QUESTION: My wife and I are in the process of getting a divorce. We are already three months behind with our mortgage payments. My biggest problem is my credit card debt of $100,000. Lately, I had been paying the minimum amount towards most of my credit cards. However, for 8 months now I had been unable to pay my Visa credit card. They have been calling my office and are threatening to sue me. They even threatened to garnish my wages. A friend advised me to file for bankruptcy. However, my wife does not want to file for bankruptcy. Together we make about $8,000 per month. However, I only bring in $3,500 per month. I also have about $50,000 in my 401K.
Can I file bankruptcy by myself? If I file for bankruptcy what will happen to the credit card debts we have together? Can they garnish my wages? What about our bank accounts? Will they take my 401K? Can I still keep our house? Its fair market value is about $475,000, however, we still have a $450,000 mortgage on it.
Should I file personal bankruptcy petition? Friends say that we will not qualify for bankruptcy under Chapter 7 because we have too much income. If I file for Chapter 7, can I still keep the house? What are my options? Help me, I am drowning in debt!
Answer: Yes, they can garnish your wages and/or levy your bank accounts. Since you are in already in the process of obtaining a divorce, I suggest that you file for divorce or at least legal separation. Then, you can file personal bankruptcy. You can personally file bankruptcy petition under Chapter 7 since you only have an income of $3,500 or $42,000 per annum (below the family median income for California).
Filing bankruptcy under Chapter 7 will discharge all your unsecured debts. All your personal credit cards (under your name alone) will be discharged. However, your wife will be left with the debt for all the joint credit cards, which are under both your name. Your 401K savings, along with any stock bonus, pensions, profit sharing, annuity, or similar plan, are protected, to the extent reasonable necessary for your support on the account of illness, disability, death, age or length of service. The amount of $50,000 is reasonable and necessary for your personal retirement.
Should all your credit cards are under both your names, I suggest that she also file bankruptcy petition under Chapter 13. This will allow her to pay her debts under a repayment plan approved by the bankruptcy court. She will have to pay according to her disposable income.
Regarding your house, you only have $25,000 equity on it. Hence, you can choose to retain and exempt your house from bankruptcy. You as a debtor has the option to retain $75,000 equity from a house, mobile home, boat, stock cooperative, or condominium unit, you personally occupy.
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This article does not constitute any legal guarantee or advice for any individual matters and does not create attorney client relationship with the readership.
( Published November 21, 2009 in Asian Journal Los Angeles p. C2)
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