Keywords: consumer debt . student loans . taxes . means test exclusion . non-consumer debt . means test .
Means Test Exclusion: What "primarily consumer debt" means (707(b)(1)); What debts are NOT consumer debts under as defined in section 101(8)? Taxes? Student Loans?15 Cases , IssueID 55 |
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Ch 7 Means Test |
Ch 13 Means Test |
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Topic Description:Biggest exception to the means test of all is that if debts are primarily non-consumer, 707(b)(2) (the means test) does not apply. Lines of Cases:
Topic Background / Overview:Section 707(b) of the Bankruptcy Code applies only to individual Debtors whose debts are "primarily consumer debts." (11 U.S.C. Sec 707(b)(1)) |
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"Primarily" consumer debt means more than one-half in amount.
The Debtors' Debts are Primarily Consumer Debts because the Debtors are Judicially Estopped from Re-classifying Their Debts as Primarily Business Debts.
E. Even if the Debtors are not Judicially Estopped From Re-Characterizing Their Debts as Primarily Business Debts, their Debts Are, in Fact, Primarily Consumer Debts, and therefore Section 707(b) Applies.
Taking into account the classification of the F250 debt as 54.87 percent non-consumer and the mortgage as entirely consumer debt, and allowing the remainder of the Debtors' own amended classifications to stand,[6] the Debtors' consumer debts amount to $488,858.86, while their non-consumer debts amount to $465,387.60. Therefore, as more than fifty percent of the Debtors' total debt is consumer debt (51.23 percent, to be exact), the Debtors' debts are primarily consumer in nature.[7] Accordingly, even if the Debtors are not judicially estopped from denying that their debts are primarily consumer debts, the threshold test for application of section 707(b) has been satisfied.
Debtors had a business lease that they defaulted on during the process of filing for Chapter 7 relief. The court held that the amount owed on this defaulted lease gave debtors primarily business debts (their business debts exceeded their consumer debts).
The landlord and the trustee objected, saying that the amount of business debt should be capped under Section 502(b)(6). The court disagreed, saying that "the Section 502(b)(6) cap is only activated by optional and unpredictable post-petition bankruptcy events, [and therefore] the court concludes it is not appropriately applied to threshold inquiries that are focused on the initial schedules and the calculation of debt existing on teh date of the bankruptcy filing."
Affirmed BAP court holding that debtors student loan in this case was a consumer debt under 707(b) because the loan proceeds were not used for the debtor's professional education, and therefore the 'purpose' of the loan turned out to be for family and personal purposes.
"Unlike these cases, the record in this case shows the actual purpose for which Dr. Stewart used the intra-family loans. In fact, Dr. Stewart's own testimony supports the finding he used the money predominantly for family living expenses 807*807 rather than for direct educational costs. Stewart III, 215 B.R. at 465. Dr. Stewart testified his ex-wife used the money to support their family, including use for house payments, groceries, pre-school, children's activities, moving expenses, and family vacations. Nothing in the record convinces us the main purpose of these loans was to finance Dr. Stewart's actual educational expenses. Rather, Dr. Stewart used the money to support his family because he did not earn enough for his family to live comfortably. Notably, this support continued even during those times when Dr. Stewart did not attend college. Thus, the intra-family loans Dr. Stewart received for household and family expenses are "consumer debt."
"The Panel concluded Dr. Stewart's student loans totaling $218,000 constitute "consumer debt" because the money was used for dual family and personal purposes. Due to the lack of evidence in the record and authority to guide us, we are unwilling to characterize the entire $218,000 as consumer debt. However, based on the evidence in the record, we can comfortably conclude a substantial portion of Dr. Stewart's student loan debt is indeed "consumer debt."
Income tax debts are not consumer debts under Sec 707(b).
Student loan in this case was a consumer debt under Sec 707(b). because the loan proceeds were not used for the debtor's professional education, and therefore the 'purpose' of the loan turned out to be for family and personal purposes.
Student loan not consumer debt under Sec 707(b).
"Based on the evidence and testimony presented at trial, the Court categorizes the debts as follows:
Consumer Debts
(1) Car Loan ................................ $10,600.00
(2) First mortgage on Home .................. $68,000.00
(3) Books ....................................... $36.90
(4) Credit Card Bills ....................... $15,256.45
TOTAL ................................... $93,893.35
Non-Consumer Debts
(1) Medical Bills .............................. $459.15
(2) Student Loans ........................... $10,172.20
(3) Internal Revenue Service Debt ............ $1,260.00
TOTAL ................................... $11,891.35
"
Tort debts are not consumer debt under Sec 707(b).
Tort debts are not consumer debt under Sec 707(b).
Mortgages are consumer debt under Sec 707(b).
Non-consumer debt defined as that which is "incurred" for business purposes. Sec 707(b).
The Debtors' Debts are Primarily Consumer Debts because the Debtors are Judicially Estopped from Re-classifying Their Debts as Primarily Business Debts.
E. Even if the Debtors are not Judicially Estopped From Re-Characterizing Their Debts as Primarily Business Debts, their Debts Are, in Fact, Primarily Consumer Debts, and therefore Section 707(b) Applies.
Taking into account the classification of the F250 debt as 54.87 percent non-consumer and the mortgage as entirely consumer debt, and allowing the remainder of the Debtors' own amended classifications to stand,[6] the Debtors' consumer debts amount to $488,858.86, while their non-consumer debts amount to $465,387.60. Therefore, as more than fifty percent of the Debtors' total debt is consumer debt (51.23 percent, to be exact), the Debtors' debts are primarily consumer in nature.[7] Accordingly, even if the Debtors are not judicially estopped from denying that their debts are primarily consumer debts, the threshold test for application of section 707(b) has been satisfied.
Debtors had a business lease that they defaulted on during the process of filing for Chapter 7 relief. The court held that the amount owed on this defaulted lease gave debtors primarily business debts (their business debts exceeded their consumer debts).
The landlord and the trustee objected, saying that the amount of business debt should be capped under Section 502(b)(6). The court disagreed, saying that "the Section 502(b)(6) cap is only activated by optional and unpredictable post-petition bankruptcy events, [and therefore] the court concludes it is not appropriately applied to threshold inquiries that are focused on the initial schedules and the calculation of debt existing on teh date of the bankruptcy filing."
Affirmed BAP court holding that debtors student loan in this case was a consumer debt under 707(b) because the loan proceeds were not used for the debtor's professional education, and therefore the 'purpose' of the loan turned out to be for family and personal purposes.
"Unlike these cases, the record in this case shows the actual purpose for which Dr. Stewart used the intra-family loans. In fact, Dr. Stewart's own testimony supports the finding he used the money predominantly for family living expenses 807*807 rather than for direct educational costs. Stewart III, 215 B.R. at 465. Dr. Stewart testified his ex-wife used the money to support their family, including use for house payments, groceries, pre-school, children's activities, moving expenses, and family vacations. Nothing in the record convinces us the main purpose of these loans was to finance Dr. Stewart's actual educational expenses. Rather, Dr. Stewart used the money to support his family because he did not earn enough for his family to live comfortably. Notably, this support continued even during those times when Dr. Stewart did not attend college. Thus, the intra-family loans Dr. Stewart received for household and family expenses are "consumer debt."
"The Panel concluded Dr. Stewart's student loans totaling $218,000 constitute "consumer debt" because the money was used for dual family and personal purposes. Due to the lack of evidence in the record and authority to guide us, we are unwilling to characterize the entire $218,000 as consumer debt. However, based on the evidence in the record, we can comfortably conclude a substantial portion of Dr. Stewart's student loan debt is indeed "consumer debt."
Income tax debts are not consumer debts under Sec 707(b).
Student loan in this case was a consumer debt under Sec 707(b). because the loan proceeds were not used for the debtor's professional education, and therefore the 'purpose' of the loan turned out to be for family and personal purposes.
Student loan not consumer debt under Sec 707(b).
"Based on the evidence and testimony presented at trial, the Court categorizes the debts as follows:
Consumer Debts
(1) Car Loan ................................ $10,600.00
(2) First mortgage on Home .................. $68,000.00
(3) Books ....................................... $36.90
(4) Credit Card Bills ....................... $15,256.45
TOTAL ................................... $93,893.35
Non-Consumer Debts
(1) Medical Bills .............................. $459.15
(2) Student Loans ........................... $10,172.20
(3) Internal Revenue Service Debt ............ $1,260.00
TOTAL ................................... $11,891.35
"
Tort debts are not consumer debt under Sec 707(b).
Tort debts are not consumer debt under Sec 707(b).
"Primarily" consumer debt means more than one-half in amount.
Mortgages are consumer debt under Sec 707(b).
Non-consumer debt defined as that which is "incurred" for business purposes. Sec 707(b).
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