Appeal from the United States Bankruptcy Court for the Middle District of Florida

JAMES D. WHITTEMORE, District Judge.

Appellant challenges the Bankruptcy Court's order denying reconsideration of its order dismissing Shaul Baruch's bankruptcy petition for failure to comply with the credit counseling requirement of 11 U.S.C. § 109(h). Appellant contends that compliance with the credit counseling requirement is jurisdictional and therefore the petition should have been stricken, rather than dismissed. Upon consideration, the Bankruptcy Court's Order is AFFIRMED. I conclude that compliance with the credit counseling requirement of 11 U.S.C. § 109(h) is not jurisdictional and therefore the Bankruptcy Court did not err in dismissing, rather than striking, the petition.1

BACKGROUND

This appeal presents the single question of whether the credit counseling requirement in the Bankruptcy Abuse Prevention and Consumer Protection Act, 11 U.S.C. § 109(h), is jurisdictional.2 Section 109(h) requires that debtors have "either received a briefing from an approved credit counseling agency prior to filing the petition, or have filed a certificate of exigent circumstances that meets three requirements set forth in the statute." In re Hedquist, 342 B.R. 295, 297 (8th Cir. BAP 2006).

Shaul C. Baruch filed a voluntary Chapter 11 bankruptcy petition, including a statement of compliance with the credit counseling requirement of § 109(h), in which he certified that he requested credit counseling services but was unable to obtain them and requested a waiver based on exigent circumstances. Approximately six months later, it was discovered that Baruch never took the credit counseling course or received a waiver from the bankruptcy court. His noncompliance came up during a May 28, 2015 hearing involving a motion to dismiss or convert his bankruptcy case to Chapter 7,3 prompting the bankruptcy court to remark that failure to comply with the credit counseling requirement "makes a Debtor ineligible to file." The next day, the Trustee filed an objection to Baruch's proposed reorganization plan, contending that the plan could not be confirmed because of his failure to obtain credit counseling. During the hearing on the objection, Baruch's counsel agreed that he was ineligible to be a debtor and that the case should be dismissed. The bankruptcy court sustained the Trustee's objection, denied confirmation, and announced the case would be dismissed. An order dismissing the case was entered on June 10, 2015.

Two weeks later, Appellant moved for reconsideration, contending that the bankruptcy petition should have been stricken. Appellant argued that compliance with the credit counseling requirement was jurisdictional, and since Baruch never received the required credit counseling, he was ineligible to be a debtor and his case therefore never commenced.4 The motion was denied, prompting this appeal.

DISCUSSION

Jurisdiction of the bankruptcy courts was established by Congress in Title 28.5 In re Trusted Net Media Holdings, LLC, 550 F.3d 1035, 1039 (11th Cir.2008) (en banc), citing Kontrick v. Ryan, 540 U.S. 443, 453, 124 S.Ct. 906, 914, 157 L.Ed.2d 867 (2004). "[B]ankruptcy court jurisdiction exists, by reference from the district courts, in three categories of proceedings: those that "arise under title 11,' those that `arise in cases under title 11,' and those `related to cases under title 11.'" Id. at 1039 (quotation and citation omitted). And one Circuit has held that "the dismissal of a bankruptcy case for failing to meet the requirements for filing the petition is a core issue: the issue arises under title 11; it arises in a case under title 11; it concerns the administration of the estate; and it affects the adjustment of the debtor-creditor relationship." In re Hedquist, 342 B.R. at 298-99.

Section 301 of the Bankruptcy Code provides that "[a] voluntary case under this chapter is commenced by the filing with the bankruptcy court of a petition under such chapter by an entity that may be a debtor under such chapter." 11 U.S.C. § 301(a) (emphasis added). Section 109 of the Bankruptcy Code identifies "Who may be a debtor" in a chapter 7 case, (emphasis added). As noted, § 109(h) provides that an individual may not be a debtor unless he obtains credit counseling before filing a bankruptcy petition, the requirement is waived by the court, or an exemption or exception applies. 11 U.S.C. § 109(h).

Appellant contends that the plain language of § 109(h) makes credit counseling a mandatory condition precedent to becoming a debtor, and since Baruch was not an eligible debtor under § 301, no case was commenced and therefore subject matter jurisdiction was lacking. In short, according to Appellant, since no case was "commenced," there was no case to dismiss, and the petition should have been stricken for lack of subject matter jurisdiction.6

Was the issue preserved for review?

Appellees first contend that the issue was not preserved for review because Appellant failed to raise it until after the bankruptcy case was dismissed.7 In response, Appellant explains that the issue was raised for the first time in the motion for reconsideration because the bankruptcy court's dismissal was sua sponte. Appellant points out that although Baruch's non-compliance with the credit counseling requirement was discussed during the May 28, 2015 hearing, no party moved to dismiss the bankruptcy case for that reason, and it was not until the hearing on the Trustee's objection to the reorganization plan that the bankruptcy court announced its intention to dismiss the case. Appellant urges that in any event, subject matter jurisdiction can be raised at any time.

Appellant is correct. Appellee's motion for reconsideration was filed in response to the bankruptcy court's sua sponte dismissal and therefore preserved the issue for review. Moreover, lack of subject matter jurisdiction may be raised at any stage of a proceeding. See Scarfo v. Ginsberg, 175 F.3d 957, 960 (11th Cir.1999) ("Under the law of this circuit, however, parties cannot waive subject matter jurisdiction, and we may consider subject matter jurisdiction claims at any time during litigation."); Sebelius v. Auburn Reg'l Med. Ctr., ___ U.S. ___, ___, 133 S.Ct. 817, 824, 184 L.Ed.2d 627 (2013) ("Objections to a tribunal's jurisdiction can be raised at any time, even by a party that once conceded the tribunal's subject-matter jurisdiction over the controversy.").

Notwithstanding, this appeal fails on the merits. Section 109(h) is not jurisdictional and therefore the bankruptcy court did not err in dismissing Baruch's petition.

Is credit counseling jurisdictional?

Appellant is correct that the plain language of § 109(h) makes compliance with its credit counseling provisions mandatory for debtors seeking bankruptcy relief. For the reasons that follow, however, I conclude that credit counseling is determinative of a debtor's eligibility for bankruptcy relief, rather than subject matter jurisdictional. Appellee is therefore correct that even a debtor like Baruch who fails to comply with § 109(h) may be a debtor under § 301, for purposes of commencing a bankruptcy case. A noncompliant debtor's bankruptcy petition is therefore subject to dismissal, rather than being stricken.

While bankruptcy courts disagree on whether noncompliance with the credit counseling requirement of § 109(h) requires dismissal or striking of the debtor's petition,8 with rare exception,9 those courts do not consider § 109(h) jurisdictional. The only Circuit to address whether § 109(h) is jurisdictional concluded that it is not. In re Zarnel, 619 F.3d 156, 169 (2d Cir.2010) ("[W]e find that the restrictions of § 301 and § 109(h) are not jurisdictional, but rather elements that must be established to sustain a voluntary bankruptcy proceeding."). That court reasoned that "although an individual may be ineligible to be a debtor under the Bankruptcy Code for failure to satisfy the strictures of § 109(h), the language of § 301 does not bar that debtor from commencing a case by filing a petition; it only bars the case from being maintained as a proper voluntary case under the chapter specified in the petition." Id. at 166-67.

The reasoning of the Second Circuit in Zarnel is persuasive, and consistent with cases discussing eligibility requirements for filing bankruptcy petitions similar to those in § 109(h). See Matter of Phillips, 844 F.2d 230, 236 n. 2 (5th Cir.1988) (eligibility requirements for filing a bankruptcy petition do not raise an issue of subject matter jurisdiction). And precedent in this Circuit suggests that it would agree with the Second Circuit. While this Circuit has not addressed whether the credit counseling requirement of § 109(h) is jurisdictional, it has held, sitting en banc, that the requirements of 11 U.S.C. § 303(b) for commencing an involuntary bankruptcy petition "are not subject matter jurisdictional in nature ..." In re Trusted Net Media Holdings, LLC, 550 F.3d at 1037.10 Citing precedent holding that "statutory conditions within the Bankruptcy Code upon the `commence[ment]' of a bankruptcy action are not subject matter jurisdictional," the Court definitively concluded "that 11 U.S.C. § 303(b) does not implicate subject matter jurisdiction." Id. at 1046.11

The Supreme Court has adopted a "readily administrable bright line" for determining whether a statutory limitation is jurisdictional. Sebelius v. Auburn Reg'l Med. Ctr., 133 S.Ct. at 824. Applying that "readily administrable bright line" to determine whether the requirement of credit counseling is jurisdictional, as well as the reasoning in Trusted Net Media Holdings, LLC, I conclude that the credit counseling requirement of § 109(h) is an element of eligibility to sustain a voluntary bankruptcy case, and not jurisdictional. See In re Zarnel, 619 F.3d at 169 ("[W]e find that the restrictions of § 301 and § 109(h) are not jurisdictional, but rather elements that must be established to sustain a voluntary bankruptcy proceeding.").

First, § 109(h) does not include jurisdictional language or speak in jurisdictional terms and therefore "does not evince a congressional intent to implicate the bankruptcy court's subject matter jurisdiction." Trusted Net Media Holdings, LLC, 550 F.3d at 1042-43 (citing Arbaugh v. Y&H Corp., 546 U.S. 500, 515, 126 S.Ct. 1235, 1245, 163 L.Ed.2d 1097 (2006) (instructing that courts should look to whether Congress has included jurisdictional language in the statute)); Sebelius, 133 S.Ct. at 824 ("We inquire whether Congress has `clearly state[d]' that the rule is jurisdictional; absent such a clear statement, we have cautioned, `courts should treat the restriction as nonjurisdictional in character.") (quoting Arbaugh, 546 U.S. at 515-516, 126 S.Ct. 1235).

Second, the authority of the bankruptcy courts to hear cases arising under Chapter 11 is conferred by Title 28, and nothing in § 109(h) indicates an intent by Congress to restrict or limit that statutory grant. Id. at 1044. Third, although the statute expressly provides that "an individual may not be a debtor" unless he received credit counseling, it also expressly provides for an "exemption" to that requirement, as well as exceptions, thereby authorizing a bankruptcy court to permit a case to proceed that might otherwise be subject to dismissal. Id. at 1044-45; § 109(h)(2)(A); § 109(h)(4). Finally, and most significantly, § 109(h) (3)(A)(i) expressly provides that the credit counseling requirement may be waived, strongly indicating that it is not a jurisdictional requirement.

I conclude, therefore, consistent with the reasoning in Trusted Media Net Holdings, LLC., that "the restrictions of § 301 and § 109(h) are not jurisdictional but rather elements that must be established to sustain a voluntary bankruptcy proceeding." Zarnel, 619 F.3d at 169. Accordingly, Baruch's bankruptcy case was commenced, despite his failure to comply with the credit counseling requirement, and the bankruptcy court did not err in dismissing, rather than striking, his petition.

The Clerk is directed to enter final judgment in favor of Appellees and against Appellant and close the file.

AFFIRMED.