CLIENT is 60 years old and married. She has gross income of $3,000 as a caregiver. Husband is not employed and waiting for social security benefits, which is still two years from now. Due to a car that was repossessed last year, client owes $18,000 on a car loan deficiency. Her salary is subject to wage garnishment of $600 monthly because of the repossessed car. Because of this client has not paid her mortgage on their residence for the last 8 months. Their mortgage is $1,500 a month, so their mortgage default is $12,000. They owe $40,000 of credit card debt, which they have not paid for the last 12 months. They have a car loan on a new Camry with a balance of $20,000 on which they pay $500 monthly at 10% interest. They are one month behind on the car payment. The mortgage holder has sent them a “Notice of Default” with a recording date last week advising them that their house will be foreclosed upon after 90 days pursuant to foreclosure law in the state of California unless the amount of default of $12,000 plus costs and attorney’s fees is paid in full at least 5 days before the foreclosure auction sale date, to be set, after the lapse of 90 days. A few days later, the LA county recorder’s office sends them the same information telling them that they will lose their house to foreclosure unless they pay the default in full by the deadline, and that they should contact a lawyer for assistance if they want to save their house.
Any homeowner who is in this situation and wants to save the house from foreclosure, and is serious about saving the house, should file a Chapter 13 forthwith. There are other options that can be taken but none of those are as effective in stopping a foreclosure on its track as a Chapter 13. The reason is that Chapter 13 is specifically designed by law to help homeowners save their houses from foreclosure. How will client benefit from her Chapter 13 petition?
She will benefit as follows:
• The wage garnishment will stop immediately, thus providing her $625 more of net income monthly.
• The foreclosure process will stop immediately. Mortgage holder cannot proceed with selling her house in a foreclosure sale.
• The mortgage arrears of $12,000 will be paid over a period of 5 years, no interest, at $200 a month.
• If client wants, the car payment can be paid at the rate of $333 monthly for 60 months, instead of $500 a month.
• In the Chapter 13 plan, she will only pay the default of the house at $200 a month for 60 months and paying zero to her $40,000 of credit cards. She does not have to pay any part of the $40,000 credit card debt at all.
• In addition to the stopping of the wage garnishment for the repossessed car, client will pay zero on the unpaid balance of the $18,000 car repo deficiency.
• If she completes the plan payment of $200 for 60 months, the court will discharge the $40,000 of credit card debt and the $18,000 car repo deficiency.
• During the next 5 years, as long as client is making the plan payments in a timely manner to the trustee, the house foreclosure is stopped, and none of her creditors can sue her for collection or garnish her wages or levy her bank accounts. She gets peace of mind and order from chaos.
Client has to resume her current mortgage payment of $1,500 on the month after the date of filing. Thus, on year 5, she will be back on current status again with her house mortgage. Client does not have a 2nd trust deed or a home equity loan, but if she did, assuming the legal requirements are satisfied, she could have also gotten rid of the 2nd trust deed, converting it to an unsecured debt just like a credit card debt with client paying the 2nd trust deed holder, again nothing, zero. If she owed $100,000 on a HELOC, that entire amount will get discharged upon plan completion, on zero payment.
So, as long as she completes all plan payments, she can retire in peace at the age of 65. At that time, her husband will be receiving social security benefits boosting their household income when their unsecured debt has been reduced from $58,000 to nothing. They will be debt free at 65 and their house will become current on mortgage payments again. It’s something to look forward to!
“Be of good courage, and He shall strengthen your heart, all you who hope in the LORD.” Psalm 31:24.
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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 Bldg A-1 Suite 1125 Alhambra, CA 91803.