June 22, 2021
Danning Gill attorneys Alphamorlai “Mo” Kebeh and Zev Shechtman authored an article for Law360 analyzing Evander Kane’s bankruptcy case pending in the Northern District of California Bankruptcy Court.
According to the attorneys, a recent decision in the case informs that when an individual chapter 7 debtor’s debts are not clearly “consumer” debts and not clearly “non-consumer” debts for purposes of section 707(b) of the Bankruptcy Code, the debtor may be entering a gray area in between the two. Practitioners should closely scrutinize the facts of those gray area debts, as the outcome will partially be dependent on the jurisdiction of the debtor’s residence.
In the U.S. Court of Appeals for the Ninth Circuit, where courts are prone to considering the totality of circumstances, practitioners should pay attention to whether the relevant transaction produced an economic benefit and whether the debtor had any consumptive intent, among other relevant factors. Meanwhile, in the Fourth Circuit, courts harbor a bare-bones interpretation of section 707, focusing only on whether there was profit motive rendering the debt non-consumer. Unless and until the U.S. Supreme Court settles the split, practitioners should pay extra credence to the particular factors relevant in their jurisdiction.
This case also raises interesting policy concerns. The debtor enjoyed an expensive lifestyle, replete with multimillion dollar gambling debts, fancy cars, personal expenses of over $1 million per year and other extravagances not experienced by the average debtor. Notwithstanding his outsized lifestyle fueled by debt, Kane is afforded chapter 7 relief. Meanwhile, individual debtors with much more modest means, but with above median income and primarily consumer debts, are typically subjected to the rigors of chapter 13. This raises basic questions of fairness under the Bankruptcy Code.
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