THE first client is a senior who still earns $120K a year as a registered nurse but owes $130K of credit cards. The second client is also a senior who just lost her job as an accountant and now relies on social security of $2K a month. At first glance, you would think that the first senior who makes $120K a year should be paying more because, not only is her income high at $10K a month, she also owes a significant amount of credit cards at $130K. Minimum monthly payment on $130K of credit cards is at least $4K a month. That’s $48K a year of just interest payments. In 10 years, she would have paid $480K credit card masters, yet she would still owe the slave owners the same $130K of principal!
This first client is 62. When she came to see me the first time, she was visibly stressed out. No kidding. Her face was contorted literally & she was looked pale. Her husband could no longer work. He had a stroke a while back and just couldn’t get back to his former self. So he just stays home and takes it easy. Client still works a lot of overtime and, with overtime her gross income is $13K a month. But she says that she can’t work overtime anymore due to deteriorating health. Her regular pay is $10K without overtime. Without the overtime income, there’s no way she can set aside $4K a month to for minimum credit card payments. It’s time to break free from the chains of slavery to debt. It’s likely that if she kept working with overtime, she would have a heart attack, and nobody wants that. As I said many times before, what you owe your creditors is money. You absolutely do not owe them your life.
I had a client who was 55. He was a professional and well known in his field of endeavor. He grossed $500K a year. That’s right, half a million dollars was his yearly income from his profession. He also invested in some business ventures that started losing money and that starting requiring him to cover the losses. First he had to cover losses of $5K a month, then $10K a month, then $20K a month. That was draining him financially and emotionally. He had retained me for bankruptcy reorganization and I thought everything was going well. But a day before he was to come to sign the bankruptcy petition, he killed himself. I regret to say that I never told him that he should take it easy because what he owed his creditors was money, not his life.
So now I say to you, if you have accumulated debt, take it easy, we can get rid of those burdensome debt that weigh you down every day of your life with Chapter 7 or Chapter 13. Don’t even think of killing yourself, it’s not worth it. Think of how your family will survive without you to take care of them. Come and see me instead and we will discuss how we can make your life easier and make you productive again by getting rid of those nasty debts.
Going back to our high-income client who owes $130K of credit cards that needs $4K a month of minimum monthly payments, she owns a new house with $90K of equity. The house is worth about $500K and her mortgage balance is $410K so that makes her equity in the house $90K. The entire $90K is within the homestead exemption of $100K, so if her income were a lot less than $120K, let’s just say if her income were only $80K a year, she would straight out qualify for Chapter 7 and be able to discharge the entire $130K of credit cards without a single payment.
But given her income of $120K, she does have some disposable income under the means test. The means test shows that she has disposable income of at least $400/month. This means that she will have to pay this amount for 60 months or five years. After completing the plan payments, she would have paid $24K, or 18% of $130K of credit cards. The court will discharge the difference between $130K and $24K, or $106K. In other words, she doesn’t have to pay the $106K anymore; the court will just wipe it out to give her a new start in life without the $130K of credit card debt.
The second senior is 68, an accountant. She grossed $80K a year up to last month. She got downsized. Now she relies only on social security of $2K a month. The problem is she owes $40K of credit cards, which need $1200 a month of minimum monthly payments. She owns a house and the mortgage payment is $1500. So, you can see there is now a mathematical problem here. Her equity in the house is $400K. Since she is over 65, her homestead exemption is $175K. This means there is $225K of non-exempt equity. This amount of non-exempt equity poses a distinct problem. It means that in a Chapter 13, the $40K must be paid in full over 60 months without interest. This means in Chapter 13, her monthly payment would be about $700 a month. She says she can’t produce $700 a month now that she lost her job.
So what’s the solution here? Well, she can’t do a Chapter 13, and she can’t do a Chapter 7. In Chapter 7, she would certainly lose her house to the trustee who would sell her house and use the net proceeds to pay of the $40K of credit cards; then give her the rest of the money received from the sale of the house. This would be too bloody. No one wants to lose his or her house for $40K of credit cards. That would be like cutting the nose to spite the face, right? Or to put it differently, that would be like amputating your leg because you have an ingrown toenail, or trying to kill a mosquito with Thor’s hammer. You get my drift.
I suggested to second client that we do a hybrid debt consolidation strategy. This is something I concocted myself based on long experience with dealing with creditors. I once had a case where debtor owed $700K to one bank. Believe it or not, bank settled that for $25K. That’s a 3.5% settlement. It’s almost incredible, I couldn’t believe it myself when the bank accepted our settlement offer. It’s effective to a certain extent and works almost like a reorganization, but it’s not bulletproof. But in this case what other choice does the client have? A hybrid debt consolidation strategy at least has attorney representation so she will have some protection instead of being completely unprotected. The goal would be to avoid having judgment liens on her house. The goal is to protect her house and eventually be able to get out of the $40K of credit cards.
If you need debt relief, set an appointment to see me. I will analyze your case personally.
“For God so loved the world that he gave his one and only son, that whoever believes in him shall not perish but have eternal life.” John 3:16
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Disclaimer: None of the foregoing is considered legal advice for anyone. There is absolutely no attorney-client relationship established by reading this article.
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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 20274 Carrey Road, Walnut, CA 91789 or 1000 S. Fremont Ave., Mailstop 58, Building A-10 South Suite 10042, Alhambra, CA 91803.
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