Where a U.S. Bankruptcy Court judge dismissed a debtor’s Chapter 7 case, that decision should be upheld because the judge did not clearly err in finding that the debtor failed to comply with the pre-petition credit counseling requirement and the record supports the judge’s finding that the debtor was not excused from satisfying that requirement.
“The bankruptcy court dismissed Charles Muszynski’s chapter 7 case on several grounds, including his failure to complete the credit counseling required under §109(h)(1) within the prescribed period, and Muszynski appealed. …
“The Debtor asserts that ‘all parties’ — including the Creditors — waived the credit counseling requirement. He further maintains that he timely obtained credit counseling on May 13, 2023. The Debtor adds that the [Puerto Rico] Bankruptcy Court ‘ignored’ that ‘no counseling exists’ where he resides — Nevis and St. Kitts — and the credit counseling requirement was, therefore, inapplicable under Taal v. Sumski (In re Taal), 504 B.R. 682 (B.A.P. 1st Cir. 2014). …
“Section 109(h)(1) ‘requires, as a condition to eligibility for bankruptcy relief, that within 180 days prior to an individual debtor’s bankruptcy filing, the debtor receive (1) a briefing as to available opportunities for credit counseling, and (2) assistance in performing a budget analysis from a nonprofit credit counseling agency, approved ordinarily by the United States Trustee (collectively, ‘credit counseling’).’ …
“… First, pursuant to §109(h)(2)(A), if the United States trustee or bankruptcy administrator determines that there are no approved agencies ‘reasonably able to provide adequate services’ in a district, then debtors who reside in that district are excused from complying with the requirements of §109(h)(1). …
“Second, §109(h)(3) provides for a deferment of the credit counseling requirement (of up to 30 days) where a debtor ‘submits to the court a certification that — (i) describes exigent circumstances that merit a waiver’ of the requirement; (ii) ‘states that the debtor requested credit counseling services from an approved nonprofit budget and credit counseling agency, but was unable to obtain the services … during the 7-day period beginning on the date on which the debtor made that request;’ and (iii) ‘is satisfactory to the court.’ …
“Third, §109(h)(4) sets forth exceptions to the credit counseling requirement for debtors who are unable to complete credit counseling ‘because of incapacity, disability, or active military duty in a military combat zone.’ 11 U.S.C. §109(h)(4). The § 109(h)(4) exceptions are not implicated in this appeal. …
“The Bankruptcy Code is silent regarding the consequence for failing to comply with the pre-petition credit counseling requirement. … ‘The majority of courts considering the issue have found that dismissal of the case is mandatory if the debtor failed to comply with the credit counseling requirement of … §109(h).’ …
“In dismissing the Debtor’s case, the P.R. Bankruptcy Court concluded that he was ineligible to be a debtor under §109(h)(1). The record reflects that the Debtor obtained the required credit counseling two days after the filing of his petition without having obtained a deferral of the requirement. Thus, the P.R. Bankruptcy Court’s finding that the Debtor did not satisfy the credit counseling requirement is not clearly erroneous. The next question becomes whether the record supports the P.R. Bankruptcy Court’s finding that the Debtor was not excused from satisfying the requirement.
“Here, the Debtor did not properly or timely invoke any of the statutory exceptions to the credit counseling requirement below; nor does the record suggest that he qualified for them. …
“Not only are the statutory exceptions inapplicable, but there is also nothing in the record to suggest either the Texas Bankruptcy Court or the Creditors waived the credit counseling requirement, notwithstanding the Debtor’s assertions to the contrary. …
“Nothing in the record suggests that the P.R. Bankruptcy Court clearly erred in finding that the Debtor failed to satisfy the credit counseling requirement or abused its discretion when it found that the Debtor failed to satisfy the requirements that would have entitled him to a temporary waiver of the pre-petition credit counseling requirement under §109(h)(3).
“The Debtor’s argument that he was entitled to an evidentiary hearing under §707(a) does not alter our analysis. …
“Based on the above analysis, we conclude that the P.R. Bankruptcy Court did not abuse its discretion in deciding not to hold an evidentiary hearing and properly determined that the Debtor did not qualify to be a debtor. …”
In Re: Muszynski, Charles (Lawyers Weekly No. 03-004-25) (18 pages) (Cary, J.) (BAP No. PR 24-011) (March 7, 2025).
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