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

[justbroke]

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

Yes, the only way to get a non-consumer case dismissed is for actual fraud under 11 USC 707(a). Not too many USTs will even try to get a case dismissed under 707(a).

From all the caselaw that I've read on this topic as a non-consumer filer myself (and discharged!), there would need to be TWO elements of 707(a) proven in order to get a non-consumer case discharged. You need BOTH bad faith AND fraud or a uncooperative debtor in the case. Notice the word "and" with a requirement for both conditions to be true.

The reason ting with a non-consumer case, is that it just needs to be filed in good faith, and that the debtor cooperates with the process. That's about it. I haven't even read one case yet where a Chapter 7 non-consumer case was dismissed, and I was looking for my own personal research!

[SweetGeorgia]

In re Rahim, recent case in Michigan - Chapter 7 business debtors case dismissed under 707(a) just for excessive income. BUT this was because some of the creditors brought suit: it wasn't the trustee or the UST. And it's a weird case overall; but I worry that the successful creditors' attorneys will take heart and try this on more debtors.

In my own discharged non-consumer Chapter 7, we showed negative income (it was true!). The attorney actually spent more time on the expenses than anything else, mostly lowering expenses that could look frivolous (like pet expenses) and making sure I could justify others (like medical). This says to me that income & expenses have some impact in some vague way. Maybe a "good" expense list deflects further digging? I was prepared to submit heaps of documentation, but I wasn't asked for it.

[despritfreya]

In re Rahim, - Chapter 7 business debtors case dismissed under 707(a) just for excessive income.

Not quite:

The Rahim case is not your typical case and the Judge acknowledged that 707(b) does not apply. The case was dismissed under 707(a) for cause as a bad faith filing. This is a standard issue in many cases, consumer or non consumer.

The issue of good/bad faith is a balancing test and the ability to pay is one of many factors to consider. This Judge simply was not going to let these folks get away with discharging debt since they refused to do the belt tightening that is expected of one who needs a bk. These debtors continued to live an extemely lavish lifestyle. They were earning over $500k per year and spending every dime. Expenses included a lavish home, a lavish vacation home, three luxury vehicles, nearly $5k/month for private school and a whole lot more.

I have handled cases with similar facts and similar issues but mostly in the context of Chapter 11's. I most likely would not have filed a Chapter 7 for these folks based upon the lifestyle and understanding the bad faith issues.

The Rahim decision is on appeal but, due to its fact intensive nature and the finding under 707(a) it should not change the typical situation as it relates to positive cash flow in a non-consumer case.

Des.

[magua2]

Thank you for posting that SweetGeorgia. The case is under appeal, so we'll have to watch for the outcome. The Michigan court specifically declined to uphold the 3rd Circuit's position that "The House and Senate committee reports indicate that Congress did not intend for a debtor's ability to repay his debts to be adequate cause for dismissal of a bankruptcy petition." Instead the Michigan court stated "Those courts (other than the 3rd Circuit) which have reviewed the legislative history, have generally concluded that, in seeking to curb "substantial abuse," Congress meant to deny Chapter 7 relief to the dishonest or non-needy debtor." It seems the Court was angry about the three houses, the 500k income and luxury automobiles.

[justbroke]

I've looked at Rahim and it wasn't just for excessive income. Almost all decisions I've ever read on non-consumer cases have come down to bad faith; with bad faith being more than just "one" issue. The Rahim problem was incredible and is not your typical non-consumer case.

[biotechsolution]

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.

Is the Stewart case held true throughout the country? or are student loans for either category a gray area still?
I had heard that it wasn't so cut and dry regarding even using for tuition.

[justbroke]

Is the Stewart case held true throughout the country? or are student loans for either category a gray area still? I had heard that it wasn't so cut and dry regarding even using for tuition.

Not a gray area, just interesting in how the loan is characterized. I think Stewart was the first to deeply analyze this, but did leave some questions. It is accepted amongst most Circuits that I know of, that a student loan is non-consumer debt where it was used for education. However, using a student loan for living expenses, is considered consumer debt. The problem becomes, just how do you quantify which portion is non-consumer and does that somehow make it either consumer or non-consumer; with no bifurcation if it's a mixture.

In Re Stewart, 215 B.R at 460-61

In re Stewart, 175 F.3d 796, 807 (CA 10 1999). Dr. Stewart had $218,000 in student loan debt. The 10th Circuit left the door open on this issue: whether student loan debt is “consumer debt,” stating it was “unwilling to characterize the entire $218,000 as consumer debt” due “to the lack of evidence in the record and authority to guide us.” The opinion suggests that portion of student loan debt that went to “the actual cost of . . . tuition, books or other direct educational expenses” might be non consumer debt in contrast “to the portion of student loans used for personal, family and household expenses.” This highlights the importance of fully developing the factual record at trial which is often a problem for counsel in consumer cases.

http://www.abiworld.org/committees/n...stedPerson.pdf

Interesting that in In re Vianese, 192 B.R. 61 (Bankr. N.D.N.Y. 1996) it was found that a child's education loan was a consumer loan.

(See an earlier thread on this topic.