Separated Spouses Chapter 7 Cases Consolidated

Posted by NCBRC - May 20, 2015

Factual considerations supported consolidation of separated spouses’ chapter 7 cases where the husband claimed federal exemptions and the wife claimed state exemptions. Boellner v. Dowden (In re Boellner), No. 14-2816 (8th Cir. May 12, 2015).

The Boellners filed separately in order to avail themselves of advantageous exemptions under which Mr. Boellner would be able to exempt his IRAs and annuities and Mrs. Boellner would be able to exempt her home. The trustee moved to consolidate the cases to prevent “stacking” of exemptions and to force the debtors to select one exemption scheme for all their assets. The bankruptcy court granted the trustee’s motion and the district court affirmed.

The Eighth Circuit affirmed as well. In determining whether consolidation is appropriate the circuit court, applying an “abuse of discretion” standard and relying on In re Reider, 31 F.3d 1102 (11th Cir. 1994), posed two questions: “(1) whether there is a substantial identity between the assets, liabilities, and handling of financial affairs between the debtor spouses; and (2) whether harm will result from permitting or denying consolidation.” The court found that, under this standard, the trustee did not have to show that the debtors’ financial affairs were so intermingled that they could not be separated. Rather, the issue required balancing potential harm to creditors if the cases are not consolidated against prejudice to the debtors if they are. The court found that the bankruptcy court properly considered the facts that the Boellners shared a checking account, several credit cards, and a leased car. They had jointly withdrawn funds from IRAs on two occasions, they had joint state and federal tax obligations, and were jointly liable on a civil judgment. Against this evidence, the bankruptcy court also considered that the Boellners lived separately and Mrs. Boellner’s home was unencumbered while Mr. Boellner had surrendered his to the mortgagee. They had separate insurance policies, separate interests in businesses, separate annuities, separate IRAs, and individual credit card debt.

On balance, the court found that the bankruptcy court did not abuse its discretion when it found that the benefit to creditors outweighed any prejudice the debtors would suffer by consolidation of their cases.

Boellner 8th Cir opinion



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