523 B.R. 660
9th Cir. BAP2014Background
- Paul Cherrett accepted employment with Aspen Skiing Co. in 2007; his offer included a $500,000 interest‑free "housing loan" secured as a second deed and tied to his employment (with repayment/penalties on "repayment events").
- The Cherretts used the loan to buy a Basalt, Colorado condominium in June 2007; the property later lost value and the couple surrendered it in bankruptcy.
- The Cherretts filed a Chapter 7 petition in August 2013 and initially characterized their debts as consumer debts; Aspen moved to dismiss under 11 U.S.C. § 707(b)(1) arguing the debts were consumer debts and the case was an abuse.
- The bankruptcy court held an evidentiary hearing limited to whether Aspen’s loan was "consumer debt" under § 101(8), found Paul’s primary purpose in obtaining the housing loan was employment/business related, and denied the motion to dismiss.
- Aspen appealed the denial; the BAP affirmed, concluding the bankruptcy court’s factual finding that the housing loan was non‑consumer debt was not clearly erroneous.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Aspen housing loan is "consumer debt" under § 101(8) | Aspen: The loan financed personal residence and thus is consumer debt; debtor's subjective purpose is controlling and was personal. | Cherretts: The loan was part of Paul’s compensation package and primarily for employment/business purposes, so it is non‑consumer debt. | The court held the bankruptcy court did not err: the loan was primarily business/employment‑related and therefore not consumer debt. |
Key Cases Cited
- Zolg v. Kelly, 841 F.2d 908 (9th Cir. 1988) (defines "consumer debt" and holds characterization depends on debtor's purpose, not automatic exclusion/inclusion of secured mortgage debt)
- Price v. U.S. Trustee (In re Price), 353 F.3d 1135 (9th Cir. 2004) (reiterates that the debtor's primary purpose controls characterization of secured debt)
- McDow v. Dudley, 662 F.3d 284 (4th Cir. 2011) (discusses finality and appealability concerns for § 707(b) denial appeals and pragmatic reasons to permit immediate review)