In Centennial Bank v. Kane (In re Kane), 22-16282 (9th Cir. Nov. 15, 2023), the debtor had refinanced four preexisting loans. [1] The lender moved to dismiss the debtor’s chapter 7 petition under Section 707(b)(1) alleging that the debtor had “primarily consumer debts.” The case was brought before Ninth Circuit Judges Graber, Paez, and Friedland. The Judges explained that a debtor has “primary consumer debts within the meaning of 707(b)(1) if more than half…. of the dollar amount (he owes) is consumer debt.” Moreover, “a loan is a consumer debt if it was incurred primarily for a personal, family or household purpose.” § 11 U.S.C. 101(8). Had the debts been primarily consumer, the debtor could have converted the case to chapters 13 or 11, or the bankruptcy court would have dismissed the chapter 7 petition.
In the opinion, the Judges emphasized that the bankruptcy court was correct when it noted that Centennial offered “essentially no evidence” regarding the loans at issue. However, “there was evidence that the four loans were used to pay off other loans, but there was no evidence as to the purpose of those original loans.” Centennial and Kane both agreed that the party moving to dismiss under Section 707(b)(1) bears the burden of proof, requiring Centennial to show by a preponderance of the evidence that Kane had primarily consumer debts. Centennial cited no Ninth Circuit or other circuit precedent, establishing a burden-shifting framework. Nevertheless, the Court held that even if the burden could shift under Section 707(b)(1), the lender had “failed to offer evidence regarding the purpose of the loans that could satisfy such an initial burden here.” Ultimately, the Ninth Circuit affirmed the denial of the motion to dismiss.
[1] Article: https://www.abi.org/newsroom/daily-wire/a-refinanced-consumer-loan-might-not-be-a-%E2%80%98consumer-debt%E2%80%99-ninth-circuit-says
Opinion linked in article