Consequences of a Debtor's Failure to Receive Prepetition Credit Counseling  

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) was passed in hopes of reforming the bankruptcy system by restoring personal integrity in the bankruptcy system and ensuring that the system is fair for debtors and creditors. Several of the new or amended provisions were enacted to improve financial literacy of debtors so that debtors will have the ability to make more informed decisions and potentially choose alternatives to bankruptcy filings.

Particularly relevant to this bibliography, Congress added a new eligibility requirement for individual debtors. Section 109(h) requires debtors to receive approved credit counseling, within 180 days of filing a petition for bankruptcy, in order to be eligible for relief. United States trustees and bankruptcy administrators must approve credit counseling agencies. These approved agencies prepare a budget based on a debtor’s income and expenses and discuss available options for addressing the debtor’s financial problems. Unfortunately, some debtors fail to receive the required credit counseling prior to filing a petition for bankruptcy.

A split of authority has developed regarding the proper consequence of failing to comply with the prepetition credit counseling requirements of 11 U.S.C. § 109(h). A majority of courts have determined that the credit counseling requirement is jurisdictional; therefore, a failure to comply automatically results in a dismissal of the debtor’s case. This may cause the debtor to have to prove good faith in future filings. A few courts have concluded that the petitions should be stricken because a case was never commenced and because striking a case will further the anti-abuse purpose behind BAPCPA. Further, these courts conclude that because a case was not commenced the debtor was never eligible for protection of the automatic stay provided for in 11 U.S.C. § 362(a). The automatic stay is often seen as one of the biggest benefits of bankruptcy because it prevents creditors from reaching the debtor’s assets. Finally, a growing number of courts have concluded that debtors can waive the strict prepetition credit counseling requirement because the requirement is not jurisdictional in nature and because dismissing the case or striking the petition would be inequitable for creditors. Until this split is resolved by Congress or the Supreme Court, if a debtor fails to comply with the prepetition credit counseling requirement, debtors, trustees, and creditors must look to the local bankruptcy court’s determination of the proper consequence in order to determine whether a case commenced, whether the automatic stay applies, and whether a party may successfully move to dismiss a case.

This research guide is a starting point for a law student or an attorney to research the prepetition credit counseling requirement imposed by BAPCPA, courts’ interpretation of it, and its application in bankruptcy cases. This is an evolving area of law, and it is important to KeyCite or Shepardize all cases and statutes before relying on them. This research guide should not be treated as legal advice or as a legal opinion on any specific facts or circumstances. If you need further assistance in researching this topic or have specific legal questions, please contact a reference librarian in the Georgia State University College of Law library or consult an attorney.

This guide serves as an overview of the prepetition credit counseling requirement imposed by BAPCPA. This research guide is intended to assist students and attorneys with little to no familiarity with this subject matter in gaining a better understanding of the relevant law. Because courts evaluate the satisfaction of prepetition requirements on a case-by-case basis, this guide surveys the current status of law among United States Bankruptcy Courts to examine the current application of the prepetition credit counseling requirement. These cases serve as useful resources with which to analogize or distinguish a researcher’s current facts. Additionally, this resource guide includes helpful laws, secondary materials, and Internet resources regarding prepetition counseling.

Karen Trapnell will graduate from the Georgia State University College of Law in May, 2011. While in law school, Ms. Trapnell served as the Business Editor for the Georgia State University Law Review and competed in the 2010 Georgia Intrastate Moot Court Competition. She also served as an extern in the Atlanta Office of the U.S. Trustee for Region 21. She is currently serving as a graduate research assistant for the Georgia State University Robinson College of Business Legal Studies Department. Before attending law school, Ms. Trapnell graduated from Wake Forest University with a Bachelor of Science in Business. After graduation, she will join the Tax Practice of PricewaterhouseCoopers LLP in Atlanta, Georgia. For more information, please contact Professor Nancy Johnson via e-mail at njohnson@gsu.edu.