Involuntary Bankruptcy and the Credit Counseling Conundrum

A recent discussion with another lawyer raised an interesting question: Has BAPCPA eliminated involuntary bankruptcies against individuals? This is because of the interacting requirements of 11 U.S.C. §§ 303(a) and 109(h).

Section 303(a) of the Bankruptcy Code (unchanged from pre-BAPCPA) states: “An involuntary case may be commenced only under Chapter 7 or 11 of this title, and only against a person…that may be a debtor under the chapter under which such case is commenced.” (Emphasis added.) BAPCPA added new explicit requirements for being an individual debtor in § 109(h): “[A]n individual may not be a debtor under this title unless such individual has, during the 180-day period preceding the date of filing of the petition by such individual, received from an approved nonprofit budget and credit counseling agency…credit counseling…” (Emphasis added.)

In other words, if the proposed involuntary debtor does not first take a pre-petition credit counseling course, he or she cannot be a debtor…and thereby cannot have an involuntary petition filed against them!

I have blogged about credit counseling requirements previously, Why I Hate Credit Counseling, and will write another article shortly about some of the problems with the Financial Management requirement, particularly the effect of closing cases without a discharge. But this “involuntary gotcha” seems to be yet another in the long liturgy of unintended consequences resulting from the massively flawed and poorly drafted BAPCPA.

How will the Court interpret the interaction between sections 301(a) and 109(h)? Will it follow the clear language of the Code and prohibit involuntary bankruptcies if the debtor fails to first complete a credit counseling course, thus substantively eliminating individual involuntaries? After all, that’s what the Code pretty clearly requires. Or will it follow the line of cases holding that where the result of a literal reading of a statute results in an absurd result it can disregard otherwise clear language? The absurd result decisions are of long pedigree, starting as early as United States v. Kirby, 74 U.S. 482 (1868). But a very interesting discussion of this doctrine by Michigan Supreme Court Chief Justice Maura Corrigan raises questions. As she stated in her article, Dice Loading” Rules Of Statutory Interpretation, published in 2003 in the New York University Annual Survey of American Law, Symposium On State Constitutional Law:

[T]he Michigan Supreme Court no longer subscribes to the so-called “absurd result” doctrine. Under this doctrine, judges ignore the plain language of a statute whenever they deem the result required by the statute to be absurd or unjust. A judge has no authority to disregard a law validly enacted by the representatives of the people merely because the judge dislikes the outcome. A judge’s personal predilection regarding what is unjust or absurd simply is not relevant.

She believes that it is up to the legislature to fix statutory language that causes absurd results, and that this power should not reside with the judiciary (although she reserves her real invective for the supports of the “remedial legislation should be liberally construed” doctrine: “[This] view particularly should trouble anyone who values our democratic system of government.”)

The academic discussion of this issue is also of long standing, and much of it disagrees with Justice Corrigan. See John F. Manning, The Absurdity Doctrine, 116 Harv L.Rev. 2387 (2003); Veronica M. Dougherty, Absurdity and the Limits of Literalism: Defining the Absurd Result Principle in Statutory Interpretation, 44 Am.U.L.Rev. 127 (1994); Jonathan R. Siegel, What Statutory Drafting Errors Teach Us About Statutory Interpretation, 69 Geo. Wash.L.Rev. 309 (2001); John Copeland Nagle, Textualism’s Exceptions, in Issues in Legal Scholarship (2002). An excellent summary of the various positions on this issue may be found by reading Andrew S. Gold, Absurd Results, Scrivener’s Errors and Statutory Interpretation, 75 U.Cinn.L.Rev. 25 (2006), with general commentary on Justice Corrigan’s article and the absurdity doctrine found at http://radio.weblogs.com/0110436/2004/01/09.html.

This debate is more than academic, however, particularly when BAPCPA is viewed through Justice Corrigan’s lens. For BAPCPA is rife with poorly written and inconsistent provisions that, if applied as written, could cause what some jurists might view as an absurd result. See my blog, BAPCPA’s Biggest Blunders, for some of the more egregious errors in this poorly drafted law.

Despite Justice Corrigan’s plea for a strict constructionist approach, I suspect that, at least in the case of the involuntary credit counseling conundrum, the language of the Code will not prove to be a bar to an individual involuntary. I think it unlikely that most Courts would find that Congress intended to prohibit such actions without something a bit more explicit. But it is instructive of some of the difficulties placed on the Bench by the extremely poor draftsmanship of the new law, and the analysis they must go through in reaching their decisions. Despite my suspicions, however, I do know this: if I am retained to fight an individual involuntary, the second pleading I will file (after my 2016(b)!) is a Motion to Dismiss for failure to comply with 11 U.S.C. § 109(h).

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