The Bankruptcy Code provides priority treatment for claims arising from consumer deposits. Specifically, Section 507(a)(7), 11 U.S.C. Section 507(a)(7), gives a priority to allowed unsecured claims of individuals arising from the deposit of money in connection with the purchase, lease or rental of property, or the purchase of services, for the personal, family or household use of such individuals, that were not delivered or provided. However, the statute does not define what constitutes a “deposit.” In In re Superior Air Charter, Case No. 20-11007 (CSS) (Del. Bankr. April 9, 2021), Chief Judge Christopher Sontchi had to decide whether prepayments for future airplane flights were deposits within the meaning of the statute.
JetSuite provided consumers with future air services at locked-in hourly flight rates in exchange for large prepayments of money pursuant to boilerplate agreements. JetSuite did not hold the payments in trust, but the payments were refundable if JetSuite unilaterally terminated the agreement. The agreements required JetSuite to create an account in the name of each consumer and maintain a notional account balance in the account. The notional balance was not an actual cash balance, but rather a noncash representation of the consumer’s prepayments. As consumers traveled, JetSuite adjusted the notional balances to reflect the initial payments less the locked-in contract value of the air services and related charges that JetSuite actually provided. The account balances were not marketable, transferable, or assignable. The prepayment amounts had to be used within 24 months or the unused portions were forfeited to JetSuite.
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