Charles Edward Seaman

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NEW YORK
--------------------------------------------------------x
In re:
Case No. 05-40032-ess
CHARLES EDWARD SEAMAN, 	Chapter 7
Debtor.
--------------------------------------------------------x
MEMORANDUM DECISION DISMISSING THE DEBTOR’S CHAPTER 7 CASE
FOR FAILURE TO COMPLY WITH 11 U.S.C. § 109(h)
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
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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
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1 The Court finds that the Petitioner was ineligible to be a debtor pursuant to 11 U.S.C. §
109(h), and therefore does not reach the United States Trustee’s alternative argument that the
Petitioner’s case should be dismissed pursuant to 11 U.S.C. § 521(a)(1).
3
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
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4
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
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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
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6
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 he or she has failed willfully to abide by an order of
the court, or has requested and obtained the voluntary dismissal of a case after the filing of a
motion for relief from the automatic stay. 11 U.S.C. §§ 109(g)(1), 109(g)(2).
For example, in In re Flores, 291 B.R. 44 (Bankr. S.D.N.Y. 2003), the court examined an
individual’s eligibility to be a debtor under Section 109(g) where the petitioner filed a second
bankruptcy case within 180 days of the dismissal with prejudice of a prior case. The court
considered whether such a case is “void ab initio,” and as a result, does not trigger the automatic
stay. In re Flores, 291 B.R. at 46. The court found that a case filed in violation of Section
109(g) is not a nullity because “no one can know whether the debtor may be a debtor under
Section 109(g) until the bankruptcy court decides the issue.” In re Flores, 291 B.R. at 61. This
determination, the court found, could be made only by the bankruptcy court, so that a secured
creditor must await the determination of whether the putative debtor is ineligible or risk violating
the automatic stay. In re Flores, 291 B.R. at 52-53. The court also observed that voiding ab
initio the petition of an ineligible debtor would create a “rule that the automatic stay is abrogated
in any filing within 180 days of a dismissal which the bankruptcy court at some indeterminate
time after the filing may (or may not) decide was in violation of Section 109(g).” In re Flores,
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2 Under BAPCPA, Section 521(1) was replaced by Section 521(a)(1). This Section
identifies documents required to be filed including a list of creditors, a schedule of assets and
liabilities, a schedule of current income and current expenditures, and a statement of the debtor’s
financial affairs. 11 U.S.C. § 521(a)(1).
7
291 B.R. at 55. This result, the court found, conflicts with Section 362's definition of the scope
of the automatic stay and its exceptions. Id.
Termination of Cases Filed by Debtors Who Fail To File Required Documents Other than a
Credit Counseling Certificate
Several sections of the Bankruptcy Code provide that a bankruptcy case should be
dismissed if a debtor does not file required documents. For example, Section 707(a)(3) provides
that in a Chapter 7 case, “the court may dismiss a case under this chapter . . . for cause, including
. . . failure . . . to file . . . the information required by [Section 521(a)(1)].” 11 U.S.C. §
707(a)(3).2 Section 1307(c)(9) similarly provides that in a Chapter 13 case, dismissal is
appropriate where filings required by Section 521(a)(1) are not made. 11 U.S.C. § 1307(c)(9).
And Section 1112(e) states that the court, on request of the United States Trustee, may dismiss a
case if the Chapter 11 debtor fails to file the information required by Section 521(a)(1) within
fifteen days after the filing of the petition or within such additional time as the court has
specified. 11 U.S.C. § 1112(e).
Here too, courts have concluded that the failure to file documents required by the
Bankruptcy Code should result in the dismissal of the bankruptcy case, not the striking of the
petition. See, e.g., In re Tornheim, 181 B.R. 161, 164 (Bankr. S.D.N.Y. 1995) (failure to file
monthly operating reports in a Chapter 11 case justified dismissal), appeal dismissed by 1996
WL 79333 (S.D.N.Y. Feb. 23, 1996). See also In re Associacion de Comerciantes del Viejo San
Juan, 181 F.3d 79 (Table), 1999 WL 525911, at *1 (1st Cir. 1999) (affirming bankruptcy court’s
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8
dismissal of debtor’s case for failure to make timely filings); In re Green, 141 B.R. 440, 442-43
(Bankr. M.D. Fla. 1992) (dismissing debtor’s Chapter 13 case for failure to comply with Section
521).
Termination of Cases Filed by Debtors Who Are Ineligible Under the Bankruptcy Code for
Failure To Satisfy the Credit Counseling Requirement
Several bankruptcy courts have addressed issues arising in connection with the
determination of eligibility under Section 109(h). These courts have overwhelmingly concluded
that a bankruptcy case filed by a petitioner who is ineligible to be a debtor because he or she
neither satisfied the credit counseling requirement, nor established an entitlement to an
exemption from it, should be dismissed. At the same time, at least six courts have specifically
addressed the question of whether striking the petition or dismissing the case is the appropriate
outcome, and two have concluded that the petition should be stricken.
In In re Hubbard, 333 B.R. 377 (Bankr. S.D. Tex. 2005), the first reported case on this
issue, the court considered the requests of five Chapter 13 debtors to extend their time to file
credit counseling certificates. Id. The court found that none of the debtors had complied with
the requirements of Section 109(h)(3), and therefore, that each was ineligible to be a debtor
under the Bankruptcy Code. In re Hubbard, 333 B.R. at 383. The court further reasoned that,
because the putative debtors were ineligible when they filed their petitions, there was no
bankruptcy case “commenced” under Section 301 of the Bankruptcy Code. In re Hubbard, 333
B.R. at 388.
As to the appropriate remedy, the court observed:
This Court and others have generally “dismissed” cases that were filed by
ineligible debtors. Under the prior statute, “dismissal” had the same effect as
“striking” a petition. Because “dismissal” of a case under [BAPCPA] may have
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9
substantially different implications than the “striking” of a petition, the Court
must consider the appropriate remedy.
Id. The court concluded that “no ‘case’ was commenced by the filing of these petitions.
Because no case was commenced under § 301, there is no ‘case’ to dismiss. The petitions in
these five cases are stricken.” Id.
In In re Rios, 336 B.R. 177 (Bankr. S.D.N.Y. 2005), the debtor filed a bankruptcy
petition but did not obtain pre-petition credit counseling or seek a temporary or permanent
exemption from the credit counseling requirement. In re Rios, 336 B.R. at 178. Within less than
a month of filing his bankruptcy petition and learning of the credit counseling requirement, the
debtor filed a certificate of credit counseling. Id. The court noted that In re Hubbard “indicates
that a failure to make the requisite showing in a properly filed motion brought pursuant to 11
U.S.C. § 109(h) requires the bankruptcy court not to merely dismiss, but to strike the bankruptcy
filing.” In re Rios, 336 B.R. at 179 (emphasis in original). The court also reviewed the
legislative history of the credit counseling requirement and observed:
Under the BAPCPA, Congressional intent is clear that credit counseling is
required prior to filing, as a prerequisite for bankruptcy relief, to provide putative
debtors with the opportunity to make informed choices as to financial alternatives
available, including the possibility of seeking bankruptcy protection. . . . If a
filing is dismissed, as opposed to stricken, as consequence of the failure to seek
credit counseling prior to the bankruptcy filing, then debtors may not be eligible
for the full panoply of protections provided by 11 U.S.C. § 362 if they choose,
after rectifying their error in failing to seek credit counseling, to file for
bankruptcy protection in the future.
In re Rios, 336 B.R. at 179-80 (citations omitted). The court noted that “dismissal for failure to
seek credit counseling achieves a result Congress intended to avoid; that is, future limitation of
debtor protection under the BAPCPA.” Id. Striking the petition, by contrast, would give effect
to Congress’s objective of “enlarg[ing] debtors’ options in the face of financial difficulty, not
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10
limit[ing] them.” Id. The court concluded that striking the debtor’s petition was the appropriate
result: “Congress did not intend the credit-counseling requirement to limit the availability or
extent of bankruptcy relief for debtors, which dismissal would accomplish, and thus, dismissal is
inappropriate.” Id.
In In re Valdez, 335 B.R. 801 (Bankr. S.D. Fla. 2005), the debtor filed a bankruptcy case
without obtaining pre-petition credit counseling. The debtor filed a request for a temporary
exemption from the credit counseling requirement, but did not describe exigent circumstances
that would warrant an exemption. In re Valdez, 335 B.R. at 803. The court found:
[The debtor] does not qualify as a debtor as she has not fulfilled the budget and
credit counseling requirement necessary to become a debtor and she is not, by her
own admission, entitled to a waiver of such requirement as she has failed to
demonstrate exigent circumstances exist.
Id. For these reasons, the court concluded that the debtor was ineligible to be a debtor under
Section 109(h) and that the case should be dismissed. Id. But the court viewed the requirements
of Section 109(h) as jurisdictional, and also observed: “Because the petition failed to provide
[the petitioner] status as a debtor, the Court will not consider this a dismissed case in which the
individual was the debtor, for purposes of denying the imposition of the automatic stay in a
subsequently filed case pursuant to 11 U.S.C. § 362.” In re Valdez, 335 B.R. at 803-04.
More recently, in In re Ross, 338 B.R. 134 (Bankr. N.D. Ga. 2006), the petitioner
requested a temporary exemption from the credit counseling requirement under Section
109(h)(3), but did not show that he had requested a credit counseling briefing prior to filing his
petition. In re Ross, 338 B.R. at 135. The court found that the debtor’s request did not satisfy
the requirements of Section 109(h)(3), and denied the temporary exemption request. Id.
The court then considered whether the appropriate disposition was to strike the petition
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11
or dismiss the case. Id. The court first concluded:
[E]ligibility under § 109 in general and under § 109(h) in particular is not
jurisdictional and that, therefore, the filing of a petition by a debtor ineligible to
do so nevertheless commences a bankruptcy case that is neither a “nullity” nor
void ab initio. Consequently, upon timely determination that an individual
ineligible to be a debtor under § 109(h) has filed a petition, the proper remedy is
dismissal of the case.
In re Ross, 338 B.R. at 136. The court then found that if an ineligible petitioner’s bankruptcy
case is deemed void ab initio, then there would be no need for Section 362(b)(21)(A), which was
also added to the Bankruptcy Code by BAPCPA. In re Ross, 338 B.R. at 138-39. This section
provides an exception to the automatic stay as to acts to enforce a security interest in real
property “if the debtor is ineligible under section 109(g) to be a debtor in a case under [the
Bankruptcy Code].” 11 U.S.C. § 362(b)(21)(A). See In re Ross, 338 B.R. at 138-39. As the
court observed, “[i]f such a filing were void ab initio and did not result in an automatic stay
under existing law, such an amendment would not have been necessary.” In re Ross, 338 B.R. at
139. The court also found that there is no indication in the Bankruptcy Code or elsewhere that
“Congress intended that ineligibility under § 109(h) be treated any differently than ineligibility
under § 109(g).” Id. The court concluded that for these reasons, dismissal was the appropriate
remedy. Id.
In another recent decision, In re Tomco, 2006 WL 459347 (Bankr. W.D. Pa. Feb. 27,
2006), the court found that the petitioner’s request for a temporary exemption from the credit
counseling requirement did not specify when she requested credit counseling from an approved
budget and credit counseling agency, or why her request could not be accommodated within five
days. In re Tomco, 2006 WL 459347, at *2. At a hearing on the request, the petitioner
acknowledged that she did not contact a credit counseling agency prior to filing her petition. In
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12
re Tomco, 2006 WL 459347, at *3. Accordingly, the court found the petitioner’s temporary
exemption request to be deficient, and concluded that the petitioner was ineligible to be a debtor.
In re Tomco, 2006 WL 459347, at *7-*8.
Turning to whether to dismiss the case or strike the petition, the court reasoned that a
case commenced by an ineligible debtor is not a nullity:
This Court is unable to accept the notion that Section 109(h) ineligibility impacts
a determination of whether a case was “commenced” and whether the court’s
subject matter jurisdiction has been invoked. This Court holds that the operative
event which triggers the commencement of a bankruptcy case, and this Court’s
jurisdiction, is the filing of a petition. This conclusion is consistent with the fact
that neither Sections 109 and 301 of the Bankruptcy Code, nor any other
provisions in the Bankruptcy Code, make mention of jurisdiction. Jurisdiction is
“granted” to bankruptcy courts through title 28, not title 11, of the United States
Code.
In re Tomco, 2006 WL 459347, at *11. The court further found that if this occurred, and the
automatic stay was not triggered, both debtors and creditors would be harmed because of the
“the additional risk that, at a date subsequent to the petition date, a creditor could unilaterally
ignore the stay in the absence of an order of this Court or an express statutory provision
providing otherwise.” Id. The court concluded that dismissal, not striking the petition, was the
appropriate outcome. In re Tomco, 2006 WL 459347, at *12.
A similar conclusion was reached by the court in In re Taylor, No. 05-35381DM, slip op.
(Bankr. N.D. Cal. Mar. 9, 2006). There, the petitioner obtained credit counseling seventeen days
after filing her bankruptcy petition, but did not request a temporary exemption based on exigent
circumstances as required by Section 109(h)(3). In re Taylor, No. 05-35381DM, slip op. at 2.
The court noted:
Debtor has the court’s sympathy, but the plain words of Section 109(h) and the
cases cited by the [United States Trustee] . . . lead the court to conclude that
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13
Debtor, although now presumably eligible for bankruptcy relief for 180 days . . .
has failed to comply with Section 109(h)(1) and that her attempt to be excused
from such compliance must also fail.
In re Taylor, No. 05-35381DM, slip op. at 3.
The court next considered whether the proper remedy was dismissal of the debtor’s case
or striking of the petition. The court noted that sound considerations were advanced by those
courts that decided to strike the petition, including the prevention of “potentially harsh
consequences of dismissal.” Id. The court observed:
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 in to effect. See 11 U.S.C. §§ 362(c)(3) and (4). This could harm
the 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.”)
In re Taylor, No. 05-35381DM, slip op. at 3-4.
But the court was persuaded 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.” In re Taylor, No. 05-35381DM, slip op. at 4. The court also noted
that dismissal is not contrary to Congressional intent, and that voiding a petition could also have
detrimental consequences. In re Taylor, No. 05-35381DM, slip op. at 5, citing In re Ross, 338
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3 This Court also notes that of the thirty-four decisions addressing ineligibility under
Section 109(h) to date, thirty-one have resulted in dismissal. Compare In re Dixon, 2006 WL
355332 (B.A.P. 8th Cir. Feb. 17, 2006) (dismissing case filed by an ineligible debtor); In re
Taylor, No. 05-35381DM (Bankr. N.D. Cal. Mar. 9, 2006) (same); In re Wallace, 2006 WL
581036 (Bankr. E.D. Ark. Mar. 9, 2006) (same); In re Tomco, 2006 WL 459347 (Bankr. W.D.
Pa. Feb. 27, 2006) (same); In re Mingueta, 2006 WL 337542 (Bankr. C.D. Cal. Feb. 13, 2006)
(same); In re Dansby, 2006 Bankr. LEXIS 178 (Bankr. D.S.C. Feb. 10, 2006) (same); In re
Ashley, 2006 Bankr. LEXIS 354 (Bankr. E.D. Va. Feb. 8, 2006) (same); In re Ross, 338 B.R.
134 (Bankr. N.D. Ga. 2006) (same); In re Waggoner, 2006 WL 705931 (Bankr. E.D. Ky. Feb. 8,
2006) (same); In re Anderson, 2006 WL 314539 (Bankr. N.D. Iowa Feb. 6, 2006) (same); In re
Cermak, 2006 Bankr. LEXIS 163 (Bankr. D. Or. Feb. 2, 2006) (same); In re DiPinto, 336 B.R.
693 (Bankr. E.D. Pa. Jan. 30, 2006) (same); In re Sosa, 336 B.R. 113 (Bankr. W.D. Tex. 2005)
(same); In re Childs, 335 B.R. 623 (Bankr. D. Md. 2005) (same); In re Rodriguez, 336 B.R. 152
(Bankr. D. Mass. 2005) (same); In re Valdez, 335 B.R. 801 (Bankr. S.D. Fla. 2005) (same); In re
Talib, 335 B.R. 424 (Bankr. W.D. Mo. 2005) (same); In re Rodriguez, 336 B.R. 462 (Bankr. D.
Idaho 2005) (same); In re Fields, 337 B.R. 173 (Bankr. E.D. Tenn. 2005) (same); In re
Curington, 2005 WL 3752229 (Bankr. E.D. Tenn. Dec. 7, 2005) (same); In re Davenport, 335
B.R. 218 (Bankr. M.D. Fla. 2005) (same); In re Randolph, 2005 WL 3408043 (Bankr. M.D. Fla.
Dec. 2, 2005) (same); In re Sukmungsa, 333 B.R. 875 (Bankr. D. Utah 2005) (same); In re
Warden, 2005 WL 3207630 (Bankr. W.D. Mo. Nov. 22, 2005) (same); In re Wallert, 332 B.R.
884 (Bankr. D. Minn. 2005) (same); In re Cleaver, 333 B.R. 430 (Bankr. S.D. Ohio 2005)
(same); In re Louredo, 2005 Bankr. LEXIS 2832 (Bankr. E.D. Va. Nov. 16, 2005) (same); In re
Allen, 2005 Bankr. LEXIS 2835 (Bankr. E.D. Va. Nov. 15, 2005) (same); In re Watson, 332 B.R.
740 (Bankr. E.D. Va. 2005) (same); In re LaPorta, 332 B.R. 879 (Bankr. D. Minn. 2005) (same);
In re Gee, 332 B.R. 602 (Bankr. W.D. Mo. 2005) (same); In re Booth, 2005 WL 3434776
(Bankr. N.D. Fla. 2005) (same); with In re Rios, 336 B.R. 177 (Bankr. S.D.N.Y. 2005) (striking
the petition of an ineligible debtor); and In re Hubbard, 333 B.R. 377 (Bankr. S.D. Tex. 2005)
14
B.R. at 139; In re Tomco, 2006 WL 459347, at *11-*12 (following In re Ross). And the court
observed that “it is not clear that the consequences under Section 362(c)(3) and (4) are as
draconian as they first appear.” In re Taylor, No. 05-35381DM, slip op. at 5. Rather, the court
noted, a court may extend the automatic stay in a subsequently filed case upon a showing of
good faith, and “a dismissal under Section 109(h) in cases such as this does not appear to
establish any lack of good faith.” In re Taylor, No. 05-35381DM, slip op. at 6. For these
reasons, the court concluded that “the court must dismiss this case.” In re Taylor, No. 05-
35381DM, slip op. at 7. 3
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(same).
15
Dismissal is the Appropriate Outcome
Based on the entire record, this case should be dismissed rather than stricken for several
reasons. First, this Court concludes that a petitioner’s eligibility to be a debtor under Section
109 is not jurisdictional. See In re Ross, 338 B.R. at 136-37; In re Tomco, 2006 WL 459347, at
*11. Until the court determines that a petitioner is ineligible, a case is commenced by the filing
of a petition and cannot be a nullity. In re Flores, 291 B.R. at 52. This result makes both legal
and practical sense. Dismissal of a case filed by an ineligible petitioner comports with the due
process rights given to all parties in a bankruptcy proceeding and avoids uncertainty with respect
to the petitioner’s status and the existence of the automatic stay. In re Flores, 291 B.R. at 54-55.
And dismissal avoids several procedural and substantive pitfalls. These include questions as to
the existence and willfulness of an automatic stay violation, and the validity of an action against
property taken by a creditor of a petitioner who appears ineligible to be a debtor but later is
determined to be eligible. These also include the prospect of unnecessary inaction by a cautious
creditor where a petitioner proves to be ineligible to be a debtor. Finally, striking petitions
would create new burdens and uncertainties for case administration. New questions would arise,
including whether filing fees should be returned to ineligible petitioners and whether Chapter 7
trustees may be compensated for work on cases that prove to be a nullity or void ab initio.
Second, the dismissal of a case filed by a petitioner who is ineligible to be a debtor
comports with other sections of the Bankruptcy Code and with BAPCPA as a whole. Dismissal
is the result in nearly all of the cases filed by petitioners who are ineligible under other
subsections of Section 109. See In re Ross, 339 B.R. at 136-37. See also n.3, supra. And while
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16
dismissal of a case because of the ineligibility of the petitioner does not conflict with the
applicability of other sections of the Bankruptcy Code, striking a petition would make at least
one other section superfluous. See 11 U.S.C. § 362(b)(21)(A). See also In re Ross, 339 B.R. at
138-39.
The petitioner’s ineligibility to be a debtor is also cause to dismiss a bankruptcy case
under Sections 707(a), 1307(c), or 1112(b). See, e.g., In re LaPorta, 332 B.R. at 883-84 (“A
lack of statutory eligibility to “be a debtor,” . . . is the very most fundamental “cause” for
dismissal.”); In re Talib, 335 B.R. at 428 (the debtor’s ineligibility was cause for dismissal); In
re Wallert, 332 B.R. at 891 (same). This Court is reluctant to read into BAPCPA’s silence such
a sweeping shift in the manner of terminating the cases of ineligible debtors. See Swarts v.
Hammer, 194 U.S. 441, 444 (1904) (“If Congress has the power to declare otherwise and wished
to do so the intention would be clearly expressed, not left to be collected or inferred from
disputable considerations of convenience in administering the estate of the bankrupt.”).
Third, the legislative history of the credit counseling requirement established by
BAPCPA suggests that Congress sought to discourage abuse of the bankruptcy system, and in
particular, to address the situation of serial filings made to invoke the protections of the
automatic stay in the face of collection actions by creditors with a security interest in real
property. To this effect, the House Report states:
With respect to the interests of creditors, the proposed reforms respond to many
of the factors contributing to the increase in consumer bankruptcy filings, such as
lack of personal financial accountability, the proliferation of serial filings, and the
absence of effective oversight to eliminate abuse in the system
. . .
[BAPCPA] also establishes new eligibility standards for consumer bankruptcy
relief and includes provisions intended to deter serial and abusive bankruptcy
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17
filings.
H.R. REP . NO . 109-31, pt. 1, at 2 (2005). The legislative history of this requirement also suggests
that Congress intended that petitioners would have the benefit of pre-filing counseling and
education before a bankruptcy case was commenced, so that the bankruptcy courthouse would be
the last stop, not the first stop, in the commencement of a bankruptcy case. The Report further
states:
Most important, S. 256 requires debtors to participate in credit counseling
programs before filing for bankruptcy relief (unless special circumstances do not
permit such participation). The legislation’s credit counseling provisions are
intended to give consumers in financial distress an opportunity to learn about the
consequences of bankruptcy – such as the potentially devastating effect it can
have on their credit rating – before they decide to file for bankruptcy relief.
H.R. REP . NO . 109-31, pt. 1, at 18 (2005). See also H.R. REP . NO . 109-31, pt. 1, at 4 (2005) (“As
a result, there is a growing perception that bankruptcy relief may be too readily available and is
sometimes used as a first resort, rather than a last resort.”).
And as the United States Trustee argues, striking petitions could result in abuse of the
automatic stay, shielding the bad-faith petitioner from creditor action from the time of filing to
the time the petition is stricken, with no bar to that petitioner repeating the process over and over
again. UST Memorandum at 11-12. Congress could not have intended Section 109 and the
credit counseling requirement to have a consequence – facilitating the serial filing of bankruptcy
petitions – that would contradict its overall intent in passing BAPCPA. See King v. St. Vincent’s
Hospital, 502 U.S. 215, 221 (1991) (“the cardinal rule [is] that a statute is to be read as a whole .
. . since the meaning of statutory language, plain or not, depends on context.”). See also United
States v. Hartwell, 73 U.S. 385, 396 (1868) (“The proper course in all cases is to adopt that sense
of the words which best harmonizes with the context, and promotes in the fullest manner the
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18
policy and objects of the legislature.”).
Fourth, striking rather than dismissing a bankruptcy case filed by an ineligible petitioner
may well not provide the petitioner with the opportunity to realize all of the benefits of a
bankruptcy case provided by Congress in a second filing if the protections of the automatic stay
are not triggered by the first case. In that situation, as the court observed in In re Ross:
To be sure, dismissing the case as void ab initio keeps the case from counting as a
prior pending case for purposes of § 362(c)’s limitations on stays in successive
cases. But such “protection” will 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.
In re Ross, 338 B.R. at 139.
And conversely, the dismissal of a case filed by an ineligible petitioner does not leave a
good-faith debtor without recourse. Such debtors may still access the “full panoply of
protections” by seeking an extension of the automatic stay from the court within the first thirty
days after the second case is filed. In re Rios, 336 B.R. at 180. See 11 U.S.C. § 362(c)(3)(B).
While there is no doubt that this avenue poses significant burdens on debtors or others seeking to
continue the automatic stay, it is also apparent that Congress, through this provision, intended
that in appropriate circumstances, a debtor or other party in interest could move promptly to
reinstate the protections of the automatic stay. The reinstatement of the automatic stay, not the
remedy of striking the petition, appears to be the answer provided by BAPCPA to the question of
how a petitioner who files a bankruptcy case without satisfying the credit counseling
requirement may gain access to the full benefits of the bankruptcy system. See also H.R. REP .
NO . 109-31, pt. 1, at 69 (2005) (“Upon motion of a party in interest, the court may continue the
automatic stay afer notice and a hearing completed prior to the expiration of the 30-day period if
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19
such party demonstrates that the latter case was filed in good faith as to the creditors who are
stayed by the filing.”).
Finally, the Court takes note that this district provides notice to petitioners that failure to
file certain documents, including those required by Section 109(h), may be grounds for
dismissal, as well as notice that if the case is dismissed, a future filing may result in limited
application of the automatic stay. See United States Bankruptcy Court, Eastern District of New
York, Notice of Deficient Filing - Chapter 7 at 2.
Conclusion
Based on the entire record and for the reasons stated herein, the Court concludes that the
Petitioner was ineligible to file a petition for relief under Chapter 7 of the Bankruptcy Code, and
that his bankruptcy case therefore should be dismissed. An Order in accordance with this
Memorandum Decision shall be entered simultaneously herewith.
Dated: Brooklyn, New York
March 30, 2006
s/ Elizabeth S. Stong
ELIZABETH S. STONG
UNITED STATES BANKRUPTCY JUDGE
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