Summary:
In determining whether 11 U.S.C. § 707(b) was applicable, the bankruptcy court held that despite the debtors having thirteen consumer debts totaling $296,775.43 and eight business debts totaling $294,595.56, “[b]ecause of how easily a mortgage can skew the claims in favor of consumer debt” the debt secured by real property should be excluded from this consideration. In re Jones, 2009 WL 102442, *1 (Bankr. E.D.N.C. Jan. 12, 2009) (citing In re Booth, 858 F.2d 1051, 1054 (5th Cir. 1998)). After this adjustment, the debtors had primarily non-consumer debts and 11 U.S.C. § 707(b) did not apply.
Additionally, the bankruptcy court held that only a Trustee and not a creditor had authority to bring avoidance actions under 11 U.S.C. § 548. It similarly rejected the creditors argument that it could bring a derivative suit, that the right to appear and be heard under 11 U.S.C. § 1109 conferred standing and that their was some nebulous constitutional right to bring an avoidance action.
Commentary:
The ability to segregate home mortgages from other consumer debts in calculating whether 11 U.S.C. § 707(b) is applicable is a powerful tool for helping debtors driven to bankruptcy primarily due to a failed business by recognizing that such debts skew the computation and could have the affect of precluding such business debtors from obtaining a fresh start merely by having a home.
For a copy of the opinion, please see:
McInnis v. Phillips- Determination of Whether Debts are Primarily Consumer; Creditor Does Not Have Standing to Bring Avoidance Actions
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