Hayes v. Fay Servicing, LLC et al

Filing 12

MEMORANDUM OPINION & ORDER. For the reasons set forth herein, the Bankruptcy Court's order is AFFIRMED, and Hayes' appeal is DISMISSED. Signed by Senior Judge Norman K. Moon on March 16, 2023. (Opinion and Order mailed to Pro Se Parties via US Mail) (ca).

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF VIRGINIA
LYNCHBURG DIVISION


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RALPH LEON HAYES,

CASE NO. 6:22-cv-00063
MEMORANDUM OPINION & ORDER

Appellant,
v.

JUDGE NORMAN K. MOON

FAY SERVICING, LLC, et al.,
Appellees.

On October 25, 2022, Appellant Ralph Leon Hayes, pursuant to 28 U.S.C. § 158,
appealed the bankruptcy court’s order dismissing his case without prejudice for failure to obtain
prepetition credit counseling as required by the Bankruptcy Code, 11 U.S.C. § 109(h)(1).1 For
the forthcoming reasons, the Court will affirm the bankruptcy court’s order and will dismiss
Hayes’ appeal.

Background
On July 13, 2022, Ralph Leon Hayes, proceeding pro se, filed a Chapter 13 petition in the
United States Bankruptcy Court for the Western District of Virginia.2 Dkt. 4 at 20. On his
petition, Hayes checked the box providing that he received a briefing from an approved credit
counseling agency within 180 days before he filed his bankruptcy petition but that he did not
1

The appeal is ripe for review because Hayes filed a timely brief, Dkt. 7, and Appellee
Herbert Beskin filed a response brief, Dkt. 9, to which Hayes filed a reply, Dkt. 10.
2

“Chapter 13 of the Bankruptcy Code allows debtors with regular income to repay or
discharge certain debts after making payments to creditors for a specified commitment period,
generally three to five years.” Mort Ranta v. Gorman, 721 F.3d 241, 250 (4th Cir. 2013) (citing
11 U.S.C. §§ 1301–1330).
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have a certificate of completion as of the petition date. Id. On July 14, 2022, the bankruptcy
court entered an order informing Hayes that his petition was filed without a certification that he
had received credit counseling within 180 days before he filed the petition and that failure to cure
this deficiency within fourteen days from the date the petition was originally filed may result in
dismissal of his case. Id. at 21.
Under the Bankruptcy Code, an individual must meet certain eligibility requirements to
qualify as a debtor. 11 U.S.C. § 109. An individual may not qualify as a debtor unless he “has,
during the 180-day period ending on the date of filing of the petition by such individual, received
from an approved nonprofit budget and credit counseling agency . . . an individual or group
briefing . . . that outlined the opportunities for available credit counseling and assisted such
individual in performing a related budget analysis.” Id. § 109(h)(1). The credit counseling
requirement may be waived if a bankruptcy court determines that an individual is unable to
complete the requirement “because of incapacity, disability, or active military duty in a military
combat zone.” Id. § 109(h)(4). Under Section 109(h)(4), “disability” means “that the debtor is so
physically impaired as to be unable, after reasonable effort, to participate in an in person,
telephone, or Internet [credit counseling] briefing required under [section 109(h)(1)].” Id.
On or around July 21, 2022, Hayes obtained counsel. Dkt. 4 at 22. On July 28, 2022,
Hayes, through counsel, filed a certificate of credit counseling, which certified that on July 14,
2022, he received credit counseling by Internet that compiled with the Bankruptcy Code. Id. at
23. Because he completed the counseling the day after he filed his petition, he did not comply
with the requirement that he complete the counseling within 180 days before filing his petition.
11 U.S.C. § 109(h)(1). On September 2, 2022, Hayes, through counsel, filed a motion to waive
the credit counseling requirement. Dkt. 4 at 25. At the videoconference hearing before the

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bankruptcy court, Hayes, through counsel, argued that he had disabilities that merit waiving the
credit counseling requirement under Section 109(h)(4). Dkt. 1-2 at 3.
The bankruptcy court found Hayes’ argument unpersuasive on several grounds. First, the
court noted that despite suffering from his condition, Hayes “was able to complete the credit
counseling briefing conducted by Internet the day after he filed his petition, as well as complete
at least two other credit counseling briefings” in prior Chapter 13 bankruptcy cases. Id. at 4
(citing Case No. 15-60738; Case No. 08-60109). The court continued by finding that Hayes
failed to provide “evidence showing how he was so physically impaired that he could not
complete a credit counseling briefing within 180 days prior to this case yet not so impaired as to
prevent him from completing a credit counseling briefing one day later and on at least two
occasions in the years leading up to this case.” Id. Second, the court found that Hayes did not
make “a reasonable effort to participate in a credit counseling course prepetition when
postpetition on the day after the 180-day period expired, [he] was able to find a qualified
counseling agency accommodating his situation, and he completed the course.” Id. (emphasis in
original). Lastly, the court found that Hayes was “capable of participating meaningfully in an in
person, telephone, or Internet briefing” based on its interactions with Hayes during the
videoconference hearing. Id. Thus, the court concluded that Hayes did not suffer from the kind of
disability that permits it to waive the credit counseling requirement under Section 109(h)(4) and
thus denied Hayes’ motion to waive the counseling requirement. Id.
Because Hayes failed to complete the required prepetition credit counseling, the court
found that Hayes was ineligible to be a debtor and therefore dismissed the case without prejudice
on September 19, 2022. Id. at 5.

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Legal Standard
Jurisdiction is conferred upon this Court pursuant to 28 U.S.C. § 158(a)(1) (providing
district courts “shall have jurisdiction to hear appeals . . . from final judgments, orders, and
decrees”). A district court “may affirm, modify, or reverse a bankruptcy judge’s judgment, order,
or decree or remand with instructions for further proceedings.” Fed. R. Bankr. P. 8013. When
reviewing a bankruptcy court’s decision, “a district court functions as an appellate court and
applies the standards of review in federal courts of appeal.” Patterson v. Mahwah Bergen Retail
Grp., Inc., 636 B.R. 641, 662 (E.D. Va. 2022) (internal quotation marks and citation omitted). A
district court “review[s] the bankruptcy court’s legal conclusions de novo and its factual findings
for clear error.” In re Harford Sands Inc., 372 F.3d 637, 639 (4th Cir. 2004) (emphasis added).
Clear error exists when a district court “is left with a definite and firm conviction that a mistake
has been committed.” Anderson v. City of Bessemer, 470 U.S. 564, 573 (1985) (internal
quotation marks and citation omitted). When a case involves questions of law and fact, a district
court “reviews findings of fact under the clearly erroneous standard and reviews de novo the
legal conclusions derived from those facts.” Patterson, 636 B.R. at 662 (citing Gilbane Bldg. Co.
v. Fed. Rsv. Bank of Richmond, Charlotte Branch, 80 F.3d 895, 905 (4th Cir. 1996)).

Analysis
Hayes appealed the bankruptcy court’s order dismissing his case without prejudice for
failure to complete the required credit counseling during the 180-day period before filing his
petition. Dkt. 1. He challenges the bankruptcy court’s finding that he did not suffer from the kind
of disability that permits it to waive the credit counseling requirement under Section 109(h)(4).

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Dkt. 7. Specifically, he argues that the court was unable to determine during a videoconference
his mental or physical health. Dkt. 1-1 at 5; Dkt. 7 at 3.
The Court finds that the bankruptcy court committed no clear error in finding that Hayes’
disability did not prevent him from participating meaningfully in credit counseling. Contrary to
Hayes’ argument, the bankruptcy court was able to assess Hayes’ ability to participate
meaningfully in an in person, telephone, or Internet briefing based on its interactions with Hayes
during the videoconference hearing. For comparison, because of COVID-19, district courts in the
Western District of Virginia frequently hold civil and criminal videoconference hearings, during
which courts sometimes make findings based on its interactions with a party, such as finding that
a criminal defendant is competent to plead guilty.3 Thus, the Court finds no clear error in the
bankruptcy court making a factual finding based on its interactions with Hayes during the
videoconference hearing.
In addition, the bankruptcy court did not rely solely on its interactions with Hayes when
making its factual finding. The court considered other evidence in the record to find that Hayes
could participate meaningfully in an in person, telephone, or Internet briefing. See Dkt. 1-2 at 4.
For example, the court considered that Hayes found “a qualified counseling agency
accommodating his situation” that he completed by Internet the day after he filed his petition,
which supports that his disability did not prevent him from participating in credit counseling. Id.
Moreover, the Court also finds that the bankruptcy court committed no legal error by
dismissing Hayes’ case without prejudice for noncompliance with Section 109(h)(1). See In re
Mitrano, 409 B.R. 812, 818 (E.D. Va. 2009) (affirming a bankruptcy court’s decision to dismiss

3

For instance, Standing Order 2020-07 in the United States District Court for the
Western District of Virginia authorizes videoconference for criminal proceedings under the
Cares Act.
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a case when an individual failed to comply with the credit counseling requirement and noting
that “an individual may not be a debtor who is eligible for bankruptcy relief unless he has
complied with Section 109(h)”); In re Stinnie, 555 B.R. 530, 536 (Bankr. W.D. Va. 2016) (“It is
well established that if an individual is ineligible to be a debtor in bankruptcy, it is fitting for the
bankruptcy court to dismiss the case.”); In re Karim, No. 09-11268-SSM, 2009 WL 2044694, at
*2 (Bankr. E.D. Va. July 7, 2009) (“Failure to obtain the required credit counseling ordinarily
requires dismissal of the case.”).
Accordingly, the Court concludes that the bankruptcy court committed no clear error in
its factual findings and no reversible error of law in its dismissal of Hayes’ bankruptcy case.

Conclusion
For the foregoing reasons, the bankruptcy court’s order is AFFIRMED, and Hayes’
appeal is DISMISSED.
It is so ORDERED,
The Clerk of the Court is directed to send this Memorandum Opinion and Order to
Appellant and all counsel of record.
Entered this _____
16th day of March, 2023.

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