THE clients are seniors who just stopped working two months ago. The husband is 75 and the wife is 71. They own a house with $140,000 in equity.
Their unmarried son lives with them for free. For free, meaning that he doesn’t pay them any rent to live there. This is understandable because parents who love their children would normally just let their children live with them as long as possible for free just like when their children were still minors. Most parents still feel protective of their children no matter how old their children are. However, this situation can morph into something that is not good.
In the news several months ago was an article about parents on the East Coast who sued their 35-year-old son to eject him from their house. The son refused to leave and defended himself, claiming that he had the right to live in his parents’ house for free and even if his parents did not agree. The judge did not agree with his defense and ordered him to leave the house and to take all of his personal belongings with him in two weeks. I would say that this is a rare situation because parents normally still take care of their children as long as they are able to do so. Perhaps parents were afraid that their son would not learn how to support himself if they were no longer around if they allowed him to live in their house for free forever.
House prices now are so high that young adults are forced to live back with their parents after they graduate from college. Maybe it’s a good idea to build and sell tiny houses for $50,000?
In my clients’ case, their residence now has equity of $150,000, but they still owe $500,000 on the balance of the mortgage. They pay $2,600/month in mortgage to Chase Bank, and they owe $50,000 of credit card debt, which requires them to pay $1,500/month for minimum interest payments to keep them current.
Their combined social security income is $2,000/month. So, obviously, they have a problem.
They stopped working regular jobs only two months ago. That gave them a net of about $3,500/month from their combined regular jobs. When you add $3,500/month to social security of $2,000/month, they had no problem making the house payment and the credit card payments. But starting two months ago, they could not make the credit card payments anymore. They liquidated their $50,000 of 401K and converted that to cash and used that to cover the shortfall between their social security income, and their monthly necessary expenses.
Not a pretty picture. The $50,000 will be gone in a little over a year, and when that runs out, they won’t be able to even pay their mortgage of $2,600/month.
Their son should now step in to help them financially because after all is said and done their son will be inheriting $150,000 of the equity in their house. The equity will only increase as the mortgage is paid down and when the market price goes up further. Son can sell it at that time and get $150,000 to $200,000 in cash, or live in the house and continue paying the mortgage, or just rent out the extra rooms and receive rent income. So, it’s only fair to his parents that he now helps his parents solve the house payment problem by contributing a significant part or all of the mortgage so the clients do not have to worry about it anymore.
Fortunately, the son does make $70,000 gross income a year so he has the capacity to help out his parents at this time in their lives. But, is he willing to help out?
If the son does provide this help, the clients will have $2,000 of social security to cover their monthly necessary expenses, which should all be covered with maybe $1,000 saved every month since they no longer will have a house payment.
The only problem left will be the $50,000 of credit cards. These can be taken cared of with bankruptcy. Chapter 7 will wipe out the entire $50,000 without any repayment whatsoever. They get a fresh start in life as they retire without accumulated debt. They can thus save $1,000 a month and use that for whatever they want to. They can invest or spend it traveling the world.
If you’re about to retire, you must seriously consider getting rid of your credit card debts now because when you retire and rely on social security, your income will suffer a significant reduction. When that happens, the last thing you need to worry about is credit card debt. True? Yes, this is absolutely true.
Fortunately, the son is willing to help out and pay for half the mortgage. This means that clients will still have to pay half or $1,300 for their share of the mortgage. After that payment, they would still have $700 of social security left for necessary expenses but with the Chapter 7 discharge of their $50,000 of credit cards, the clients may have $300 left every month as savings.
If you need debt relief, please set an appointment to see me. I will analyze your case personally.
* * *
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.
