I discussed on January 26 the need to obtain a “ticket” into bankruptcy court: the certificate from an approved credit counselor. As the new bankruptcy laws continue their evolutionary trek through the nations courts, another case has popped up that should serve as a warning to all folks facing foreclosure. Since foreclosure rates are creeping to multi-year highs, it’s important to heed this warning.
The Bankruptcy Appellate Panel for the 8th Circuit (which includes Missouri, the Dakotas and Arkansas, among other states) ruled on February 16, 2006 that even though the debtor could demonstrate he was facing “imminent foreclosure” that was not enough to show an “exigent circumstance” which would warrant a waiver of the credit counseling requirement.
In this case, the debtor told the bankruptcy court that his house was scheduled to be auctioned at 12 noon on November 10 – the same day he filed his petition. He did not contact a bankruptcy lawyer until 6:30 pm on November 9. The debtor did not have internet access, and when he called an approved credit counselor he was told it would be two weeks before he could receive counseling on the phone. The bankruptcy court found that this was not enough to waive the “ticket” into bankruptcy court, and dismissed the petition.
In addition to noting other cases from other bankruptcy courts in the country that have ruled on the issue, the Appellate panel noted that the bankruptcy court had also relied on a local state law which requires twenty days notice before foreclosure: “[i]n the face of that much notice of the impending foreclosure sale the bankruptcy court determined that his exigent circumstances did not merit the waiver of the prebankruptcy briefing requirement. We cannot say that the bankruptcy court abused its discretion in making that determination.”
Homeowners, take note: In Massachusetts, the foreclosing mortgagee is required to publish a notice of the sale at least 21 days prior to the sale. But even before then, the homeowner will have received a letter from the mortgagee’s attorney. In other words, mortgage sales generally don't just happen overnight.
Like it or not, the prebankruptcy credit counseling requirement is here for the foreseeable future. There can be little worse than learning that the option of a bankruptcy petition has been ruled out because an important requirement has not been fulfilled. Financially distressed homeowners should be calling bankruptcy attorneys at their earliest opportunity – and not the night before the auctioneer’s hammer is about to come down. Keep open all available options: plan now, or pay later.
You will find the case here.
