Clients, husband and wife are 60 years old and both professionals in the medical field. Their combined gross income is about $200,000 annually. Their children are all adults and no longer their dependents. Their residence has a current fair market value of $1.1 M with a mortgage of $900,000. Their mortgage payment is $3,800 monthly ARM, which is set to recalculate on a higher interest rate by the end of the year. They have a 2nd mortgage of $50,000, which is on an installment payment of $500 a month. Their 401K is $185,000 and they now contributing $2,000 a month to catch up for a more secure retirement. Both are healthy and have no health issues so they can both probably work for another 10 to 15 years if they want to. They should be on easy street now and just work towards retiring with a large retirement account. But they actually have a big problem that seems unresolvable.
They have a civil judgment for $$330,000 arising from a 2nd mortgage in an investment property that was foreclosed a few years ago! That certainly is a big amount of money owed even for debtors who gross $200,000 yearly. They come to see me to see how they can get rid of the $330,000 judgment. Fortunately, there is no judicial lien that has been recorded yet. Otherwise, the fact that the judgment lien has been recorded would materially change the options they can consider. If there were a lien, the $330,000 would then be a secured debt, instead of an unsecured debt. There is enough equity in their house to support a portion of the $330,000. Therefore if there were a lien for $330,000, clients would not be able to strip it. But since there was no lien yet, a bankruptcy that is immediately filed would prevent the lien from happening and the bankruptcy would treat the judgment merely as an unsecured debt. Clients’ wages were being garnished for the last 3 months at the rate of $4,000 a month. So even with a gross monthly income of $17,000, after deducting taxes and the garnishment, clients were have a difficult time making ends meet. Just do the math. Tax and social security deductions, is almost $6,000, so net income is $11,000. Less $2,000 for 401K, that’s $9,000. Deduct the wage garnishment of $4,000, that’s $5,000. That $5,000 is used to pay the mortgage of almost $4,000 and the 2nd mortgage of $500, so there’s only $500 left for food and other necessities. Now, that is no way to live, is it?
Clients feel bad because the investment house was foreclosed years ago but still owe $330,000 on the 2nd mortgage of that property. Why is this so? The foreclosure took the house so there is no more collateral which means that legally the mortgage no longer exists. But don’t forget they also signed a promissory note promising to pay the creditor $330,000. This note still exists legally and is not wiped out by the foreclosure of the property.
I file a Chapter 13 for clients, which will do the following for them:
• The $330,000 judgment will remain an unsecured debt because the case will prevent the judgment lien from being recorded.
• The wage garnishment of $4,000 will stop.
• The plan will pay only $1500 a month for 60 months.
This means that clients will only pay 25% or about $80,000 of the $330,000, over a period of 5 years without interest, and they will discharge $250,000 of the judgment on the 5th year!
Clients are happy with their Chapter 13 case because instead of having their wages garnished at $4,000 a month for the next 10 years until $330,000 at 10% annual interest is paid, that’s almost $500,000! They pay the trustee only $1,500 a month for 5 years, no interest, for a total of $80,000. They save $420,000! In addition after the plan is confirmed, we file a motion to refinance their house under HARP, which reduces their mortgage payment from $$3,800 to $3,000.
“I am the Alpha and the Omega, the Beginning and the End,” says the Lord, “who is and who was and who is to come, the Almighty.” – Revelation 1:8.
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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 Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.
