“ Even though the debtor was not employed, she was willing to liquidate a part of her retirement account to pay for the settlement to keep her house.”

WHEN I say the client is a young senior, I mean 60. She’s a single mom with two adult daughters who are over the age of 21. One daughter is still in college but has a part-time job. The other works full time. Both daughters live with the client in her home, but she does not claim them as dependents on her income tax returns.

When we filed her Chapter 13 three years ago, she had disposable income of $900.

However, at that time, her job security was already in question as another company had just purchased the employer and heads were rolling. The client was able to keep her head for three years but lost her employment recently. Without work, she no longer has disposable income. Our first attempt to end her case was filing a motion to pay off the 33 percent plan by liquidating $10,000 from her retirement account. The Chapter 13 trustee objected to our motion to pay off the plan unless the pay off was 100 percent. Well, that wasn’t a good deal because her unsecured debt was about $100,000, which meant that client had to come up with $90,000 more to get a Chapter 13 discharge — that’s a 100 percent plan pay off.

The client had two other options dismiss the Chapter 13 case, or convert it to Chapter 7 and get a discharge of $90,000 of unsecured debt.

The problem is that for the last three years, the value of her house, just like most houses in Los Angeles and Orange County, have been appreciating significantly. We checked Zillow, which estimated the value at $400,000, and REDFIN estimated it at $440,000.

Whereas her house only had $30,000 of equity when she filed for Chapter 13 in 2013, now she has equity of $160,000.

The other problem was that she had testified at the Chapter 13 hearing last week that her daughter was independent, although she lived with her. And she did not mention that she had a second daughter who also lived with her, a full-time college student. So, the trustee concluded that her claim of homestead exemption should only be $75,000, not $100,000.

We refused to reduce the exemption claim to $75,000 because the trustee was not on solid ground with her argument that the debtor had testified that daughter was independent, therefore, she is not considered to be part of the family unit. We argued that the other daughter was a full-time college student, therefore, unable to take care of herself. So by definition, she is part of the debtor’s family unit. As a result, the homestead exemption of $100,000 is correct. Settlement offers and counteroffers were made. The negotiations were fruitful and the trustee settled for a reasonable amount to allow the debtor to keep her house. Even though the debtor was not employed, she was willing to liquidate a part of her retirement account to pay for the settlement to keep her house.

The daughters were willing to buy the house from her later on, so she gets her settlement payment back.

Nowadays, the correct value of the residence is critical to keeping the house safe from the clutches of the Chapter 7 trustee because house values are at their peaks again. Mortgage rates have been kept very low by the Feds for a long time. The last time house values peaked was 2007, just before the mortgage crisis, which bankrupted a lot of big banks.

When the crisis hit, house values dropped by more than half. Now, all of that has been recovered, and new highs are being achieved. Therefore, a lot of factual and legal analysis must be done before deciding which path to take, Chapter 7 or Chapter 13.

Senior files Chapter 7 to discharge $70K in credit card debt

The second client is 72. Her husband passed away some time ago. She has a daughter who has just started college. She now receives only social security and has no other income.

However, she owes $70,000 in credit cards, which requires $2,100 of monthly minimum payments. Her social security is $1,600. Let’s not even go further.

The client doesn’t own a house. She rents for $1,000. Well, with $600 left after rent is paid, and a daughter in college, let’s just say that there’s tremendous pressure on her to budget her expenses. Obviously, there is no money to pay $2,100 for credit cards every month, is there? So, she chooses to make the $70,000 credit cards disappear with a Chapter 7 petition. Just imagine the number of calls she gets every day from these cards trying to get their pound of flesh from her. That’s no way to live no matter how old or young you are. $2,100 a month for credit cards is equal to a mortgage of $400,000. I mean you can literally buy a house, condo or townhouse for $400,000 with nothing down, instead of carrying $70,000 of credit card debt. Think about where you want your hard earned money to go. Would you rather be the proud owner of a house or the proud owner of $70,000 of credit cards?

At 72, the client finally realized that she should have gotten rid of her credit card debt a long time ago. If she got rid of them 10 years ago, she would have saved up $252,000 now.

Instead, she gave $252,000 to her credit cards of $70,000, and she still owes the same $70,000 after 10 years! Think hard what you should do now because the earlier you get rid of credit cards, the faster you can save money and be productive again. Even at 72, it’s not too late to get rid of them because better late than never.

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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.

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