Convert 13 to Non Consumer 7 questions

[catleg]

I'm thinking of making a move to convert my 13 to a 7 based on my debts being non consumer.

I'm a little rusty on how much income relative to debts is considered acceptable in such a scenario.

Since I'd have to count my 401k contribs as income again. (not in the 13).

Could that lead to a ch 7 dismissal/forced conversion back to ch 13?

What is the worst that can happen?

[despritfreya]

For your case to qualify as a non-consumer case you must be able to declare that your debts are not "primarily consumer debts". As a result, at least 51% of your creditor base (secured, unsecured, priority) must be related to business. Student loans and income taxes are not considered business debts. Personal credit cards used for a business are considered business debts and should have been marked "used for business purposes".

Did you mark your case as a "business case" on the Petition Page? If not, you will need to amend it if you are a "business" case.

[HHM]

For your case to qualify as a non-consumer case you must be able to declare that your debts are not "primarily consumer debts". As a result, at least 51% of your creditor base (secured, unsecured, priority) must be related to business. Student loans and income taxes are not considered business debts. Personal credit cards used for a business are considered business debts and should have been marked "used for business purposes".

Did you mark your case as a "business case" on the Petition Page? If not, you will need to amend it if you are a "business" case.

Actually, income tax debt is "non-consumer" and it is unsettled whether student loan debt is non-consumer. What is settled is that any portion of a student loan used for living expenses IS consumer. The unsettled question is whether the portion used for tuition, books, and school expenses is considered non-consumer. There is a case that mentions, "in passing" that student loan debt is probably non-consumer debt for BK section 707 purposes.

[catleg]

Actually I am hoping (dreaming possibly) of defining gambling debts as non consumer, based on (a) expectation/seeking of profit (b) significant W-2 "income" was generated (c) did not pursue for pleasure (you may recall I attribute my gambling binge to a drug I took for Parkinson's). I also have significant trading losses from stocks/futures. Minority of debt money was actually spent on consumer goods.

[HHM]

You might be okay with "trying" to classify gambling debt as non-consumer, but I think you would be in for an uphill battle. I am not aware of any cases that address the issue so you may be breaking new ground. I certainly understand the argument.

The counter argument is that unless you are truly a "professional" gambler, gambling is a type of entertainment and therefore it is a "personal" expense and therefore any debt associated with gambling is consumer debt.

[catleg]

So back to my original question. Which is, is there any kind of DMI requirement outside of the BAPCPA means test that is going to set off alarm bells and trigger an objection for some form of purported "abuse". In other words I'm shovelling the max into 401k's for myself and my wife, is someone going to object to a ch7 on income grounds? Would it be the local panel trustee, the OUST, creditor, judge? Just trying to anticipate what might happen.

[Not to dwell on this, though any strategy thoughts would be helpful; my income roughly "doubled" as a result of gambling, triggering AMT, loss of personal exemptions and some schedule A limitations as well. Seems to me that the gambling is a profit making activity like the stock market on that basis alone. And just like the stock market losses are capped relative to gains. It is very symmetrical to stock/futures trading and I think should be treated the same.]

[HHM]

It would be the OUST.

Bottom line, to get into chapter 7, you need to either (a) be under median, (b) pass part II of the means tests, have no DMI to fund a plan, or (c) fall into an exception to the means test. (or, (d) have some special circumstance which has yet to be adequately defined).

As to 401(k), the problem you will run into is that the 401(k) contribution is that it is a disallowed expense in qualifying for chapter 7. So, what you need to do is eat into your DMI in other ways such that the ONLY item pushing you into chapter 13 is that 401(k) contribution. However, we are still talking about the means test here. There are only so many ways to pad expenses there, (high secured debt payment, e.g. mortgage; larger than usual medical, etc).

As I said above, I understand your gambling debt argument, but you just need to be aware that it is untested.

[catleg]

What do you suppose would happen if I convert to a ch7 and get rejected and get forced back into a 13, does that require a new plan and a restart of the 60 months?

Though honestly, I think if the ch7 got knocked out I would go ch11.

[justbroke]

First, catleg, how you get back into the Chapter 13 will matter. If you do a conversion and re-convert... it can get hairy and almost impossible to continue where you left off. That's because months may pass and you made no payments into the plan! It's better to dismiss and refile. Yes, this was one of my contingency plans on my conversion.

In most Jurisdictions, it's not 51%, it's just a simple majority, so 50.00001% would work. The bankruptcy code does not read 51%, it just says the majority.

As HHM wrote, your main issue is going to be asserting that gambling debt is non-consumer. Mine was more cut and dry with real estate investment.