Question Chapter 7 Bankruptcy being above State Median Due to Losses from Day Trading

[mikpart84]

Hi Everyone,

I have around 230K debt (Personal Loans - 150K and credit card loans - 80K). I am above state median income for my household size, so do not qualify for normal Chapter 7.

While researching I found that since almost all of debts were used for Day Trading, the loans (CC + Personal ones) could be treated as non-consumer loans and Means test can be skipped while filing for Chapter 7. I work from home full time, and this led me into this mess. I have started trading since covid. The trading losses are mentioned in Schedule D of tax returns as Capital loss.
I should have all the transactions showing money coming from loans, going to brokerage accounts and then trading transactions there.

Is it really possible to file Chapter 7, in this way?

Some of the loans were taken around Jan/Feb 2024. If i want to file, how many months shall I wait before filing?

When i was doing okay in trading I did transfer some money to my wife's account ranging from $1K/$5K (recent being in March). Will the trustee demand those money back once I file for Chapter 7 or 13?

[despritfreya]

It's possible but two questions. . .

Do you own a home with a mortgage? If "yes", how much is owed on the mortgage?

Des.

[mikpart84]

Thank you for your response. I do not own a home. My rent is $1800+ $200 utilities. We have 2 cars, emi is like $875 each. I want to file alone as my wife is not in any of the debt. Our yearly income is $150K aprox.

[despritfreya]

If you have not already done so, your next step is to discuss this with an attorney. Depending upon the situation, you may very well be able to classify your debts as non-consumer. In light of you having a full time job, it may turn on case law in your district.

As to the recent loans, an attorney may suggest you wait a few more months and make payments on the loans.

As to the money paid to your wife, a Chapter 7 Trustee might go after it but. . . coughing up a few bucks to get rid of a lot of debt is just "the cost of doing business".

Discuss all of this with an attorney.

Des.

[mikpart84]

Thank you.
I had few free consultations already. I am going to retain one in the coming weeks. I cannot take this trauma anymore. An attorney Planning to file by August 1st week.

[mikpart84]

I came across some articles that even though I plan to by pass means test, I have to submit Schedule I and J (Income and expense detail). Can I be pushed to chapter 13 again based on the left over/disposable income. (Is this Totality of Circumstances test?)

[despritfreya]

Schedule I and J are a requirement in all individual cases. It is your "real" budget (within reason). In a non-consumer case, a positive cash flow in most situations is not a hindrance to a Chapter 7. I have had clients with over $4000 per month of excess income but, in such cases, the debt owed was huge - some well into the millions. If the positive cash flow is reasonable under your particular circumstances, if you are a non-consumer filer, you should be fine. Discuss this with your attorney.

Des.

[mikpart84]

I was going through a loan agreement with SOFI and found the following clause where it specifically states that the fund not to be used for business purposes. Can the Creditor or Trustee fight back on the non-consumer declaration of debts? I think other loan agreements would also have similar clauses..

1. I declare under penalty of perjury under the laws of the United States of America that the following is true and correct. I certify that the information contained in my Application is true, complete and correct to the best of my knowledge and belief and is made in good faith. I certify that the loan proceeds will only be used for unsecured personal, family, or household expenses and not for real estate, business purposes, investment, purchases of securities, post-secondary education or short-term bridge financing

[despritfreya]

I was going through a loan agreement with SOFI and found the following clause where it specifically states that the fund not to be used for business purposes. Can the Creditor or Trustee fight back on the non-consumer declaration of debts? I think other loan agreements would also have similar clauses..

1. I declare under penalty of perjury under the laws of the United States of America that the following is true and correct. I certify that the information contained in my Application is true, complete and correct to the best of my knowledge and belief and is made in good faith. I certify that the loan proceeds will only be used for unsecured personal, family, or household expenses and not for real estate, business purposes, investment, purchases of securities, post-secondary education or short-term bridge financing

Sorry for the delay in responding.

From my perspective, a violation of the loan document would not change what the funds ultimately were used for (profit motive). Having said that, I have to wonder if the lender would have a 523 claim for non-dischargablity if it can prove your intent in taking out the loan was for business purposes/purchases of securities (profit motive). This is a double-edged sword and you should look into this further.

Des.