Are Investments Financed With Consumer Credit Cards Non-Consumer Debt For Means Test Qualification?

We are preparing a bankruptcy for a client whose household income is over $100,000 per year. He does not even come close to passing the means test. The client states that most of credit card debt is for cash advances which were invested in the stock market. He also took a second mortgage on the house and invested most of the money in the stock market. The recent stock market crash is causing him to default on the credit cards. The client insists that his credit card advances invested in the market constitutes "non consumer debt" and because most of his overall debt is "non-consumer" debt he is exempt from the means test.

The client is correct that people whose debts are primarily not consumer debt do not have to pass the means test and all other things being equal can file Chapter 7 bankruptcy regardless of whether they otherwise pass the means test analysis. The issue is whether a cash advance by a consumer on a personal credit card is "non-consumer debt" because the consumer invests the money in the stock market or another type of businss venture for profit.

I am not aware of any cases on this issue; nor, have I ever researched the issue. I did have the chance to speak with an attorney for the U.S. Trustee about another bankruptcy case,  and in the course of the conversation I raised the stock market/credit card issue. The attorney stated that the U.S. Trustee will treat stock market investments financed on credit cards as non-consumer debt for means test purposes if the debtor can clearly trace credit card advances to investments in the market or another business venture.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida