Senior seeks Chapter 7 relief for $40K in credit card debt

THE client is a senior at 67. He is married but has been separated from his wife for some time. He lives with a woman but is not married to her obviously because he is only separated from his wife. 

You can’t remarry until you have divorced. Separation, whether de facto or legal, does not entitle you to remarry. If you remarry while you are only separated, that would make you a bigamist, and bigamy is a crime. Apparently, the client is aware of all of these different marital or cohabitation arrangements. He says that although he is collecting social security, he still works when his employer gives work to him. He works as a seaman. Seamen do not work for 12 months a year. Sometimes they work half a year or a couple of months in a year. This kind of work is different from working on a cruise ship where the employer gives you 10 months of work and allows you two months of vacation.

When seamen are working, they can make $7,000 to $8,000 a month on the higher side. The problem is that it’s not that easy to get fully employed for 12 months. “Feast or famine” would be appropriate for seamen. When they work, they make good money but they can go for months without working and make nothing. The client made $40,000 last year for five months of work, which means that he was not employed for seven months last year. If we average out his income of $40,000 over 12 months, his monthly income is a little over $3,300 per month. 

The above analysis of his income situation is relevant to qualify him for the type of bankruptcy relief that he is looking for. He says that he owes $40,000 in credit card debt. He is tired of paying $1,300 a month. He says he has paid $1,300 every month on these cards for the last 10 years, and still today, he owes the same $40,000 after paying over $156,000. It doesn’t seem fair and he’s just plain tired of paying. In other words, borrow $40,000 and pay back $156,000, and still owe the same $40,000 in 10 years —  seems a little one-sided. He should have just paid for a house instead. 

Since he wants to get rid of his $40,000 debt now, can he qualify for a total wipeout of $40,000 with a Chapter 7, or a partial wipeout with a reorganization of his financial affairs in Chapter 13? Well, this would all depend on the applicable means test to determine what his actual current gross income is. What if his employer called him to work for 10 months at $8,000 a month? That kind of current income would knock him out of Chapter 7 and force him into Chapter 13 with probably a $300 to $500 monthly payment for five years. In Chapter 13, he might have to pay about $18,000 of the $40,000, then, $22,000 would be wiped out after completion of plan payments.

This looks more like a Chapter 7 than a Chapter 13 actually considering his employment income for the last year was $40,000. An examination of his employment income from January 1, 2018 to March 31, 2018 shows a gross of $10,000, or $3,333 a month. Even if he has social security of $1,400, he would still be eligible for Chapter 7 complete wipeout of the $40K relief. His wife, from whom he is separated is a registered, nurse who makes $100K a year. But since they have been separated for some time, his wife’s monthly gross income of $8,000 a month does not come into play under the means test. Separation from his wife actually makes him eligible for Chapter 7 while being not separated from wife would not make him eligible for Chapter 7, but would make him eligible for Chapter 13 instead.

Chapter 13 for $60K credit card debt 

The next client is 56 years old and is a widow. Her husband was in perfect health when he died from an accident inside their house three years ago. After he slipped and fell on his head, he became comatose and never recovered. 

The client now owns the house by herself since she was a joint tenant on the house. The condo is a senior housing facility. She owes $60,000 in credit card debt. She doesn’t make much as a caregiver. Her gross income of $2,500 is enough to pay the mortgage which is only $500 a month but the HOA is $400! Still, a total of $900 for the house is not bad at all. It’s cheap housing in LA, where rent for a one-bedroom apartment will set you back $1,500. (I remember 40 years ago when I only paid $550 for a two-bedroom apartment.)

The client wants a Chapter 7 wipeout but unfortunately, even with her low income, she can only qualify for Chapter 13 because she has $20K of non-exempt equity in her home. If she were to file a Chapter 7, she would end up losing her house to the trustee who will sell her house. From the sale proceeds, the trustee will give her $100,000 as her exempt equity while $20,000 would be used to pay the $60,000 of credit cards. So she will have to pay one third or 33 percent of the $60,000. After paying one third, the court will discharge $40,000 or two-thirds of the $60,000 credit cards. In Chapter 13, there is no risk of losing her house. So, considering everything, the client should go for Chapter 13, not Chapter 7.

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 20274 Carrey Road, Walnut, CA 91789 or 1000 S. Fremont Ave., Mailstop 58, Building A-10 South-Lower Level Suite 10042, Alhambra, CA 91803.   

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