Chapter 7 Non-Consumer Filing

[Throwaway92]

Hello All,

I am trying to wrap my head around my case as I am about to file (as of now Wednesday 5/19) and want to share the specifics to get some general feedback.

I have 278K in debt. This debt is spread across credit cards, personal loans, vehicle debt, and student loans as follows:

Personal Loan: $118k
Vehicle Loan: $56k
Student Loan: $25k
Credit Card: $78k

I am in CO and my income is 125k household of 2 (1 child), which puts me above the 88k median income. This alone led to most of the lawyers I met with advising I will have to do a Chapter 13 case because of income.

After doing extensive research, I learned that you can file a Chapter 7 case if over 50% of your debt is non-consumer debt. I contend that 50% of my debt is indeed non-consumer.

130k of this debt (around 80k personal loan and 50k credit card) was accumulated within the last year as I decided to get into sports wagering once it became legal in my state. As with any gambling there were some big wins and big losses etc etc. I contend that this debt was taken out with a profit motive in mind therefore it should be considered as non-consumer. Regardless of the opinions on gambling its important to keep in mind this was not "dabbling" nor was it a huge amount I lost over 1 weekend. This was 6 straight months of intense research, watching games, and thousands of wagers. All of this is tracked electronically. I even claimed this as a self owned business for tax reasons after meeting with a tax professional and discussing what constituted "professional gambling".

The aforementioned 130k along with my 25k in student loan debts (lawyer says not much argument has to be made anymore for student debt to be considered non-consumer) puts me at 155k in non-consumer debt, or 55% of my total debt.

Sports wagering is fairly new around most of the U.S and I cannot find any cases or experiences even close to what I am dealing with, even with regular gambling such as poker, blackjack, and other casino losses.

My lawyer feels good about my argument but says to expect push back from the trustee as my case moves forward. I considered using passage of the means test based on my prior 6 months income (see my other post for details on that) but my lawyer feels we don't need to go down that path.

I am trying to avoid a Chapter 13 at all costs as I equate it to a 5 year prison sentence and would much rather wipe the slate clean with Chapter 7.

What kind of shot do I have here? Does anyone have knowledge of any similar filings or anything that I can reference to give me some peace of mind and/or crush my optimism?

As always, any feedback is appreciated.

[justbroke]

After doing extensive research, I learned that you can file a Chapter 7 case if over 50% of your debt is non-consumer debt. I contend that 50% of my debt is indeed non-consumer.

I was a non-consumer bankruptcy case. I had real property investments and showed over 51% of my debts were non-consumer (taxes and real property).

The aforementioned 130k along with my 25k in student loan debts (lawyer says not much argument has to be made anymore for student debt to be considered non-consumer) puts me at 155k in non-consumer debt, or 55% of my total debt.

This seems to be the case in the 9th circuit with student loans. (*** original poster is in the 10th circuit)

My lawyer feels good about my argument but says to expect push back from the trustee as my case moves forward. I considered using passage of the means test based on my prior 6 months income (see my other post for details on that) but my lawyer feels we don't need to go down that path.

Sounds like a good argument. However, the United States Trustee (UST) will be all over this case.

What kind of shot do I have here? Does anyone have knowledge of any similar filings or anything that I can reference to give me some peace of mind and/or crush my optimism?

Not a single person, including your attorney, can answer that question. This is a fact-specific case about you. The United States Trustee (UST) is going to review this case with all due diligence required. I would say it's a 50-50 chance that the UST backs off and that this may need to go to a hearing.

[Throwaway92]

Thanks justbroke. I think 50-50 is odds I will take at this point! Hopefully no hearing necessary, but I think it is something I would fight because as the law is written, I don't see how the activity doesn't equate to non-consumer.

[justbroke]

I think it will be a big back-and-forth with the UST.

• Apportioning which parts of a single loan is non-consumer (related to gambling) versus which portions you paid back, is always a pain. Mixing personal and business expenses together makes it difficult to trace just what is what. If I were the UST, I would say that there is no traceability in the loans and that we can't tell what was used for personal use.
• If I were the UST I wouldn't argue that your gambling wasn't "professional gambling" for purposes of whether there was a profit motive, I'd argue that the credit accounts make it difficult to distinguish exactly what amounts were used or paid.
• Getting the court, or even the UST, to agree that student loans are non-consumer may not be so easy. If you get Judge Tollman, he has already made some rulings on student loans as consumer debt. In Colorado, the 10th, they rely on In re Stewart, 215 B.R. 456, 465 (BAP 10th Cir. 1997). If I were the UST, I would contend that the student loans are consumer debts.
• The overall contention may come down to the student loans as non-consumer debt. The UST only need to chip away at that characterization in order to win.

Of course, this is just me playing the UST. The two major issues I see, and I'm not the expert (your attorney is the expert), are a.) the characterization of the student loans as non-consumer debt, and b.) how to distinguish the debt between consumer and non-consumer since it appears that the credit accounts were used for both purposes. For the latter, how does one distinguish the non-consumer portions of a credit account from consumer spending?

Just some thoughts. Just things I would think about if I were, and have, pursued a non-consumer Chapter 7. (In my case, my student loans were < $50K so it was in no way going to affect the characterization of over $1M of debt.)

[Throwaway92]

• Apportioning which parts of a single loan is non-consumer (related to gambling) versus which portions you paid back, is always a pain. Mixing personal and business expenses together makes it difficult to trace just what is what. If I were the UST, I would say that there is no traceability in the loans and that we can't tell what was used for personal use

For 1 of the loans this will be easy - 45k was deposited into my account and was gone the next day clearly going into my wagering account

The other loan is trickier because I had other large non loan related transactions coming out while loan funds were in my account.

Lets say 25k was deposited via the loan and I already had 10k in my checking account for a total of 35k. I then deposited 10k from my wagering account and now have 45k in my account. The same day I have 20k taken out to pay large amounts to various credit cards. My intent was to use my non-loan money to pay these cards and NOT the loan funds. This becomes a game of he-said-she said since there is no way of determining my mindset and intent during that time except my word.

• If I were the UST I wouldn't argue that your gambling wasn't "professional gambling" for purposes of whether there was a profit motive, I'd argue that the credit accounts make it difficult to distinguish exactly what amounts were used or paid.

This is very easy - My credit card statements show the wagering transactions (not cash advances) so it is clear to see where the money went and what it was used for.

• Getting the court, or even the UST, to agree that student loans are non-consumer may not be so easy. If you get Judge Tollman, he has already made some rulings on student loans as consumer debt. In Colorado, the 10th, they rely on In re Stewart, 215 B.R. 456, 465 (BAP 10th Cir. 1997). If I were the UST, I would contend that the student loans are consumer debts.
• The overall contention may come down to the student loans as non-consumer debt. The UST only need to chip away at that characterization in order to win.

This part is the least of concerns, at least based on what my lawyer has told me. He has worked over 1000 BK cases in CO and has never had the argument of student debt as non consumer defeated. I have documentation showing the loan went towards tuition.

[justbroke]

This part is the least of concerns, at least based on what my lawyer has told me. He has worked over 1000 BK cases in CO and has never had the argument of student debt as non consumer defeated. I have documentation showing the loan went towards tuition.

In a non-consumer case for an over-the-median filer in which the UST has become interested in the case? If he has done 1,000 of non-consumer cases with student debt, then the attorney is very skilled. I do believe that the attorney is that skilled, so I don't know if anything I would say should counter anything that your attorney has told you. What you are reading, here, is counter-argument.

As I have written earlier, those would just be attacks that I would make if I were trying to attack the characterization of debt. Whether or not the UST would win is of course unknown. I was just making observations as to the types of attack to which you could be subjected. That's why I say it's 50-50 as to whether the UST could prevail (or if they even care). The UST will, though, definitely look at this case and make a determination as to whether they believe it's an abuse.

[flashoflight]

I'll step in the shoes of the US Trustee and crush your hopes.

1) You lost money on this.
2) It was only for six months.
3) If you have a full-time job at the same time, I'll contend that sports betting was not a full-time job. Part-time would suggest it's more recreational/hobby than professional. Two full-time jobs is hard to believe and not sustainable long term.
4) You didn't run your business finances like a business.
5) You have to definitively trace the loan proceeds to gambling. If it's he said/she said, it doesn't count as gambling. It's not the trustee's burden to prove it was for consumer expenses. It's your burden to prove the loan proceeds went directly to gambling. Existing balances and employment income are presumed to be used for gambling prior to using loan proceeds. This is the same problem debtors with bank garnishment/levy have when trying to get their money back from the sheriff. Easiest to prove with zero/negative checking balance->loan deposit->send money to casino.
6) It's more likely than not you're a compulsive gambler that spent an ungodly amount of time and money on sports betting than running a real business.
7) Sports betting is not a profit making business. It's just a hobby. Nearly as bad as professional slot machine gambler.
8) Debtor does not have a BA or higher degree in statistics, data science, or mathematics or other substantial edge over other players that would allow for long-term profits after thousands of wagers.

I hope you succeed, but I'd wager on the US Trustee for sure.

Chapter 13 is not that bad. I'd advise you go jump into 13 right away if the 7 fails because you don't want to be getting close to the unsecured debt limit. The interest on your debts could get you into firing range of the chapter 13 maximum if you wait a few years.

[Throwaway92]

Thanks justbroke.
flashoflight - I appreciate the response. Your point of view is certainly on the far right of the spectrum, mine on the left, and justbrokes is somewhere in the middle, so the hope is that the trustees (or even judges) opinion falls somewhere in the middle as well. The strongest argument I would make against what you said is concern being a hobby. It was a legitimate amount of time dedicated and wildly different than someone sitting at a slot machine hoping to hit big. Regardless I understand why someone would try to make the points you are, I just hope my counterargument is stronger.

[Throwaway92]

I thought it was important for me to update this post with the disposition. My chapter 7 case was successfully discharged today! There were some questions the UST had right after my creditors meeting, however they went silent the last 45 days and no objections were filed.

I hope that anyone reading this can take away what I learned - DO YOUR RESEARCH! I consulted with several lawyers and every single one of them told me Chapter 13 was my only option because of my income. This pushed me to do extensive hours of research and led me to understanding that my case indeed did qualify as Chapter 7 based on non-consumer income. I am beyond elated to have my fresh start and want to thank everyone on this forum for their input, specifically justbroke . The amount of time you take out of your day to help others on this forum free-of-charge is very admirable and I'm happy to be one of the countless people you have helped through the BK journey.

[Barbisi]

Congrats @Throwaway92!
To paraphrase The Hunger Games, May The Odds Continue To Ever Be In Your Favor.

[justbroke]

Throwaway92 I'm happy to read that the UST was okay and that you made it to discharge. Now use that new life and enjoy it.