(New York) Word is out that  publicly traded Blue- Star Airlines(BST)  is falling victim to the Wall Street crisis and an unexpected unfavorable verdict with regards to a crash several years ago.  At 12 a.m this morning Blue-Star Airlines ceased operations and  filed for bankruptcy protection in New York federal  court leaving thousands of employees on the bread line.

Investors are also up in arms that new Blue-Star CEO Bud Fox allegedly ran up hundreds of thousands of dollars in credit card debt to invest in Blue-Star based on inside information given to him by his father Carl Fox.  Carl who was the head union litigation representative allegedly tipped off his son that there would be a favorable settlement of a lawsuit arising out of the crash that took the lives of all on board.  It turned out that the information was false. The case went to trial.  A 300 million dollar verdict was entered against Blue-Star.

Reports are that Fox who was leveraged to the hilt with a devalued Manhattan Condo and other toys allegedly ran up hundreds of thousands in cash advance bankruptcy debt to purchase Blue-Star stock in advance of the expected favorable settlement news that never came. He hoped to make a killing  when the stock shot up on the favorable lawsuit news.

Word on the street is that Fox who was making about 500k a year was financially and personally reeling. His long time high profile socialite interior designer girlfriend Darien Taylor who counted billionaire New York real estate speculator Gordon Gekko among her clients had recently moved out.

A close friend speaking on condition of anonymity confided that Fox crafted a plan that he thought would get Darien back and put himself  in the black.  Fox had approximately 20 credit cards with available credit somewhere between 200-300k.  He took the maximum cash advances on those cards and invested all of the money in Blue-Star.  He was apparently hoping for a 5-10 point pop that could net him up to 3 million dollars.  He would then pay back the credit card debt and be newly flush.  It is also being reported that he gave the same tip to Gordon Gekko who went long for millions.  The SEC has reportedly opened an investigation in the matter.

Unfortunately Bud’s dad had it all wrong.  The settlement fell through at the last second.  The case went to trial and there was a multi-million dollar verdict against Blue-Star.  Bud now has several problems.  Both American Express and Gordon Gekko now have contracts out on him.  He has also run up 300 grand in cash advance credit card debt that he can not repay.  Bankruptcy would appear to be the only viable option if Bud can pass the Chapter 7 Means Test.   Bud consulted a bankruptcy attorney. He was given some sobering news.  His income of 500k was way above the state mean so he would not be able to discharge his credit card debt. He would have to work out a repayment plan.  Visions of getting Darian back disintegrated.   But wait!   Are credit card cash advances to buy stock really consumer debt?  Bud took the position that since the majority of his debt was non-consumer cash advance debt invested in the stock market he was exempt from the means test and should be able to liquidate.

Is Bud correct in his assertion?    Everything being equal, because his cash advance debt is  primarily non-consumer debt he may not have to pass the means test and can file Chapter 7 bankruptcy.  It appears that as long as Bud can trace back the cash advances to his Blue-Star buys he can walk away from his entire mess in a chapter 7.  That’s the upside.  All is creditors are gone.  He can start over.  Of course Gordon Gekko lost big on the advice and does not forgive so easily.   I can feel the ice melting under Bud’s feet as we speak.

Moral of story?  If your considering bankruptcy first run up thousands of dollars in non-consumer cash advance debt on your credit cards. Enough to be exempt from the means test. Then take a flyer in the market with the money.  If if does not work out you can be Bud Fox too.