THE clients are young seniors at 62. The husband took an early retirement as he has a serious illness. Two years ago, the husband was diagnosed with stage 3 leukemia. He has been undergoing treatment with a new cancer-fighting drug that is still experimental.
The cancer went into remission last year but resurfaced recently. I sometimes wonder, with all our advanced technology that can send people to Mars, we still cannot cure cancer. Sure, certain cancers can now be fought effectively if detected early enough and we know more about cancer now that we did a couple of decades ago. There is, of course, our City of Hope that boasts of being cutting edge on cancer treatment, but if you are unlucky enough to get cancer, I am sure that the thought of dying sooner than later will certainly be a constant thought in your mind. I’ve also heard of people who get cured of cancer by stem cell therapy administered by a group of German doctors in Mexico. The cost of treatment is about $30,000 per session using stem cells from a fetus, which they provide. In any event, the best thing that can happen for our loved ones and us is that we never get sick until we die of natural causes.
I rely on Psalm 91, written by Moses a long time ago, for protection from cancer and other illness for my loved ones & myself. In that Psalm, Moses says that “Whoever goes to the Lord for safety, whoever remains under the protection of the Almighty can say to Him, ‘you are my defender and protector, you are my God, in you I trust.’ He will keep you safe from all hidden dangers and from all deadly diseases. So, like Moses, I go to our Lord to keep my loved ones and myself safe from all hidden dangers and from all deadly diseases.
Going back to the clients, since husband fell ill, he stopped working; hence, his income went down as he now receives social security at 62. He took an early retirement.
Normally, one would wait until 67 to get full social security benefits. But with the client’s illness, he may not be around at 67 so he might as well start getting social security even if it’s a lesser amount now.
The clients are paying for a 2016 Toyota 4Runner. They pay $600 a month with five more years to go. They feel that it’s too much of a debt burden and have decided to return the 4Runner. The dealer told them that even with a voluntary return of the car, they would still owe about $12,000. This is called the voluntary car return deficiency. What happens is that the dealer sells the returned car at wholesale and uses the proceeds to pay a portion of the car loan. Since clients still have five years on the car loan, at $600 a month, they owe $36,000. The dealer anticipates selling the car for $24,000 at wholesale. The sale proceeds of $24,000 will be used to pay down the $36,000, leaving a balance of $12,000.
By the contract, clients have agreed to pay $36,000 for the car, so they are still contractually liable for the unpaid difference of $12,000 even if the car has been returned.
In addition, the clients owe $40,000 of credit cards. They need $1,200 a month for minimum monthly payments. Since the client only gets $1,100 from social security, it’s a no-brainer that they need to wipe out the $40,000 of credit cards as well as the $12,000 voluntary car return deficiency. Clients have further decided to buy a cheaper car where they will only pay about $200 a month or less on a lease. I told them to go ahead and get a smaller car, which is consistent with pre-bankruptcy planning.
Client needs Chapter 13 to handle $50K personal guaranty
The second client is 52. He owns a California S corporation and has a residence that has $300,000 equity. His import distribution business was doing well since it started in 2002.
But business turned south last year when gross sales went down by 30 percent. With a 30 percent sales reduction, the company is losing money. He obtained a $50,000 loan from the bank, which required him to execute a personal guaranty for $50,000. The company has not paid the loan for several months. The bank then sued the company and client on his personal guaranty last week. Since the client has $300K,000 of equity in his house, the non-exempt portion of the homestead equity is $200,000. That’s a lot more than the $50,000 guaranty. The client does not qualify for Chapter 7 relief. However, Chapter 13 will provide relief in that client will be given a repayment plan of 60 months to pay $50,000 without interest, that’s about $850 a month for five years.
Since the client now works for the employer and has a gross salary of $3,500 a month, and his wife also has some income, Chapter 13 will protect his house from a judgment lien of $50,000 from the lawsuit.
If he were to opt for Chapter 7, he would lose his house. The trustee will sell his house, give him his exempt equity of $100,000, then use the $200,000 to pay the $50,000 and trustee administrative and legal fees which will be substantial.
So Chapter 7 is not the right way to go. Chapter 13, however, will provide adequate relief while protecting his residence from a judgment lien. Besides, Chapter 13 trustee has no power to sell the debtor’s house.
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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 or at 20274 Carrey Road, Walnut, CA 91789.
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