THE seniors are husband and wife aged 70 and 65. The wife is a young and healthy 65, while the husband is a healthy 70 who still looks strong. Both are still working with good income. The husband grosses about $100,000 a year and the wife grosses about $70,000 a year. With $170,000 gross for the household, there should be no financial problem, right? Wrong. 

But why? They owe $110,000 of credit card debt, which uses up about $4,000 of their monthly net income for minimum monthly payments! They have been servicing these credit cards for, believe it or not, 20 years. From $20,000 it grew yearly to $80,000, then to $110,000. They never paid off all the balances despite their good income. I guess you just don’t think about the future and take the easier way out of monthly minimum payments. Let’s say the cards stood at $110,000 for the last 10 years because it certainly looks like that from where we stand right now. 

That’s $48,000 a year for minimum monthly credit card payments x 10 years. That’s a cool half a million dollars right there that they transferred over to their credit card masters! And how much do they owe right now after paying half a million $ to MasterCard since 2008? They still owe the very same principal of $110,000! Now, what have they been thinking, really? That it’s ok to keep on paying $48,000 a month forever until they die? Makes no sense whatsoever. Even Chairman Kim Jong-un knows that there this is a bad deal for them. Indeed, this is a very bad deal. It’s time to nuke these cards to where they belong — six feet under.

If clients had wiped these cards out in 2008, they would have $500K in their wealth portfolio right now, instead of $110K of credit card debt. But when push comes to shove, clients realize now at their age that these accumulated debts are sucking them dry. Fortunately for them, they also both have hefty retirement accounts to rely on. But even hefty retirement accounts won’t be enough to solve their financial problem. Their combined retirement accounts are close to $700,000. The rule of thumb is you can use 4 percent of that taken from income generated, without diminishing the principal and still make the $700,000 grow yearly because the track record of the stock market is a yearly growth of 7 percent annually in the last 100 years. The stock market crashed in 1929 and 2007 when the market lost 50 percent of its value. Those who did not liquidate but hung on to their equities came roaring back in the next couple of years to recover the losses and go beyond them. 

Four percent of $700,000 is $28,000 of extra money for clients when they retire. The husband will be getting $2,000 of S.S., while the wife will be getting $1,500 of S.S. So, the clients will be retiring with $24,000 from S.S. for the husband, plus $18,000 for the wife for a total of $42,000 a year from S.S. plus $28,000 income from their retirement portfolio of $700,000.

The clients will be quite comfortable when they retire with $70,000 of gross income yearly, or almost $6,000 a month. Their house mortgage is $2,500, leaving them a balance of $3,500 a month for the rest of the necessary monthly expenses of $2,000. So, even in retirement, they will be saving $1,500 a month, or $18,000 a year, which they can add back into their retirement portfolio, right? So their retirement portfolio will keep growing until it reaches $1 million soon enough where they can draw $40,000 from a year. That’s really not bad, not bad at all. 

But with the $110,000 of credit card debt, they will need $4,000 monthly for debt service. Even if their retirement income is $6,000 a month, credit card debt service wipes out almost 70 percent of their income! That doesn’t sound good, no sir, it doesn’t sound good at all.

Clients seek Chapter 7 to wipe out the $110,000 when the husband retires in one month. But they also own a home with $300,000 of equity. This means that after their homestead exemption of $175,000, there is still non-exempt equity of $125,000. So, Chapter 7 is out of the question. In Chapter 7, clients will lose their house even as they realize $175,000 of cash. Even Chairman Kim Jong-un knows that Chapter 7 will be a bad deal for clients. So, the client must use Chapter 13 instead to handle the $110,000 of cards without incurring any risk of losing their house. The Chapter 13 plan will allow them to pay off their credit cards debts over 60 months without any interest. In five years, they will owe zero in credit cards so they enjoy their entire retirement income of $6,000 a month without having to worry about paying another cent to MasterCard or Visa.

Senior’s business needs Chapter 7 while she needs Chapter 13

The next client is 66. She just bought a house with $200,000 down but owes $400,000 mortgage on it. The problem is that she owns two businesses that are losing tons of money. She is very worried that suppliers will start suing the company for unpaid debt. 

Well, that’s easily solved with Chapter 7 for each company. The second problem is that she personally guaranteed the lease of the warehouse for $10,000 a month and there are three more years on the lease. How many times must I tell readers that they should never personally guarantee businesses leases or business debts? The client is on the hook for $360,000 on the personal guaranty of the lease. Fortunately for her, she can do a Chapter 13 to handle that. 

In Chapter 13, she will have to pay $25,000 of the personal guaranty over 60 months without any risk of losing her house. That is a great financial reorganization for her. She wipes out $335,000 of the personal guaranty if she completes 60 payments of $500 a month to the trustee. The bankruptcy court will enter an order discharging the $335,000 soon after the completion of plan payments.

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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