Consumer Debt and Case Dismissed as Substantial Abuse

Consumer Debt

Minnesota Bankruptcy Case: Home Loan Not Signed by Debtor is Consumer Debt and Case Dismissed as Substantial Abuse

The following is a summary of a Minnesota bankruptcy case or a case relevant to Minnesota bankruptcy law.

Minnesota Bankruptcy Case:

Lapke v. Mutual of Omaha Bank (In re Lapke), 428 B.R. 839 (B.A.P. 8th Cir. (Neb.) 5/10/10) (Schermer, J.).

Case Summary:

Home Loan Not Signed by Debtor is Consumer Debt and Case Dismissed as Substantial Abuse

The Eighth Circuit BAP affirms the bankruptcy court’s dismissal of the debtor’s case under §707(b), finding that the debtor’s home loans must be included as consumer debt in the substantial abuse determination. The debtor and his wife’s first Chapter 7 was dismissed for substantial abuse. The debtor later learned that he had not signed the notes for two of the three mortgages on their home. He filed a second Chapter 7 characterizing the mortgage debt as “business or other debt,” arguing that because he was not personally liable, the mortgage debt was not a claim against him and could not be consumer debt. If the loans are not consumer debt, the substantial abuse rules would not apply. On appeal, the BAP first addresses whether the loans are claims against the debtor and concludes that they are. “Debt” is liability on a claim under §102(2). A claim against a debtor includes a claim against property of a debtor, even where the debtor has no personal liability. Johnson v. Home State Bank, 501 U.S. 78 (1991). The loans are claims against the debtor, and the BAP goes on to determine that they are consumer debt. Reviewing case law and the bankruptcy court’s findings, the BAP concludes that where the debtor’s home serves as collateral for a loan and the loan is for personal, family, or household purposes, the amount owed is a consumer debt. Since the debtor’s circumstances had not changed since the last time his case was dismissed for substantial abuse, it was proper to dismiss it here.

Credit: The preceding was a summary of a case relevant to Minnesota bankruptcy law. The case summary was prepared by the U.S. Bankruptcy Court through Judge Robert J. Kressel & attorney Faye Knowles.