Judge Scott Clarkson Affirmed by 9th Circuit – When is a Home Mortgage not a Consumer debt?

Aspen Skiing Company v. Cherrett (In re Cherrett), — F.3d —, (9th Cir. Oct, 2017)

Issue:   Is a loan taken out to buy a place to live necessarily a consumer debt for section 707(b) purposes?

Holding:   No.   It depends on the debtor’s intent when the loan is incurred.

Appeal from BAP, Kirscher, Dunn, Taylor

Bap appeal from order of Judge Scott Clarkson

Judge Morgan Christen, dissent Jacqueline H. Nguyen

A creditor (the debtor’s former employer) moved the bankruptcy court to dismiss the chapter 7 on the basis of abuse.  The debtor opposed saying his debts were not primarily consumer debts and therefore the means test did not apply.

The focal point of the “consumer debt” argument was a loan on real property where the debtor had lived for two years.   The debtor argued that the loan was not consumer because he never intended that the property be his residence, that it was purchased only as part of his change of employment and he personal  relocation to Aspen Colorado.  His family remained in the family home in Wyoming at all times.  The bankruptcy court held an evidentiary hearing and ruled that the debt was not consumer and denied the motion to dismiss.  The BAP affirmed. saying that “the Housing Loan for a non-consumer purpose was subject to clear error review” and there was no clear error.

The 9th Circuit affirmed 2-1.  It discussed first whether the order was final and found that it was. It “1) resolves and seriously affects substantive rights and 2) finally determines the discrete issue to which it is addressed.”  It then discussed the standard of review.  “[T]he bankruptcy court’s weighing of Cherrett’s multiple motives for incurring the Housing Loan was primarily a factual, rather than legal, inquiry.”  The 9th Circuit said there was no clear error and in fact, “the Housing Loan did not go toward the purchase of a primary residence, or even a secondary vacation residence, for his family.  Indeed, the condominium did not even accommodate his family of four.  At the time Cherrett incurred the debt, he did not intend to remain in Colorado for any substantial length of time.”

In her dissent, Judge Nguyen argued that the matter should be reviewed de novo saying, for one thing, there are no meaningful factual issues.  “The parties agree that there are no factual disputes, including Cherrett’s subjective intent in obtaining the Housing Loan.”  She goes on to argue that the debt was incurred for “personal, family, or household purpose.”  But she says, “the majority conflates Cherrett’s purpose in moving to Colorado with his purpose in taking out the Housing Loan.  The fact that he moved to Colorado primarily if not exclusively for business purposes proves too little.”

Note:  1.  The dissent has a nice explanation of the clear error standard versus de novo.

2.  The majority states, “Courts determine the debtor’s purpose as of the time the debt was incurred.  See Bushkin v. Singer (In re Bushkin), BAP No. CC-15-1285-KiKuF, 2016 WL 4040679, at *7 (B.A.P. 9th Cir. July 22, 2016).4″  Footnote 4 states:

“4 The appeal in Bushkin is currently stayed pending resolution of this case.”

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