Thursday, August 29, 2013

The "Consumer" Exception to Chapter 15

Miami Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing chapter 13 and chapter 7 bankruptcy cases. His office is in Miami at 1221 Brickell Ave., 9th Fl., Miami and may be reached at (305) 891-4055.  

In the case of In re Steadman, 410 B.R. 397 (Bkrtcy.D.N.J. 2009), the court held that the "consumer" exception to applicability of chapter 15 applied and therefore denied the U.K. foreign trustee's petition for recognition of a foreign representative under chapter 15. In this case, the debtor had transferred substantial inherited sums of money from the U.K. to his wife in New Jersey. Subsequently, the debtor filed for insolvency relief in the U.K. The U.K. receiver discovered the transfer of the inheritance and a trustee was appointed who sought to obtain recognition as a foreign representative under chapter 15.

Section 1501 (c)(2) provides that chapter 15 does not apply to an individual within the section 109 (e) debt limitations who is a U.S. citizen or an alien lawfully admitted for permanent residence in the U.S. The issue before the court was whether this exception applied to the debtor who held a permanent resident card with an expiration date for which the debtor applied to be removed. The court stated that although the foreign representative generally bears the burden of proof as to the criteria of recognition proceeding, the debtor beared the burden of proof to establish that chapter 15 is not applicable as section 1501 (c)(2) is an exception to the rule.

The Court found that the debtor met the section 109 (e) debt limitations and further found that based on the legislative history, the intent of the Model Law, and other policy considerations, the debtor was in "the class of person intended by Congress to be excepted from chapter 15" as he made clear his intent to remain in the United States and had a family, a job, and owned a home in the United States. The Court rejected the trustee’s argument that the debtor’s status was not “permanent” and was merely “conditional” using the Immigration and Nationality Act (“INA”) as a source of the term “permanent.” The Court held that the INA’s statutory definition of “permanent” includes one that “may be subject to change.”