Case Summary:
Debtors Leonard and Jamie Kersten filed a Chapter 7 petition. The majority in dollar amount of their debt arose from Debtors’ embezzlement of funds from a former employer, Kersten Lumber Company (“KLC debt”). The U.S. Trustee moved to dismiss under 11 U.S.C. §§ 707(a) and (b) for failure to file a Form B122A-2, a form which debtors with primarily consumer debt must file. The U.S. Trustee argued Debtors were required to file this form because the KLC debt was consumer in nature. The Court declined to dismiss. First, the U.S. Trustee lacked decisive evidence showing the KLC debt was in fact consumer. While Debtors used some of the funds for household expenses, those funds came from a business, not the extension of credit to a consumer. The Court declined to rule on the nature of the debt because dismissal is discretionary under sec. 707(a). Instead, the Court declined to dismiss under 707(a) because (1) the lack of the Form B122A-2 did not cause any prejudice and (2) Debtors’ counsel made a reasonable judgment about the nature of the debt, given the split in authority on the definition and the lack of probative evidence. The Court also declined to dismiss under sec. 707(b) because of the lack of evidence demonstrating the debt was primarily consumer or the Chapter 7 would be an abuse of the Code.

Statute/Rule References:
11 U.S.C. § 101(8) -- Definition of "Consumer Debt"
11 U.S.C. § 707(a) -- Dismissal - Failure to File Required Documents
11 U.S.C. § 707(b) -- Dismissal - Presumption of Abuse

Key Terms:
Abuse
Consumer Debt