Do you qualify to file chapter 7 bankruptcy? It depends. If your income exceeds certain limits, there is a presumption in law that your case is an "abuse" of the Bankruptcy Code. But if your debts are not primarily consumer debts, then this "means test" does not apply, and you are allowed to file chapter 7 bankruptcy and get a discharge.

Who enforces the means test? The U.S. Trustee's office, which is the "watchdog" agency over the U.S. Bankruptcy system. If you file chapter 7, your debts are primarily consumer debts, and your income is over certain threasholds, the U.S. Trustee's office will likely file a motion to dismiss the bankruptcy. That is what happened recently in a chapter 7 bankruptcy case filed in Houston.

In the Houston case, decided on Dec. 6, 2013 by U.S. Bankruptcy Judge David R. Jones, the decision was that a dentist's student loans that he took out for his dental school tuition, books, fees, and other school materials were not "consumer debts." In re De Cunae, Case No. 12-37424, in the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division.

This amount that the judge found to be non-consumer made the difference, so that more than 50% of the dentist's total debts were "non-consumer." The court found that some of the student loan money was used for the dentist's living expenses during dental school, and that amount would be considered consumer debt.

So, since the dentist's debt was primarily considered "non-consumer," (over 50%) he was permitted to go on with his chapter 7 case and receive his discharge. The Court denied the U.S. Trustee's motion to dismiss. This is an important case. More people will qualify to file bankruptcy, certainly if other courts adopt this reasoning.

What do you think? Did the judge decide the case correctly? Are student loans incurred for a profit motive (to make money), or as the UST argued, mainly just for "self-improvement"? Please give your comments below.

J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
Considering that student loan payments cannot even be counted in the means test, and they are scarcely dischargeable, the bankruptcy courts have got to come up with a fair compromise for student loan debtors, especially if the debtor was succinctly able to obtain a professional license as a direct result of having incurred those expenses/student loans.
by Dawn, RN March 3, 2015 at 01:07 AM
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