What Is a Briefing and Will It Reduce Filings

What Is a Briefing and Will It Reduce Filings

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In order for an individual to be a debtor under BAPCPA, he or she must first comply with the credit counseling provisions of §109(h). Under this new provision, a debtor is required to receive an individual or group briefing from an approved nonprofit budget and credit counseling agency within 180 days preceding the filing. The "briefing" may be conducted by telephone or over the Internet. The services to be provided are twofold: The credit counseling agency must (1) advise the individual of the opportunities that are available for credit counseling and (2) assist the individual in performing a related budget analysis.

Ambiguity and Questions

The challenge in construing this provision will be determining whether a "briefing" connotes services that might differ from those that would be provided in a "counseling" session. Neither word is specifically defined in BAPCPA. Section 111, which establishes the qualifications and services that are to be provided by an approved agency, only makes specific use of the term "counseling." The term "briefing" only receives an indirect reference in §111(a), which sets forth the clerk office's obligation to provide a "list of nonprofit budget and credit counseling agencies that provide one or more services described in §109(h)...."

The terms "briefing" and "counseling" appear to be used interchangeably in a later section discussing waiver. In addition, §109(h)(3) provides a waiver of the credit counseling requirement when the debtor is able to demonstrate "exigent circumstances," which refers only to credit counseling "services," while §109(h)(4), which also provides for a waiver due to "incapacity, disability or active military duty in a military combat zone," refers to "briefing."

Referring back to §109(h), the services to be provided by an approved nonprofit budget and credit counseling agency include a "briefing...of the opportunities for available credit counseling and...performing a related budget analysis." If the sentence ended with "the opportunities for available credit counseling," then one might reasonably interpret the "briefing" as simply an overview of the counseling process. However, by adding the second component of assisting the individual "in performing a related budget analysis," a far more detailed review is implied. This view is supported by the reference in §111(c)(2)(E) and (F), which states that "a nonprofit budget and credit counseling agency shall, at a minimum...provide adequate counseling... that includes an analysis of such client's current financial condition, factors that caused such financial condition and how such client can develop a plan to respond to the problems...."

In BAPCPA, there is a financial deterrent to unsecured consumer creditors that are unwilling to participate in a nonbankruptcy repayment plan.

The credit counseling certification, required under §541(b), further supports the inference that a "briefing" involves more than a cursory review of the debtor's financial situation by requiring a statement of the "services provided to the debtor; and a copy of the debt repayment plan, if any, developed under §109(h)...."

For the credit counseling agency to perform an examination under the means test, the debtor will be required to provide, possibly with the assistance of an attorney, detailed current and historical financial information to establish "current monthly income," less the allowable monthly expenses under the National and Local Standards issued by the Internal Revenue Service and such other allowable expenses under §707(b)(2)(A).

Impact on Filings

If the "briefing" is more than simply a revolving door back to the attorney for the filing of a bankruptcy, is it foreseeable that the counseling requirement could lead to a reduction in the number of bankruptcy cases? Admittedly, credit counseling services have been available since the enactment of the Code. However, the availability of those services has done little to stem the filing rate. Consumer debtors had little motivation to stay with a long-term repayment plan when they could simply eliminate their unsecured debt by filing a chapter 7 petition. However, there are several factors that may now result in a very different outcome.

If the credit counseling agency performs a means-test analysis and determines that an individual is required to meet the threshold requirement of repaying $6,000 to their unsecured creditors over a 60-month period, that repayment need not necessarily occur through a bankruptcy proceeding. In BAPCPA, there is a financial deterrent to unsecured consumer creditors that are unwilling to participate in a nonbankruptcy repayment plan. Under the allowance of claims provision in §502(k)(1), the court may reduce a claim "by not more than 20 percent of the claim" if the creditor "unreasonably refused to negotiate a reasonable alternative repayment schedule proposed on behalf of the debtor by an approved nonprofit budget and credit counseling agency... which provided for payment of at least 60 percent of the amount of the debt...."

Going one step further, to the extent a consumer debtor is also facing foreclosure, there are now viable options through HUD-approved housing counseling agencies and lender loss mitigation departments to save one's home. By simply coordinating the resources of these agencies as part of the "briefing" process, a significant number of debtors may be able to resolve their debt problems through nonbankruptcy alternatives.

The last incentive is one of simple economics. Based on the additional responsibilities and requirements under the new Code, it is foreseeable that the legal fees to file a bankruptcy petition will increase. By contrast, §111(c)(2)(B) contains a directive that a credit counseling agency "charge a reasonable fee and provide services without regard to the ability to pay the fee." Since Congress has mandated the use of a "briefing" by an approved nonprofit budget and credit counseling agency prior to the filing, attorneys may find that it is a door through which some of their prospective clients need never return.


1 Gregory Johnson has served as a chapter 7 panel trustee in the U.S. Bankruptcy Court for the District of Maryland, Greenbelt Division, since 1986. Return to article

Journal Date: 
Thursday, September 1, 2005