(Note: The ABI BAPCPA Blog just added a post on incapacity and disability as grounds for a waiver of the counseling requirement).
I previously discussed Judge Bonapfel’s opinion in In re Ross, in which he held that cases in which the debtor has failed to meet the counseling requirement are dismissed rather than stricken. The distinction is important for several reasons.
Judge Morris in the Eastern District of New York, in a lengthy opinion, analysed all of the recent decisions on the issue, including Ross (which the Court found to be "thoughtful analysis" and "particularly well written"). However, the Court concluded that such cases should be stricken. In re Elmendorf, 2006 Bankr. LEXIS 1369 (Bankr. E.D.N.Y. July 18, 2006).
In response to the argument that the outcome could encourage bad faith on the part of would-be debtors, the court stated the following –
As for the possibility of malfeasance, it is impossible to legislate or rule in such a way as to preclude the eventuality of bad faith actions completely. The Court believes that the measures suggested by this opinion will go a long way toward preventing manipulation of the striking of petitions — where a petition is obviously filed for improper purposes, and credit counseling requirements are being strategically used to avoid the provisions of the BAPCPA, the Court can use its inherent powers to impose preclusive relief. It must also be noted that the outcome proposed by the proponents of dismissal could also lead to malfeasance — an individual may file a petition without credit counseling, invoke the protection of the stay, sit back and do virtually nothing, secure in the knowledge that creditors may not proceed until dismissal or stay relief is granted, and enjoying the delay that such action will involve. Presumably, persons who file bankruptcy on one or even multiple occasions, precipitated by a lack of financial savvy rather than an attempt to deliberately forestall creditors, are not "bad faith" filers — they are just ignorant of the law or inept in financial matters. Those who wish to circumvent the system will find a means of doing so, regardless of whether the petition is ultimately stricken or dismissed. The Court may use its inherent powers to prevent abuse of the Bankruptcy Code, and if the Court does determine that bad faith exists, due to, e.g., serial filings or skeletal filings, the Court can strike a case, with prejudice to future filings if necessary, after undertaking a case-by-case analysis of the circumstances.
Due to conflicting authority in the district, the Court certified the case for immediate appeal to the Second Circuit pursuant to 28 USC §158(d)(2)(ii).