Summary:
The Debtor, a nurse practitioner, had total unsecured debt in the amount of $370,574.97, of which ~$320,000 was for student loans, consisting of ~$27,000 of Parent Plus Loans and $289,000 of her own student loans. These student loans were incurred while obtaining her degrees and certifications as a nurse practitioner.
As the Debtor's household income exceeded $200,000 a year, making passing the Means Test impossible, she argued that these student loans had been incurred with a profit motive and they were therefore non-consumer debts. The bankruptcy court rejected this, finding that student loans are incurred "primarily for a personal, family or household purpose". As such 707(b) applied and dismissed the case.
Commentary:
The question of whether a debt is a consumer or non-consumer debt arises not just in the context of 11 USC 707(b), but also in various consumer protection statutes such as the FDCPA or FCRA.
An interesting strategy in a case such as this would have been to first bring a federal consumer rights action in district court against the student loan servicer and then calmly lose when the servicer sought dismissal of the claim as a non-consumer debt. With that determination in hand, the debtor could then have filed a Ch. 7 and, while the lack of identity between the parties would not necessarily be sufficient for res judicata, it would have been more difficult for the bankruptcy court to come hold that the student loans were now consumer debts. This would be especially difficult if the appeal that landed with the same district court judge as in the preceding FDCPA case.
For a copy of the opinion, please see:
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