One of the many provisions of the bankruptcy code is a requirement that debtors enroll in a credit counseling program and obtain a certificate of completion within 180 days of filing of their bankruptcy. This requirement is waived if the person cannot complete this requirement because he or she is:
- Incapacitated (i.e. impaired by reason of mental illness or mental deficiency so that he or she is incapable of realizing and making rational decisions respecting his or her financial responsibilities);
- Disabled (i.e. so physically impaired as to be unable, after reasonable effort, to participate in the counseling); or
- On active military duty in a military combat zone.
Even then, these exceptions must be proven before a judge in a post-filing hearing, not just claimed when you file.
What if the Sheriff Sale is Tomorrow?
But what happens when the sheriff sale on your home is in a few days, and you need to file a chapter 13 bankruptcy to stop it, but you do not have the credit counseling certificate when you go to talk to your lawyer? Here things get even more involved. You must then file
- a certification
- detailing the exigent circumstances that merit a waiver of the credit counseling requirement
- stating that you actually requested counseling before filing bankruptcy but were unable to get it within 5 days, and
- the certification must be satisfactory to the court.
Absent satisfaction of all 4 criteria, the petition must be dismissed! Then, if you get the credit counseling and refile a bankruptcy within one year of the previous case's dismissal, the court may impose a presumption of bad faith filing. Should this happen, the part of the bankruptcy laws that stop the sheriff sale, the "Automatic Stay," will expire in thirty (30) days from your filing, unless you are able to convince the court by "clear and convincing evidence" that it should be extended (another high hurdle to get over).
The Waiver Process is Tough!
The four-part application process described above is a tough one. First, you must have actually requested counseling prior to filing bankruptcy, even if you know that counseling will not be available within five days. This is very tough to establish in New Jersey, since at least two approved counseling agencies (Hummingbird Credit Counseling http://www.hummingbirdcreditcounseling.org/ and the Institute for Financial Literacy http://www.financiallit.org/) promise Internet or phone counseling in less than 24 hours.
Second, there is the burden to prove "exigent circumstances." The good news here is that most courts have found that an imminent loss of property, such as a foreclosure sale by the sheriff, is sufficiently "exigent." The bad news is that at least one court has said that "exigent circumstances" refers to circumstances preventing a person from obtaining credit counseling. You would also be in a position to have to explain to a bankruptcy judge why you did not seek out bankruptcy relief soon enough to get the counseling certificate (i.e. why you waited until the last minute).
The lesson here is, if you find that you need to file bankruptcy, and time is of the essence in doing so, contact my office for a free consultation. Better yet, find an approved credit counseling agency and get the certificate, so that when you have to file (within the 180 days of getting the certificate) you can do so.