“So the pressure on the client due to debt burden has been steadily ramping up and taking it’s deadly toll on client’s well being.”

THE client is 50 and single but has a cousin who lives with him. The cousin has been employed on and off and has lived with him for 10 years.  The cousin is also 50. The client does not own a house so he rents an apartment for $1,600. 

Unfortunately, the cousin is unable to help him with any portion of the rent. Let’s just say that the cousin is the client’s dependent for all intents and purposes even though the client does not claim him as a dependent on his tax returns. The cousin has certainly depended on the client for a place for food, shelter, and clothing for the last 10 years. The client has a good heart. Without the client, the cousin would be homeless. I would say that the client has a household of two for bankruptcy purposes because the cousin is, for all purposes, his dependent. 

A dependent would be beneficial for the client in bankruptcy because a family of two has a higher median income than a single person in the calculation of the eligibility to qualify for Chapter 7 or 13 under the means test. For instance, a single person earning $50,000 a year may have a presumption of abuse flag in Chapter 7, but would easily qualify without a presumption of abuse if this same debtor had a two-person household.

But can the client qualify for Chapter 7 even if he wants to? Why does he want Chapter 7 relief?  Let’s look at his financial background. He says his gross income is $72,000 a year. He shows me his pay stub. It looks more like $79,000 a year because he gets paid bi-monthly. This means that in bankruptcy, to arrive at his effective yearly gross, the pay stub he gets every two weeks is multiplied by 26 then divided by 12 months. This would yield a $79,000 yearly gross instead of $72,000 as he thought he was making. Indeed, if his yearly gross were $72,000, with a two-person household, he would be close to Chapter 7 than Chapter 13. He owes $36,000 to the IRS for back taxes. More than half of these taxes are for tax years before 2012. This means that if there was no fraud involved with these taxes owed, most of them would be discharged because the general rule is that taxes owed for at least three years pre-filing are discharged. Taxes that came due starting 2015 would not be discharged in Chapter 7 because they are not more than three years old. The client pays the IRS $500 a month on an installment plan to pay back the $36,000 of principal owed. Unfortunately, even if the IRS agrees to an installment plan, interest & penalties on the unpaid portion are applicable. So, this is like a high interest loan from Uncle Sam. 

The client further owes $80,000 in credit cards and payday loans! That’s a significant debt; particularly payday loans that can have 100 percent of interest a year.  They’re disguised like Good Samaritan loans but they are actually usurious loans that are designed to keep you in debt forever. His credit card debts are hitting about 25 percent in interest. The client cannot get out of this heavy debt burden without some kind of bankruptcy relief. The client has had some family emergencies, which required him to borrow more from credit cards recently, including funeral expenses. 

The client has also recently been served with a lawsuit for collection on a credit card debt. He is also getting a lot of collection calls from rude creditors representatives who have threatened to call him at his place of work which by the way is illegal being a violation of the Fair Debt Collections Act. So the pressure on the client due to debt burden has been steadily ramping up and taking it’s deadly toll on client’s well being. Let’s just say that he looks like and feels like an elephant is sitting on his chest. No doubt, the client needs immediate and permanent relief from accumulated debt. What’s the use of making a good income of $80K a year when most of the net income has to be given to satisfy your creditors every month? Each creditor has to be given the client’s pound of flesh every month for minimum payments. So what happens when you have to give your pound of flesh every month? Eventually, you will be skin and bones, a skeleton of your former self!

Although the client prefers a Chapter 7 wipe-out of accumulated debt, including the $36,000 owed to the IRS, his case is actually a Chapter 13. In Chapter 13, the IRS debt of $36,000 would have in full as a priority debt, as a minimum. In other words, in Chapter 13, his minimum plan payment would be $550 a month for five years to fully pay off the IRS. During the Chapter 13 period, he will be paying off 100 percent of the $36,000 principal owed to the IRS because remember, in Chapter 13, interest and penalties do not apply. 

Further, he may be able to qualify for a zero percent plan. This means that as long as he is paying the $550, he doesn’t have to pay anything for his $80,000 of credit cards and payday loans! Yes, you read that right. Zero payment to $80,000 in credit cards and payday loans. If client completes his $550 plan payment for 60 months, the IRS is paid in full and he gets a discharge of the $80,000 credit cards and payday loans. Well, this is better than Trump’s tax deal anytime. Note that client has been paying $500 a month on his IRS installment plan. In Chapter 13, he only pays $550, with zero payments to credit cards and payday loans. Without Chapter 13, he pays $500 a month to the IRS with interest and penalties still accruing, and he still has to pay a minimum of $2,500 to keep his $80,000 of credit cards and payday loans current every month. If he completes the plan payments, he won’t owe the IRS anything, and he won’t owe anything to credit cards and payday loans. In effect, he gets a fresh start in life even on Chapter 13.

Wife with $30K in credit card debt needs Chapter 7 relief 

In the next case, the client is 45 and married with an 8-year-old son. She owes $30,000 of credit cards, while her husband owes $5,000 of credit cards. Off the bat, this will be a single filing by the wife only. The husband does not have to file since he owes only $5,000. Their household income is $5,000 a month. So, definitely, for a household of three, the client can qualify for Chapter 7 wipeout of her $30,000 credit cards. They don’t own a house but pay for three cars. I don’t know why they have three new cars. But they can keep the three cars as long as they continue to pay for them. They can reaffirm the car loans. This is not a problem. Most car loans do not require reaffirmations anymore. As long as the client continues timely car payments, she can keep her cars. 

We don’t need Dennis Rodman to tell us that client qualifies for a Chapter 7 wipeout of accumulated debt for a fresh start in life so she can be productive again. As we all know Mr. Rodman will be in Singapore next week to help his friends POTUS Donald J. Trump, and Marshall Kim Jung Un arrive at a historic peace accord that will eventually ensure the denuclearization of the Korean peninsula. All of us will benefit from peace in Korea particularly, the great Korean people who have had to live under the threat of mutual self-destruction in the last 60 years. This makes no sense. It’s about time for them to have peace over there. Thank you Mr. Rodman, for making the prospect of peace much closer to reality. 

If you need debt relief, set an appointment to see me. I will analyze your case personally.

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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California.  Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave, Mailstop 58, Building A-1 Suite 1125, Alhambra, CA 91803.

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