Laws 2325

Kim Huggins

Module 5

                                                                                                                                      1-19-22

Topic Questions:

1. The debtors were trying to avoid having their Chapter 7 Bankruptcy Case dismissed, contending their debts are primarily non-consumer debts, based on 1.) their Home Loans which were “incurred primarily for a consumer purpose are non-consumer debt because they are secured by home mortgages; and 2.) their business-related debts exceeded their consumer debts, and were the reason the debtors had to file bankruptcy. However, the U.S. Trustee requested a dismissal of the bankruptcy case, stating “Under § 707(b)(1), the Court ‘may dismiss a case filed by an individual debtor under [Chapter 7] whose debts are primarily consumer debts ... if it finds that the granting of relief would be an abuse of the provisions of [Chapter 7].’ 11 U.S.C. § 707(b)(1)” - In Re Hlavin, 394 B.R. 441 – CourtListener.com.

When the debtors filed a motion for partial summary judgement, it was up to the Court to determine whether the debtor’s liabilities were or were not primarily consumer debts, based on whether a loan “incurred for a consumer purpose is a consumer debt if it is secured by a debtor’s real property.” In Re Hlavin, 394 B.R. 441 – CourtListener.com  In this case, the Court denied the debtors’ request for summary judgement since based on the Bankruptcy Code, consumer debt is defined as a “debt incurred by an individual primarily for a personal, family, or household purpose. 11 U.S.C. § 101(8).” Furthermore, there is no section of § 101(8), which states “that a debt meeting this definition nonetheless mutates into a non-consumer debt merely because it is secured by real property.” In Re Hlavin, 394 B.R. 441 – CourtListener.com.

Based on this information, the debtors not only were trying to avoid having their Chapter 7 Bankruptcy case dismissed but were also trying use the Court to take advantage of their creditors.

2. If the debtors had used their Home Loans secured by their home and/or real property to fund a failed business venture, in this case the loan would be considered non-consumer debt. business purpose loan.pdf (capitalbenefit.com) Despite being secured by the debtors’ residence, the money from this loan was being used to expand or fund a business venture, not for personal use. If the debtors used a Home Loan, originally intended for home improvements or vacation but then used it to fund a business venture, it would still be considered consumer debt because a loan “incurred for a consumer purpose is a consumer debt if it is secured by a debtor’s real property.”  In Re Hlavin, 394 B.R. 441 – CourtListener.com. Finally, if the debtors used a Home Loan for mixed personal/business reasons, this type of loan would not be advisable to avoid having it considered consumer debt. The debtor would need to have documentation to prove how much of the loan was used for personal use and how much of the loan was used for business use. To avoid this situation, it would be in the debtors’ best interest to avoid this type of loan, as secured by their real property. Consumer v. Non-Consumer Debts for the Bankruptcy Means Test | Nolo       

3. The phrase “primarily consumer debts” is interpreted in diverse ways by the Courts. However, based on the majority view of the Courts, if the debtors in Hlavin had 30 different consumer debts totaling $75,000 and only one business debt totaling $76,000, their primary debt would not be consumer debt. The majority view is “a debtor's liabilities are primarily consumer debts if the aggregate dollar amount of such debts exceeds 50% of the debtor's total liabilities.” However, in some courts if the relative dollar amount of the consumer and non-consumer debt are “approximately equal,” then the number of consumer and non-consumer debts are as well. In Re Hlavin, 394 B.R. 441 – CourtListener.com Thus, in these two scenarios, the debtors would be successful in filing for a Chapter 7 Bankruptcy case since their consumer debt did not exceed their non-consumer debt.

Reflection Questions:

1. I really was interested in the information covered in the Module 5 discussion questions. It was highly informative to read the Hlavin case and to see how the debtors were unable to successfully file their Chapter 7 bankruptcy case. Upon initially reading the case, I was in support of the Hlavin family based on their situation (a couple raising four children who had their business ventures fail.) Yet, after reading the case material, I could see where it did appear the debtors were using bankruptcy court to take advantage of the system. This seemed to be a case where the debtors were at a loss, and bankruptcy may have been the only foreseeable solution to their problem. Unfortunately, filing for bankruptcy did not work out to their best interest.

2. I am not sure if the Hlavin case would be considered a social or ethical situation, yet it did appear that the debtors were trying to take advantage or their creditors by filing for bankruptcy. As an outsider looking in, I did sympathize with the debtors and their personal financial situation. Unfortunately, I know this is not what the Court can do, otherwise everyone would file for bankruptcy and constantly abuse the system.

I just wondered though if a debtor (in this case a family) in this type of situation must file for bankruptcy and then has their bankruptcy case dismissed, how do they continue to support their family or pay their debts. I would be interested to know what happened to the Hlavin family and their home. I am sure they were unable to make payments on their Home Loans and ultimately had their home foreclosed upon.

3. Bankruptcy is an extremely complicated matter, and it takes a great deal of reading and re-reading to understand when you are learning the process. It does help to read actual bankruptcy case scenarios to understand why the Bankruptcy Code is written as it is, and why/how the rules apply.

Again, the case reviewed for the discussion questions above really helped me to have a better understanding of what is and what is not consumer debt. The more complicated aspect of this situation is calculating a dollar amount of total liabilities, and whether they are approximately equal to, greater than or less than each other. That aspect of this case was a little complicated, but I do have a clearer understanding as to how the process works after this week’s lesson.