454 B.R. 554
Bankr. M.D. Ga.2011Background
- Debtors filed a Chapter 7 petition on Nov. 18, 2010, asserting their debts are primarily business debts and not consumer debts.
- Total debts reported: $937,194, with $189,960 of that amount in student loan debt incurred by Debtor Pennington.
- U.S. Trustee moved to dismiss under § 707(b) arguing debts are primarily consumer debts.
- Court held a hearing May 16, 2011 to address whether student loans can be treated per se as consumer debt.
- Court rejected a per se rule and held that each debt, including student loans, must be evaluated according to its purpose.
- Matter reserved for a trial to determine the Trustee’s motion to dismiss based on a purpose-based analysis.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether student loans can be categorized per se as consumer debt | Trustee argues for per se consumer debt treatment | Debtors oppose per se rule, favoring purpose-based analysis | Per se rule rejected; analysis must consider debt purpose |
| If no per se rule, whether student loans are evaluated by purpose to determine consumer vs nonconsumer debt | Trustee supports purpose-based evaluation for all debts | Debtors contend loans may be nonconsumer under certain purposes | Court adopts purpose-based evaluation for student loans |
| Impact on overall § 707(b) analysis given student loan treatment | Narrow focus on debt categorization to support dismissal | Conclusion deferred pending trial with full evidence | Trial to determine Trustee’s motion; per se rule not adopted |
Key Cases Cited
- Stewart v. United States Trustee (In re Stewart), 201 B.R. 996 (Bankr. N.D. Okla. 1996) (permissive framework for evaluating student loans under § 707(b))
- Stewart v. United States Trustee (In re Stewart), 175 F.3d 796 (10th Cir. 1999) (affirming non-per se approach but examining loan purposes)
- Westberry (In re Westberry), 215 F.3d 589 (6th Cir. 2000) (distinguishes income taxes from consumer debt in § 1301 context)
- Brashers v. United States, 216 B.R. 59 (Bankr. N.D. Okla. 1998) (income tax debt not consumer debt; distinguishes nature of taxes vs consumption)