2015 WL 9231503
Bankr. D. Colo.2015Background
- Debtors filed Chapter 7 on August 27, 2014; U.S. Trustee filed a statement of presumed abuse and moved to dismiss under 11 U.S.C. §§ 707(b)(1) and (b)(2)/(b)(3).
- Debtors listed both personal and business debts, including about $91,312 in student loans; parties agreed the sole disputed issue was whether those student loans are "consumer debts" under § 101(8).
- Debtor earned a BA and an MBA, worked in insurance, and while employed full-time undertook a DBA program at Argosy University (incurring ~$80,000 in loans) paying tuition/books only; the program and dissertation (on Oregon wine) were not required or paid for by his employer.
- During the doctorate he and his wife briefly bought and operated a bar (2011–2014) but Debtor remained employed at Essential Insurance; he later hoped to purchase Essential from retiring owners.
- Debtor argued the Argosy loans were incurred with a profit motive (to become a business owner) and thus were non-consumer; UST argued education loans are generally consumer debts and profit-motive is an unworkable or narrow exception.
- The court held the student loans were consumer debts (incurred for personal purposes) and, because the means-test presumption of abuse applies, ordered Debtors to convert to Chapter 13 within 14 days or the case would be dismissed.
Issues
| Issue | Plaintiff's Argument (UST) | Defendant's Argument (Debtor) | Held |
|---|---|---|---|
| Whether student loans are "consumer debts" under § 101(8) | Student loans are personal and therefore consumer debts; profit-motive test is narrow or unworkable | Loans used for tuition/books to obtain a DBA were incurred with a profit motive (to become a business owner) and thus are non-consumer | Loans are consumer debts; Debtor failed to show loans were incurred primarily to benefit an existing business or to meet an employer requirement |
| Whether abuse is presumed under § 707(b)(2) if debts are consumer | Presumption applies because Debtors’ means-test calculation exceeds statutory thresholds | Debtor disputed characterization to avoid presumption | Presumption of abuse arises once debts are consumer; parties stipulated that finding consumer debt means relief under Ch.7 would be abuse |
| Proper standard to test "profit motive" for student loans | Profit-motive exception should be narrow and require objective, tangible nexus to existing business or job requirement | Broad profit-motive test: education that increases earning capacity is a business investment | Court adopts narrow standard: must show tangible benefit to an existing business or a job/organizational requirement; mere hope/aspiration insufficient |
| Remedy if loans are consumer and presumption holds | Move to dismiss or convert to Chapter 13 | Convert to Chapter 13 (Debtors offered to convert if court so finds) | Court ordered conversion to Chapter 13 within 14 days or case will be dismissed |
Key Cases Cited
- Citizens Nat'l Bank v. Burns, 894 F.2d 361 (10th Cir. 1990) (profit-motive test informs whether debt is consumer)
- Stewart v. U.S. Trustee, 175 F.3d 796 (10th Cir. 1999) (student loans not per se consumer; analysis considered debtor's use of proceeds)
- In re Stewart, 215 B.R. 456 (10th Cir. BAP 1997) (BAP explaining profit-motive exception and factual inquiry)
- Cypher Chiropractic Ctr. v. Runski, 102 F.3d 744 (4th Cir. 1996) (tangible business assets bought for profit are non-consumer debt)
- Aspen Skiing Co. v. Cherrett, 523 B.R. 660 (9th Cir. BAP 2014) (distinguishing consumer vs. business purpose for debt in business-related housing context)
- Cannon v. Comm'r, 949 F.2d 345 (10th Cir. 1991) (objective factors and presence of personal pleasure weighed against finding profit motive)