556 B.R. 327
Bankr. E.D. Mich.2016Background
- Debtor Vicky Jones, a registered nurse, filed Chapter 7 on Dec. 14, 2015; gross annual income ≈ $59,000 and monthly expenses $3,210 (including $500/month listed for student loans).
- Total unsecured debt ≈ $150,500; ~ $131,440 consists of student loans (14 loans totaling about $993.75/month consolidated, though she listed $500/month on Schedule J).
- A creditor obtained a judgment and garnished $656.05 of her wages prepetition; Debtor sought the automatic stay via bankruptcy.
- U.S. Trustee moved to dismiss under 11 U.S.C. § 707(b)(2) and (3), arguing that if converted to Chapter 13 the $500/month would yield ~20% dividend to unsecured creditors and that dismissal or conversion is appropriate.
- Debtor amended her petition and means test after the Trustee’s motion to assert her debts are not primarily consumer debts (originally she stated they were), prompting the court to consider judicial estoppel.
Issues
| Issue | U.S. Trustee's Argument | Jones's Argument | Held |
|---|---|---|---|
| Whether student loans are "consumer debts" for § 707(b) | Student loans are consumer debt; § 707(b) applies and dismissal may be appropriate under totality of circumstances | Student loans are non-consumer (business/investment in her earning capacity); § 707(b) inapplicable | Court applied judicial estoppel to bar Debtor from reversing her original statement; § 707(b) applies |
| Whether Debtor is judicially estopped from asserting debts are not primarily consumer debts | Debtor originally declared debts were primarily consumer debts and then changed position after Trustee’s motion; estoppel appropriate | Change was correction, not inadvertent; no bad faith | Court found clearly inconsistent positions, timing showed gamesmanship; judicial estoppel applies |
| Whether Debtor’s Chapter 7 should be dismissed as "substantial abuse" under § 707(b)(3) (totality of circumstances) | Debtor has stable income and could fund a Chapter 13 plan yielding ~20% to unsecured creditors; factors favor dismissal or conversion | Debtor cannot afford Chapter 13 without losing access to student-loan relief/options and may owe large interest if forced into Chapter 13 | Court concluded totality factors weigh for dismissal; granted Trustee’s motion but gave Debtor 21 days to move to convert to Chapter 13 |
| Whether dismissal is premature because Debtor needs time to pursue loan restructuring or installment options | Trustee noted lack of evidence Debtor tried state-law installment payments or loan adjustments; argued alternatives not shown | Debtor contends future loan programs might provide better relief if not converted | Court found insufficient evidence Debtor attempted alternate remedies; allowed temporary opportunity to convert or else will dismiss |
Key Cases Cited
- Stewart v. United States Trustee, 215 B.R. 456 (10th Cir. B.A.P. 1997) (student-loan classification depends on primary purpose; case-by-case inquiry)
- In re Rucker, 454 B.R. 554 (Bankr. M.D. Ga. 2011) (purpose-based test for consumer-debt classification)
- Internal Revenue Service v. Westberry (In re Westberry), 215 F.3d 589 (6th Cir. 2000) (tax debt not a consumer debt where involuntary and public-purpose driven)
- Teledyne Industries, Inc. v. N.L.R.B., 911 F.2d 1214 (6th Cir. 1990) (judicial estoppel prevents parties from taking clearly inconsistent positions)
- New Hampshire v. Maine, 532 U.S. 742 (2001) (factors guiding application of judicial estoppel)
- Browning v. Levy, 283 F.3d 761 (6th Cir. 2002) (discusses factors relevant to estoppel and inadvertence)
- White v. Wyndham Vacation Ownership, Inc., 617 F.3d 472 (6th Cir. 2010) (cautions application of judicial estoppel; examines mistake/inadvertence factors)
- In re Krohn, 886 F.2d 123 (6th Cir. 1989) (totality-of-circumstances test for "substantial abuse" under § 707(b))
- Behlke v. Eisen (In re Behlke), 358 F.3d 429 (6th Cir. 2004) (substantial abuse shown by dishonesty or lack of neediness; use hypothetical Chapter 13 to assess ability to pay)