which
the debtor had received the credit counseling within the 180 days preceding the petition filing as
required, but for various reasons including attorney error and/or unfamiliarity with CM/ECF, the filing
of the certificate evidencing such pre-petition counseling was delayed. In such cases the court may
excuse the lateness of the filing of the certificate and vacate any dismissal order because the debtor
was eligible. Clearly, where, as in this case, Debtor filed a Certification Requesting Waiver of the pre-
petition counseling requirement under Section 109(h)(3), it could not be ascertained by a creditor
whether such certification would be found sufficient under the statutory requirements of Section 109(h)
and satisfactory to the court, until the court enters an order determining this question.13
Where Congress has spoken with precision, the court should not conclude that Congress
intended a broader, or different result, particularly where there is an obvious rational basis for the
delineations set forth in the statute. For the reasons stated above, this court holds that the filing of a
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14See e.g., In re Lampkin, 116 B.R. 450 (Bankr. D. Md. 1990)(finding that actions taken
in violation of the automatic stay are void ab initio).
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petition by a debtor who is ineligible to be a debtor pursuant to Section 109(h)(1), with or without a
certification requesting waiver under Section 109(h)(3), does create an automatic stay under Section
362(a).
As stated above, there is no dispute that the foreclosure actions taken by Burson violated
Section 362(a) and the foreclosure is accordingly void.14 This court has not been asked to grant relief
from the automatic stay nunc pro tunc by annulling the stay and sees no basis to do so sua sponte.
Further, the violation of the stay occurred with full knowledge by Burson of the filing of the bankruptcy
case. For this reason and for the reasons set forth on the record at the conclusion of the hearing, this
court has awarded consequential damages to reimburse Debtor for her consequential expenses.
However, because the violation of stay did not result from an intentional misconduct although the act
itself was willful, this court will not award further damages including punitive damages. An Order in
conformity with this holding has been entered.
cc: All Parties
All Counsel
End of Memorandum
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