## Facts

- Ross Alan Hlavin and Lenys Beatriz Hlavin purchased a home and obtained two home loans secured by a first and second mortgage on the residence.
- In addition to the home loans, the Hlavins accumulated liabilities from ordinary living expenses (including expenses of raising four children) and from pursuing business ventures that ultimately failed.
- The Hlavins filed a joint voluntary petition for relief under Chapter 7 in December 2007.
- The United States Trustee (UST) moved to dismiss the Chapter 7 case for abuse under 11 U.S.C. § 707(b)(1), which applies only when a debtor has “primarily consumer debts.”
- The Hlavins filed a motion for partial summary judgment directed to the threshold “primarily consumer debts” requirement, arguing:
  - the home loans were not “consumer debts” because they were secured by mortgages on real property; and
  - even if some debts were consumer in nature, they did not have “primarily consumer debts” when considering the overall character of their obligations.
- The Hlavins conceded the home loans were incurred primarily for a personal, family, or household purpose and did not claim the loans were incurred for a business purpose.
- The parties agreed that if the home loans were treated as consumer debt, the Hlavins’ consumer debts totaled about 59% of their liabilities as of the petition date.

## Issues

1. Whether a debt incurred primarily for a personal, family, or household purpose qualifies as a “consumer debt” under 11 U.S.C. § 101(8) even if the debt is secured by a mortgage on the debtor’s residence.
2. What standard governs whether a debtor has “primarily consumer debts” for purposes of 11 U.S.C. § 707(b)(1), including whether the determination should turn on aggregate dollar amount rather than number of debts or the asserted cause of the bankruptcy filing.

## Decision

- The court denied the Hlavins’ motion for partial summary judgment.
- The court held the home loans were “consumer debts” under § 101(8) because the loans were incurred for a personal, family, or household purpose, and the fact that the loans were secured by real property did not change that classification.
- The court held that “primarily consumer debts” for § 707(b)(1) is determined by comparing the aggregate dollar amount of consumer debt to total liabilities, and that consumer debt exceeding 50% satisfies the threshold.
- Because consumer debt exceeded 50% of total liabilities (about 59%) when the home loans were included, the case fell within § 707(b)(1), allowing the UST’s abuse motion to proceed.

## Legal Principles

- A “consumer debt” under 11 U.S.C. § 101(8) is defined by the purpose for which the debt was incurred—personal, family, or household—not by whether the debt is secured or the type of collateral.
- A home mortgage incurred for a personal, family, or household purpose is a consumer debt even though it is secured by a lien on the debtor’s residence.
- For 11 U.S.C. § 707(b)(1), a debtor has “primarily consumer debts” when consumer debts constitute a majority of the debtor’s total liabilities measured by aggregate dollar amount (more than 50%).
- Tests that focus on the number of debts or on which category of debt allegedly caused the filing are not used where the statute’s threshold can be applied through an objective comparison of total dollar amounts.

## Conclusion

In In re Hlavin, the bankruptcy court ruled that the Hlavins’ consumer-purpose home mortgage obligations were “consumer debts” despite being secured by real property and determined that “primarily consumer debts” under § 707(b)(1) turns on whether consumer debts exceed 50% of total liabilities by dollar amount, leading the court to deny the debtors’ partial summary judgment motion.


In re Hlavin, 394 B.R. 441 (2008)