Law Office of Rick Morin, PC

My blog today is a bit more in-depth than usual. The purpose of the blog is to consider whether medical debts count as “consumer debts” for purposes of a 707(b) dismissal. As best as I can tell, the answer is not entirely clear.

The Bankruptcy Code defines “consumer debt” in 11 U.S.C. 101(8) as “debt incurred by an individual primarily for a personal, family, or household purpose.”

The leading case interpreting the term “consumer debt” comes from the Ninth Circuit Court of Appeals, In re Kelly. (In re Dickerson (Bankr. M.D. Fla. 1996) 193 B.R. 67.)

It is the purpose for which the debt was incurred that determines whether it is a consumer debt. (In re Kelly (9th Cir. 1988) 841 F.2d 908, 913.) Debt incurred for business s ventures or other profit-seeking activities is plainly not consumer debt for purposes of section 707(b). (Id. at p. 913)

Debts incurred by the debtor with a profit motive are not consumer debts. (In re Stine (9th Cir. BAP 2000) 254 B.R. 244.)

Surprisingly, I could not find a reported case where the issue of medical debt was directly addressed. The following two cases both cite Kelly yet come to different conclusions regarding the classification of medical debt.

In In re Morse, after laying out the Kelly rule regarding substantial abuse, the court stated that “medical debts are personal expenses” in the same way as food and gas. (In re Morse (Bankr. E.D. Wash 1994) 164 B.R. 651.)

In In re Dickerson, after stating that Kelly is the leading case interpreting the term consumer debt, medical debts were listed as “non-consumer debts” in In re Dickerson. (In re Dickerson (Bankr. M.D. Fla. 1996) 193 B.R. 67.)

Dickerson at least gives a debtor a way to argue that medical debts are not consumer debts. With that being said, it would seem like a stretch to argue that medical debts were incurred with a “profit motive” as the Kelly and Stine seem to require.

However, the thought that involuntary medical debt would be lumped into the same category as credit card debt from excessive shopping is troubling.

If you have any questions about including medical debt in bankruptcy, please call Sacramento Bankruptcy Lawyer Rick Morin at (916) 333-2222.