In re Jundt

623 B.R. 764

IN RE: Mark Randall JUNDT and Jennifer Lynn Jundt, Debtors.

Case No. 19-43465

United States Bankruptcy Court, D. Minnesota.

Filed January 15, 2021

John D. Lamey, III, Lamey Law Firm, P.A., Oakdale, MN, for Debtors.

John R. Stoebner, Lapp, Libra, Stoebner & Pusch, Chartered, Minneapolis, MN, for Trustee.

MEMORANDUM OPINION AND ORDER

Kathleen H. Sanberg, United States Bankruptcy Judge

This matter came before the Court for an evidentiary hearing on September 29, 2020, on the United States Trustee's Motion to Dismiss under 11 U.S.C. § 707(b) for an abuse of the provisions of Chapter 7.

Colin Kreuziger appeared on behalf of James L. Snyder, Acting United States Trustee for Region 12 (the "UST"). John Lamey appeared on behalf of the debtors. Gregory Otsuka appeared on behalf of creditor Lakeview Bank. On September 29, 2020, the Court ordered supplemental briefing. Responses were filed, and the matter was submitted for decision on November 23, 2020.

This Court has jurisdiction pursuant to 28 U.S.C. §§ 157(b)(1) & 1334, Federal Rule of Bankruptcy Procedure 5005, and Local Rule 1070–1. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A). Venue in this Court is proper pursuant to 28 U.S.C. §§ 1408 & 1409.

The parties have stipulated that the debtors' disposable monthly income exceeds the statutory threshold provided by 11 U.S.C. § 707(b)(2), giving rise to a presumption of abuse. The parties have also stipulated that there are no special circumstances present in this case to rebut the presumption of abuse. Further, as discussed below, the Court finds that the debtors' debts are primarily consumer in nature, because the total amount of consumer debt is greater than their business debt. Thus, the Court finds that the filing of this case is an abuse, the Motion is granted, and the case dismissed.

THE PARTIES

Movant James L. Snyder is the Acting United States Trustee for Region 12.

Mark Randall Jundt is a resident of the State of Minnesota and a joint debtor in this bankruptcy case ("Mark"). Jennifer Lynn Jundt is a resident of the State of Minnesota and a joint debtor in this bankruptcy case ("Jennifer" and collectively with Mark, the "Debtors"). Debtors are married and have three minor children.

Debtors were the only witnesses to provide live testimony at the evidentiary hearing. The parties stipulated to the admissibility of deposition testimony of William Foudray ("Foudray"), an owner of Excelsior Property, LLC ("Excelsior Property").

Lakeview Bank is a creditor in this bankruptcy case. Debtors executed personal guarantees in favor of Lakeview Bank to secure obligations incurred by their business entity, JJ's Coffee Company, LLC. Lakeview Bank filed a joinder and response in support of the Motion.

FACTS

The relevant facts are, for the most part, undisputed. The following facts were either stipulated to by the parties, derived from the submitted documentary evidence, or found by the Court after the evidentiary hearing.

Bankruptcy Case and Debtors' Income

1. Debtors filed a voluntary petition for relief pursuant to Chapter 7 of the Bankruptcy Code on November 14, 2019.¹ Debtors filed Amended Schedules A/B and C on August 3, 2020 (the "Amended Schedules").²

2. Mark is an attorney and is currently employed as general counsel for Air T, Inc.³ Mark's gross monthly income is $24,605.82.⁴

3. Jennifer is presently unemployed.⁵ Jennifer previously worked as the owner and operator of Piper's, Debtors' former restaurant business.⁶

4. Debtors' disposable monthly income exceeds the statutory threshold under Section 707(b)(2).⁷

Lakeville Property

5. In 2006, Debtors bought property and built a home in Lakeville, Minnesota, and resided there from February 2007, until March 1, 2019 (the "Lakeville Property").⁸ The Lakeville Property is Debtors' prior homestead.

6. Debtors have two mortgages secured by the Lakeville Property (the "Lakeville Debt"). On the petition date, the outstanding balance for the Lakeville Debt totaled $355,136.75.⁹

7. Debtors incurred the Lakeville Debt with the intent to finance the construction and purchase of their homestead, and not for business or investment purposes.¹⁰

8. After moving to Long Lake, Minnesota, and before the petition date, Debtors started to rent out the Lakeville Property.¹¹

9. On Schedule A/B and Amended Schedule A/B, Debtors list the Lakeville Property as both a single-family home and an investment property.¹²

Long Lake Property and Contract for Deed

10. On January 30, 2019, Debtors purchased their current homestead in Long Lake, Minnesota, from Excelsior Property (the "Long Lake Property").¹³ Debtors moved to the Long Lake Property on March 1, 2019.¹⁴

11. Foudray is an owner of Excelsior Property and is on the board of directors of Air T, Inc., Mark's employer.¹⁵

12. Excelsior Property purchased the Long Lake Property as an investment in or around January 2018 for approximately $425,000.00.¹⁶ Over the course of the following six to nine months, Excelsior Property spent approximately $350,000.00 gutting and renovating the Long Lake Property.¹⁷

13. Debtors entered into a contract for deed with Excelsior Property to finance their purchase of the Long Lake Property, at a purchase price of $824,900.00 (the "Contract for Deed").¹⁸ The Contract for Deed calls for no down payment, an initial monthly payment of $1,890.00, monthly interest payments of $3,781.00, and an interest rate of 5.5%.¹⁹

14. The entire balance is due and payable on or before January 30, 2022.²⁰ The Contract for Deed is not a nonrecourse obligation.²¹

15. The Contract for Deed requires Debtors to pay property taxes and maintain insurance on the Long Lake Property.²²

16. Debtors have claimed homestead status with Hennepin County each year they have resided at the Long Lake Property.²³

17. Since moving to the Long Lake Property, Debtors have made various improvements, renovations, and repairs.²⁴ Debtors plan to continue to improve the Long Lake Property.²⁵

18. The Contract for Deed requires Debtors to obtain prior written consent from Excelsior Property in order to perform any improvements in excess of $10,000.00.²⁶ To date, Debtors have not requested permission to perform any such improvements.²⁷

19. On the petition date, Debtors owed $825,741.00 on the Contract for Deed, with twenty-six then remaining monthly payments.²⁸

20. Debtors' petition lists the Long Lake Property as their residence.²⁹ On Schedule A/B and Amended Schedule A/B, Debtors characterize the Long Lake Property as a single-family home and not as an investment property.³⁰

21. On Schedule C and Amended Schedule C, Debtors exempt their interest in the Long Lake Property under the federal homestead exemption, 11 U.S.C. § 522(d)(1).³¹

22. On Schedule D, Debtors list Excelsior Property as a secured creditor with a claim in the amount of $825,741.00.³²

23. Debtors' petition, schedules, and Amended Schedules do not characterize the Contract for Deed as an executory contract.

24. On December 10, 2019, and in response to an informal inquiry from the UST, Debtors' counsel provided an accounting of Debtors' consumer and business debt.³³ Debtors described the Contract for Deed as "Contract for Deed on our personal residence – purchased in February 2019," and characterized the Contract for Deed as a personal debt.³⁴

25. In response to an inquiry from a representative of Lakeview Bank, Mark described their purchase of the Long Lake Property as a "three year rent-to-own from a colleague here at work."³⁵

Motion to Dismiss

26. On January 22, 2020, the UST filed a Motion to Dismiss pursuant to Section 707(b).³⁶ At the time, the UST only challenged Debtors' characterization of the Lakeville Debt. This is because Debtors characterized the Long Lake Property as a single-family home and the Contract for Deed as consumer debt in their petition and schedules.

27. On February 11, 2020, Lakeview Bank filed a joinder and response in support of the Motion.³⁷

28. On March 26, 2020, Debtors filed a response in opposition to the Motion.³⁸ Debtors argued for the first time that the Long Lake Property is an investment property, the Contract for Deed is business debt, the Contract for Deed is an executory contract, and the amount of debt associated with the Long Lake Property is incorrect on their schedules.

29. After continuing the matter due to the COVID-19 Pandemic, the Court held an evidentiary hearing via Zoom on September 29, 2020.

DISCUSSION

The issues before the Court are whether the Lakeville Debt and Contract for Deed are consumer debts within the meaning of 11 U.S.C. § 101(8). If so, the debts in this bankruptcy case are primarily consumer in nature and the case is an abuse under Section 707(b). The parties have stipulated that there are no special circumstances present to rebut the presumption of abuse if it applies in this case. Thus, if the Lakeville Debt and Contract for Deed are both consumer debts, the Motion will be granted, and the case dismissed.

A. Section 707

Section 707(b)(1) provides that after notice and hearing, a bankruptcy court, on its own or on a motion by the United States Trustee, may dismiss a case filed by an individual debtor whose debts are primarily consumer debts, if granting relief under the Bankruptcy Code would be an abuse of Chapter 7.³⁹ If the debts are primarily consumer, Section 707(b)(2)(A)(i) directs the Court to presume an abuse in this case. The UST bears the burden of proof to show that Debtors' case should be dismissed for abuse.⁴⁰

B. Consumer Debt

Here, the UST bears the burden of proving that the Lakeville Debt and Contract for Deed are consumer debts.⁴¹ Consumer debt is defined as "debt incurred by an individual primarily for a personal, family, or household purpose."⁴² Although the Eighth Circuit has not defined "primarily" in the context of a Section 707(b) motion, a majority of courts have determined that "primarily" means more than half of the total dollar amount of all debt.⁴³

The determination of whether a debt...