Ch 7 Non-consumer and Schedules I/J ???

[lss177]

Met with my attorney today and she said that my monthly disposable income must be zero even though I'm going to file a non-consumer CH 7. Non-consumer is about $900K, personal (mortgage, cc debt) $350K

I know this has been discussed ad nauseum, but can someone shed some light on this subject (again)?

Also, I'd like to get a recommendation for a Georgia attorney that has handled this before.

Thanx!

[newbie2]

Here are 2 good recent threads about non-consumer cases:

http://www.bkforum.com/showthread.php?68530-Chapter-7-Non-Consumer-filing-and-personal-liability-question&highlight=consumer

http://www.bkforum.com/showthread.php?68516-filed-non-consumer-chap-7-this-morning&highlight=non-consumer

You can also search using the terms non consumer in the box in the upper right hand corner of your screen. Good luck to you!

[lss177]

I'm trying to get to the bottom of this statement which was in one of the threads you referenced:

"If you are a non-consumer case, it DOES NOT matter what Schedule I and J states. I have had cases where my non-consumer clients have had over $4k in positive cash flow - never been an issue."

If that is true, then I need to find an attorney in Georgia who can support that claim...

Thanx again!

[HHM]

Stop talking to the cut rate attorneys

In a true, non-consumer chap 7, there is simply no basis for an objection by the UST office for abuse because in a non-consumer case, code section 707 simply does not apply. (which is the code section that deals with disposable income and qualifying for chapter 7)

[lss177]

Whew, good news.

All I need now is a recommendation from someone for a Georgia attorney familiar with this scenario.

Thanx!

[magua2]

Stop talking to the cut rate attorneys

In a true, non-consumer chap 7, there is simply no basis for an objection by the UST office for abuse because in a non-consumer case, code section 707 simply does not apply. (which is the code section that deals with disposable income and qualifying for chapter 7)

What about a totality of the circumstances argument?

[HHM]

That is still in section 707 (707(b)(3)(B), to be exact), it just doesn't matter. I suppose there could be some district specific interpretations, but I haven't seen 'em. This is pretty cut and dry, if you can except yourself out of section 707 (i.e. non-consumer BK), you can have all the disposable income in the world and still file chapter 7, PERIOD.

The problem is, too many BK attorneys are spineless wimps who only want to push papers and never do any legal leg work.

[magua2]

Thank you HHM. I did some checking into the code:

§ 707. Dismissal of a case or conversion to a case under chapter 11 or 13

(a) The court may dismiss a case under this chapter only after notice and a hearing and only for cause, including—
(1) unreasonable delay by the debtor that is prejudicial to creditors;
(2) nonpayment of any fees or charges required under chapter 123 of title 28; and
(3) failure of the debtor in a voluntary case to file, within fifteen days or such additional time as the court may allow after the filing of the petition commencing such case, the information required by paragraph (1) of section 521, but only on a motion by the United States trustee.

(b)
(1) After notice and a hearing, the court, on its own motion or on a motion by the United States trustee, trustee (or bankruptcy administrator, if any), or any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts, or, with the debtor’s consent, convert such a case to a case under chapter 11 or 13 of this title, if it finds that the granting of relief would be an abuse of the provisions of this chapter.

So, perhaps taking this code section to the attorney would be helpful. It is a shame we have to do this research in the first place. The attorneys practicing bankruptcy law should know this "stuff."

[HHM]

This is one of those area where typical "BK Common Sense" doesn't work. In general, I understand why BK attorneys run from a DMI issue, because in nearly any case with positive DMI, there is GOING TO BE A PROBLEM. So, if the attorney is lazy or not a code jockey, his instinct will be to tell you that if you show positive DMI on schedule I & J, that will be a problem and you won't be able to file chapter 7 BK.

But, despite all the issues with the new BK code, the "primarily consumer debt" language created a HUGE loophole (that probably was not intended). Well, maybe not huge since so few people can take advantage of it. But, in the normal run of the mill BK practice, these cases don't come up too often. So the attorney relies on tired, intuitive, but WRONG, knowledge about, "if you make too much money, you cannot do chapter 7." (in 90% of cases, that statement is true). Here is the other kicker, student loans and tax debt are "non-consumer" debts.

[magua2]

But, despite all the issues with the new BK code, the "primarily consumer debt" language created a HUGE loophole (that probably was not intended).

We have to bring politics into the discussion to analyze this. Our founding fathers believed in innovation and risk-taking. They wrote intellectual property laws into the Constitution. They also included the right of Congress to make uniform bankruptcy laws. In fact, the first bankruptcy act in 1800 applied only to merchants. Our founding fathers wanted people to invent and create, as they knew that would in turn create a great nation. Move forward to the politics of today. Republicans were running the show when the new BK code was enacted. Regardless of which side of the isle you sit, Republicans are known for protecting business rights. The 2005 provisions of the code are there to make it more difficult for consumers (who were supposedly abusing the system) to receive a complete discharge, and instead make consumers pay at least a portion of their consumer debt. Congress intentionally added the language of "whose debts are primarily consumer debts" in order to make it clear that those who risked their fortune and lost it on a business venture would not be prevented from receiving a fresh start. Imagine if Henry Ford and Walt Disney hadn't been able to start over?

Here is the other kicker, student loans and tax debt are "non-consumer" debts.

This is another area that is being misrepresented by BK attorneys. I think it's best if you need these types of debts classified as non-consumer in order to get your 51% you should bring in case-law to your attorney. Anyone have any cases on this?

[despritfreya]

I'm trying to get to the bottom of this statement which was in one of the threads you referenced: "If you are a non-consumer case, it DOES NOT matter what Schedule I and J states. I have had cases where my non-consumer clients have had over $4k in positive cash flow - never been an issue."

I see that this thread has been beaten to death but since the above is my quote I thought I would post some case law:

________________________________

Look at the language of 707(b)(3) which is the provision that allows for the dismissal of the case based upon “bad faith” and/or the “totality of the circumstances”. 707(b)(3)(B) would be used if you meet “means testing” but your real time budget (Schedule I and J) shows you have the ability to pay. This section comes into play as it relates to 707(b)(1) which only applies to individual debtors whose debts are primarily consumer debts.

In re De Armas Cubas, Case No. 09-01933 BKT (Bankr.P.R. 10/14/2009) (Bankr.P.R., 2009)

Unpublished opinion out of Puerto Rico dealing with a different issue however, Footnote 2 of the decision states:

“2. Part I (of form 22) also provides an exclusion for debtors who do not have primarily consumer debts. These debtors are not subject to any of the provisions of § 707(b)—including the requirement of § 707(b)(2) for filing a CMI statement— since § 707(b) applies, by its terms, only to "an individual debtor. . . whose debts are primarily consumer debts."”

More on point and in a published opinion, see:

In re Crink, 402 B.R. 159 (Bankr.M.D.N.C., 2009)

The Bankruptcy Administrator seeks dismissal of the Debtors' case pursuant to Section 707(b)(3) of the Bankruptcy Code, which is one of the changes to the Code produced by the. . ."BAPCPA". Abuse of the Bankruptcy Code occurs under Section 707(b) when a debtor attempts to use the provisions of the Code to get a "head start" rather than a "fresh start.". . . For Section 707(b) to be applicable, the debts in the case must be primarily consumer debts, and it must be shown that granting the debtor a Chapter 7 discharge would involve an "abuse" of the provisions of Chapter 7. It is undisputed that the debts in this case are primarily consumer debts. . . The inquiry into abuse does not, however, end with Section 707(b)(2). Section 707(b)(3) provides a basis for dismissal even when no presumption of abuse arises under the means test. Section 707(b)(3) provides that in determining whether abuse exists under Section 707(b)(1), a court shall consider: "(A) whether the petition was filed in bad faith; or (B) [whether] the totality of the circumstances ... of the debtor's financial situation demonstrates abuse." 11 U.S.C. § 707(b)(3).

Des.

[magua2]

Thank you Des. Is there any way then to have a non-consumer debt dismissed for anything other than outright fraud?

What about student loans being classified as non-consumer. Can anyone provide caselaw on that?

[biotechsolution]

Student loans would be classified has 'consumer' debt.

It is really hard to have a non-consumer filing be dismissed for something other than fraud. I do suppose if you counting country club memberships (expensive ones) and over the top luxury expenses you might run into problems. But I had a few k in excess income and didn't run into any problems. This included 20k in primary school tuition.

[magua2]

Hi Biotech. I had a chance to do some research on student loans. It appears that if the loans were for tuition, books and expenses of the debtor the debt is considered non-consumer. If the loans were to pay living expenses then they are consumer. Perhaps that is why attorneys are often confused and give out incorrect information, because they don't distinguish between the actual use of the loans. This case has a wealth of information on this topic: In re Stewart, 175 F.3d 796 (10th Cir. 1999)

[HHM]

Student loans would be classified has 'consumer' debt.

It is really hard to have a non-consumer filing be dismissed for something other than fraud. I do suppose if you counting country club memberships (expensive ones) and over the top luxury expenses you might run into problems. But I had a few k in excess income and didn't run into any problems. This included 20k in primary school tuition.

I don't have the cases handy, but let me clarify.

Student loans used to pay tuition, books and school fees ARE NON CONSUMER debt, student loans used for living expense. (edit. Looks like Magua2 found the case, In Re Stewart.)

I will hedge and leave open the possibility that not all districts follow this view, but student loans are non-consumer.

I think the issue of student loans being non-consumer will become more prevalent in about 5 to 10 years as more and more people saddled with $100K+ student loans for worthless degrees start needing BK.