“True Consumer Debtor” should be afforded the Benefit of Chapter 13, even if her Student Loan Debt is Above the Limits in 109(e)

“True Consumer Debtor” should be afforded the Benefit of Chapter 13, even if her Student Loan Debt is Above the Limits in 109(e)

The Debtor is a consumer debtor with a car loan, tax debt, credit card and charge account debt, and a small amount of medical bills. She also has student loans dating back almost seven years. She is an above-median debtor with disposable income.

To address her debts, she filed a Chapter 13 petition. Debtor’s bankruptcy schedules list unsecured, nonpriority debts in the amount of $147,891.30, including student loan debt of $16,184.78. The schedules also list certain other student loans as owed in unknown amounts. Debtor’s Plan proposes to devote all disposable income for five years toward payment of her creditors.

The Trustee objects to confirmation of the Plan based on an issue of eligibility. The Trustee points to scheduled student loan debt in the amount of $132,000. The servicer for the U.S. Department of Education (“DOE”), on the other hand, filed a claim for $341,136. Attached to the claim were itemizations of amounts and a statement that the servicer had no copies of any promissory notes because it did not receive them from “the originating lender or prior servicer.” The Trustee points out in his objection that the Proof of Claim filed by the DOE contains insufficient information to determine whether some of its claim overlaps with the claims the Debtor scheduled.

The Trustee argues that, based on the DOE claim, the noncontingent, liquidated unsecured claims exceed the statutory amount of $394,725 set forth in 11 U.S.C. § 109(e). The Trustee thus asserts the Debtor is not eligible to be a debtor in a Chapter 13.

There is a split of authority among the courts that have considered this question. The minority view holds that Chapter 13 eligibility requirements under section109(e) are jurisdictional. The majority view holds that eligibility is not jurisdictional. Instead, “the eligibility requirements of § 109(e) create a gateway into the bankruptcy process, not an ongoing limitation on the jurisdiction of the bankruptcy courts.” Glance vCarroll (In re Glance), 487 F.3d 317, 321 (6th Cir. 2007). This Court has jurisdiction.

Having jurisdiction, the Court has authority to evaluate this case under section 1307(c). Section 1307(c) instructs the court “may convert . . . or may dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause, including” a series of scenarios that are not relevant here. (Emphasis supplied).

Eligibility is not expressly listed as “cause” under the statute. The threshold question therefore is whether the list in section 1307(c) is exhaustive. If not, then the Court will need to determine whether lack of eligibility constitutes cause to dismiss or convert this case.

The Seventh Circuit has consistently ruled that the list in section 1307(c) is non-exhaustive. In In re Love, the Seventh Circuit dismissed a case under section 1307(c) for lack of good faith, which is not explicitly listed in the statute. 957 F.2d 1350, 1354 (7th Cir. 1992). See also In re Smith, 848 F.2d 813, 816 n.3 (7th Cir. 1988). The Southern District of New York has articulated it more directly: “This list is ‘not exhaustive,’ but exemplary.” In re Jensen, 425 B.R. 105, 109 (Bankr. S.D.N.Y. 2010). Collier’s has also weighed in on the matter: “The grounds enumerated in subsections 1307(c)(1) through (11) are not exhaustive.” 8 Collier on Bankruptcy ¶ 1307.04 (16th ed.).

The Court must therefore determine whether, based on the facts here, the apparent lack of eligibility under section 109(e) constitutes “cause” for conversion or dismissal. Section 1307 gives the Court discretion to dismiss but does not compel the Court to dismiss under any scenario. Although the Court “has the power,” it is not necessarily compelled to exercise that authority.

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