Bankruptcy Judges Take on “Inane” Credit Counseling Requirements

While bankruptcy judges are obliged to apply and uphold the rule of
law as specifically set out by Congress, some have chosen to publicly
air their misgivings about the lack of discretion left to  judges to
administer bankruptcy cases by the 2005 amendments to the Code. A
recent order by Judge Monroe of the Western District of Texas has
gained widespread attention for its scathing attack on the credit
counseling requirement. [1] It remains to be seen whether bankruptcy
judges and practitioners will be able to prompt review of this
provision, but the frustration evident in Judge Monroe's decision has
sent Congress a clear message.

credit counseling prerequisite to filing a bankruptcy petition is just
one example of how the 2005 Bankruptcy Abuse Prevention and Consumer
Protection Act has made bankruptcy relief more expensive, time
consuming, and restrictive than before. One initial study suggests that
the credit counseling industry is ill equipped to provide any
meaningful assistance to the vast majority of debtors who are pushed
into bankruptcy by financial catastrophes. [2]

When Alfonso Sosa received a Notice of Foreclosure for missing four
mortgage payments on his mobile home last summer, he didn't understand
what the word meant. "I thought is was another letter complaining, like
the other ones they sent me, " Sosa, a house painter and father of
three, told the Austin American-Statesman. [3] Sosa began negotiating
with the mortgagee of his home, but were ultimately unable to come to
an agreement.

At the last possible moment before losing their home, Sosa and his
wife filed a petition for Chapter 13 relief under the Bankruptcy Code
that would have stayed the foreclosure and allowed them to set up a
repayment plan. However, the Sosas were unaware than credit counseling
was a prerequisite to filing bankruptcy and their case was dismissed
after they failed to show cause why the requirement should be waived.

Prepetition credit counseling is a new debtor eligibility requirement under §
109(h) of the Bankruptcy Code; without it, individuals cannot seek
relief from their debts. [5] Judge Monroe recognized that after filing
the petition and speaking with a bankruptcy attorney, Sosa and his wife
were properly advised to seek counseling and did so, but as of the show
cause hearing, only Alfonso Sosa's certificate of completion had been
filed with the court. Nonetheless, Judge Monroe upheld the "clear and
unambiguous" requirements of the statute and dismissed the case:

debtor has now substantially complied with the intent of the Act by
undergoing the required credit counseling. One has not but still could
within the time limit if a waiver could be granted. However, because
the Debtors did not request such counseling before they filed their
case, Congress says they are ineligible for relief under the Act. Can
any rational human being make a cogent argument that this makes any
sense at all?" [6]

In a similar decision
also issued last December, Judge Cristol of the Southern District of
Florida wondered if "[i]t was the intent of Congress that poor,
ignorant persons who do not know the law and cannot afford to obtain
the advice of counsel are to be denied the protection and assistance of
the Bankruptcy Code which is available to more affluent and better
educated persons?" [7]

While Judge Cristol seemed willing to give Congress the
benefit of the doubt, Judge Monroe was not so forgiving about BAPCPA
generally and the credit counseling requirement specifically, calling
it "one of the more absurd provisions in the new Act." [8]

stated, if a debtor does not request the required credit counseling
services from an approved nonprofit budget and credit counseling
service before the petition is filed, that person is ineligible to be a
debtor no matter how dire the circumstances the person finds themselves
in at that moment. This Court views this requirement as inane." [9]

sense suggests that the proper time for credit counseling is not on the
eve of foreclosure. The counseling requirement serves a gate-keeping
function that is designed to weed out abusive filings, i.e. by those
debtors who could afford to reorganize their finances and pay creditors
as part of a repayment plan. The National Association of Consumer
Bankruptcy Attorneys recently conducted a study of 61,335 debtors who
sought prepetition counseling. The study found that a mere 3.3 percent
of those debtors qualified for debt management plans as an alternative
to a bankruptcy filing based on income, [10] however some of those
required bankruptcy to invoke the automatic stay and protect their
homes from foreclosure proceedings, as was the case for the Sosas.

In connection with the NACBA study, Leslie Linfield,
executive director of the Institute for Financial Literacy, spoke about
the proper role of credit counselors:

clients receiving credit counseling under the new bankruptcy law are at
their most vulnerable. Bankruptcy for most is their only option and a
bankruptcy alternative, such as a debt-management plan, is
inappropriate. Where the credit counseling industry has the ability to
truly serve these clients is assisting them in the creation of family
budgets, providing information on available social services, and
educating these clients in sound financial management." [11]

the five months since BAPCPA has been in effect, preliminary reports
indicate that it is neither preventing abuse or protecting consumers.
Rather, it seems that the warnings of bankruptcy judges, professors,
and practitioners are being borne out: the new law is making bankruptcy
less accessible to those who need it most. [12]

Time will tell whether the credit counseling requirement
truly is an unmitigated failure of drafting. If the effects of this
provision are indeed prejudicial to those most in need and if it does
not substantially weed out abusive filings, it can only be hoped that
bankruptcy judges and lawyers will continue to vigilantly document its
effects and press for thorough review by Congress.


[1] In re Sosa, 336 B.R. 113 (Bankr. W.D. Tex. 2005). It
should be noted that Judge Monroe is not alone in exercising brutal
honesty from the bench at the Bankruptcy Court for the Western District
of Texas. Judge Clark's "Order Denying Motion for Incomprehensibility"
is undeniably amusing. In re King, No. 05-56485-C (Bankr. W.D. Tex. Feb. 21, 2006), available at

[2] National Association of Consumer Bankruptcy Attorneys,
Bankruptcy Reform's Impact: Where are all the "Deadbeats"? Feb. 22,
2006, available at [hereinafter NACBA].

[3] Robert Elder, Judge Takes Congress to Task in Bankruptcy Case, Austin American-Statesman, Feb. 6, 2006, available at

[4] In re Sosa, 336 B.R. at 115.

[5] 11 U.S.C. § 109(h)(1) (West 2005).

[6] In re Sosa, 336 B.R. at 115.

[7] In re Valdez, 335 B.R. 801, 803 (Bankr. S.D. Fla. 2005).

[8] In re Sosa, 336 B.R. at 114.

[9] Id.

[10] NACBA, supra note 2, at 2.

[11] Leslie Linfield, Executive Dir., Inst. for Fin. Literacy, Statement at NACBA News Conference (Feb. 22, 2006) available at

[12] NACBA, supra note 2, at 3.