In re Cleveland

IN RE: Willie MacArthur Cleveland, Debtor(s).

CASE NO: 14-00595-HB

UNITED STATES BANKRUPTCY COURT DISTRICT OF SOUTH CAROLINA

September 2, 2014

Chapter 13

ORDER GRANTING TRUSTEE'S PETITION TO DISMISS CASE FOR FAILURE TO COMPLETE CREDIT COUNSELING BEFORE FILING PURSUANT TO 11 U.S.C. § 109(h)

THIS MATTER comes before the Court pursuant to the request of Chapter 13 Trustee Gretchen D. Holland to dismiss this case due to Debtor Willie MacArthur Cleveland's failure to complete credit counseling as required under 11 U.S.C. § 109(h) within the 180 day period preceding the date of filing. Maureen Z. White of South Carolina Legal Services filed an objection on behalf of Cleveland. A hearing was held on August 21, 2014. After careful consideration of the facts set forth below and applicable law, the Court finds that Cleveland did not qualify to be a debtor under § 109(h) when the case was filed and therefore, the case must be dismissed.

Facts

1. Cleveland filed minimal paperwork to initiate a Chapter 13 bankruptcy petition pro se. The documents filed included: (1) Official Form 1, the three page Voluntary Petition (2) Official Form 1, Exhibit D, the two page Individual Debtor's Statement of Compliance with Credit Counseling Requirement; and (3) Official Form 21 Statement of Social Security Number(s). The filing also included a List of Creditors that listed only the name and address of a mortgage creditor. Except for the signatures, the information in the documents had been typed. The documents were filed on Friday, January 31, 2014, andstamped "received" by the Court at 2:02 p.m. Cleveland paid the filing fee the same day. Court records and statements of counsel indicate that Cleveland hand delivered the documents to the Court in Columbia.

2. Exhibit D referenced above explains the requirement of pre-petition credit counseling and the consequences of failing to complete the counseling. Exhibit D indicates in bold: "Warning: You must be able to check truthfully one of the five statements regarding credit counseling listed below. If you cannot do so, you are not eligible to file a bankruptcy case, and the court can dismiss any case you do file." Cleveland did not check the box next to any of the five statements indicating that they were applicable to him. Box three asks the filing party to check the box if the following statement is applicable at the time of filing: "I certify that I requested credit counseling services from an approved agency but was unable to obtain the services during the seven days from the time I made my request[.]" Although that box was not checked indicating that this statement was applicable to Cleveland, the following was typed in after the box "I was sick and was not able to obtain the credit counseling. Now my health is stable and will be able to obtain credit counseling at the earliest opportunity." Cleveland signed the incomplete document under penalty of perjury.¹

3. The Court's docket indicates that Clerk's office staff, after briefly reviewing Cleveland's income, as a courtesy advised him to contact Legal Services at the time he filed.

4. On the day the petition was filed, the Clerk issued and served Cleveland with written notice that he must submit schedules and statements on or before February 14, 2014,

pursuant to 11 U.S.C. § 521(b) and SC LBR 1007 and that if he failed to do so, his bankruptcy case would be dismissed.

5. On February 3, 2014, the Clerk as a courtesy served written notice on Cleveland of the location of relevant forms and resources, and noted again that his case could be dismissed for failure to timely file documents.

6. On the same date, the Court served Cleveland with written notice that his filing was not accompanied by a Certificate of Credit Counseling as required by § 521(b) and SC LBR 1017-2 (Fed. R. Bankr. P. 1007). The notice advised Cleveland that as a result his case may be subject to dismissal at any time.

7. Both the Court's operating schedule and travel within the state of South Carolina were affected by inclement winter weather for several days between January 31 and the date Cleveland's schedules and statements were due on February 14, 2014.

8. The Court routinely grants requests to extend the time to file schedules and statements ex parte, but no extension was requested.

9. On February 18, 2014, an employee of the Clerk's office phoned Cleveland as a courtesy to remind him that he had failed to complete his filing by timely submitting schedules and statements.

10. No additional filings were received and no request for an extension was made as of February 20, 2014 and on that date the Court issued an Order of Dismissal for Failure to File Timely Lists, Schedules, Statements and Other Documents. That dismissal was not based on a failure to complete credit counseling as that matter had not yet been presented to the Court for consideration.

11. On February 26, 2014, White made her first appearance in the case on Cleveland's behalf by filing a Motion to Reconsider Dismissal. She self-scheduled the hearing for April 3, 2014. White attached completed schedules and statements and a Chapter 13 plan prepared by Cleveland in consultation with Legal Services on a no fee basis. The Motion to Reconsider stated that Cleveland had completed credit counseling and was prepared to file the documents and to proceed.

12. At the brief hearing on the Motion to Reconsider, Cleveland was present and he and White proffered testimony that Cleveland filed bankruptcy on January 31, 2014, after reading in a local newspaper that his home was going to be sold at a public sale. He was overwhelmed by this discovery and unprepared for it because for eight months he sent payments to an organization that he said was run by someone named Sandy Isher after being informed that he was accepted for a HAMP Modification. He subsequently realized that those funds were not being used as intended as foreclosure was imminent. He stated that he had no time to prepare before filing and thereafter was not able to complete his schedules and statements in time to meet applicable deadlines. Bad weather further hampered his efforts. Cleveland was eventually able to prepare the necessary documents with the help of Legal Services, but his case had already been dismissed. There was no mention of illness as cause for any delay or difficulty.

13. The Chapter 13 Trustee, appearing at the hearing through counsel Christine Loftis, did not oppose the Motion to Reconsider given Cleveland's circumstances. Initially, in the responsive pleading and at the hearing, the Trustee requested a requirement that should the case be dismissed for any reason dismissal shall be with prejudice for a period of one year. In this District, the Court upon reconsideration usually imposes this condition

because reinstatement of a case after dismissal is an extraordinary remedy that gives a debtor a second chance without the need for the filing of a second bankruptcy case.

14. At the hearing White, on behalf of Cleveland, objected to the imposition of any prejudice period. After hearing the facts, Trustee's counsel stated that Trustee did not oppose the omission of the prejudice period from any order granting reconsideration.

15. After the parties stated their positions, the undersigned judge noticed that the record did not include evidence of pre-petition credit counseling and no exception to the pre-petition credit counseling requirement had been requested or granted. The Court noted on the record that this may be an impediment to the success of the case should the request to reinstate be granted. Trustee's counsel echoed the Court's concern that the credit counseling issue must be addressed.

16. On April 3, 2014, the Court entered an Order Granting the Motion to Reconsider, without objection, thereby reinstating the Chapter 13 case. The combination of the inclement weather, the fact that Cleveland was misled pre-petition and given the efforts of Cleveland and Legal Services to complete the bankruptcy process without further delay (all necessary schedules and statements were filed as an attachment to the Motion), motived the Court to grant the reconsideration without imposing the one year prejudice period to prevent a subsequent filing.

17. On April 4, 2014, White filed all necessary schedules and statements and the Certificate of Credit Counseling that had previously been filed as exhibits to the Motion to Reconsider.

18. The filed Certificate of Credit Counseling indicated that Cleveland completed his counseling post-petition on February 25, 2014.

19. Cleveland has progressed in the case toward confirmation and the Chapter 13 Trustee reported that the plan is otherwise confirmable. However, her notes to Cleveland dated May 29, 2014, the date of the confirmation hearing, again raised the issue of credit counseling, stating:

Debtor did not obtain credit counseling until after the case was filed (in fact, while the case was dismissed). Per statute, the counseling must be received during the 180-day period preceding the date of filing of the VP in order to be eligible to be a debtor. Debtor needs to take some action to have the court approve the late counseling.

20. Following no effort by Cleveland to seek relief from the Court regarding the credit counseling issue for over three months after reconsideration, the Chapter 13 Trustee requested dismissal of the case by Motion filed on July 9, 2014. She scheduled a hearing for August 21, 2014, to bring the question of Cleveland's eligibility to continue in his bankruptcy case to the Court's attention before making a final recommendation to the Court regarding confirmation.

21. White filed a response on behalf of Cleveland and both appeared at the hearing, along with the Chapter 13 Trustee. At the hearing White and Cleveland proffered testimony consistent with the statements in paragraph 12 above.

22. There is no dispute in this case that Cleveland failed to complete credit counseling within the 180 days pre-petition as...