SOMETIMES debtors cannot decide whether they should seek debt relief through Chapter 7 wipe out of all dischargeable debts or personal reorganization through Chapter 13, or business reorganization though Chapter 11. All of these methods get rid of unwanted and burdensome debt while allowing debtors to keep most if not all of their assets. Thus, a fresh start in life without debt. The individual or the business enterprise becomes productive again because debts have been erased. Clients usually ask me what they should do in their situation. First of all, debtors should look at their financial problems objectively. They should choose the solution that best serves their needs. They should seek to protect their own interest and their own futures. They should not succumb to the pressure of differing opinions from friends or relatives, or the pressure of being ‘ashamed’ for instance. I had one client recently who decided to withdraw her Chapter 7 petition because her sister did not approve of it. She had a mountain of debt, which she had absolutely no way of paying unless she worked ten jobs and she was three months behind on her mortgage payments. In other words, objectively speaking, the right solution is Chapter 7 relief so she can get a fresh start without the burden of accumulated debt. Instead, she wanted to make her sister happy and chose not to protect her own interest and her own future. She was not thinking clearly. I asked her if her sister was going to give her $80K to pay her credit card debt? She said no, it’s just that her sister did not approve of her filing for Chapter 7. Realistically, where is the legal or moral sense of sister’s disapproval? And why should client subject herself to sister’s approval when it’s client who is being sued by creditors and it’s her wages being garnished, and it’s her house that is going to be foreclosed?
Eligible debtors should consider the following objective criteria to seek BK relief:
• Based on debtor’s net income and expense analysis, debtor has no ability to pay off his or her unsecured debts. In other words, even if debtor’s intention is to pay off debt, realistically speaking, debtor cannot pay off those debts over a reasonable period of time. This means that debtor will be locked in permanent indebtedness, being a debt slave forever. So, it is morally and logically correct that debtor should find a way of getting out of debt as soon as possible, by all legal means. And the most effective and legal way of getting rid of debt is through bankruptcy. Even very large companies resort to Chapter 11 when they can no longer pay debt. Mr. Trump’s businesses have filed for bankruptcy, several times, to get out under the burden of debt. He’s still running for president now. His businesses are leaner and profitable because of bankruptcy.
• Too much debt destroys the household’s ability to save and invest money to secure the family’s future. If debtor makes $5,000 net a month but has to pay out all of the $5,000 for his monthly overhead and to make minimum payments on his credit card debt of say, $30,000, debtor is living a hand to mouth existence. Debtor saves nothing and invests nothing year in and year out. By the time debtor realizes that he has worked for twenty years with nothing saved and invested, it will be too late because by that time, debtor will be pushing fifty or sixty. Most people save and invest money while in their twenties to forties. Debtors who have too much debt are robbed of the ability to save and invest for decades. Thus, an intelligent and serious person who has too much deb but wants to save and invest must immediately correct his debt situation or else he or she will get old poor.
• Minimum monthly payments do not reduce the principal owed. If you make $5,000 a month but use $4,000 to pay your monthly overhead including mortgage, car, insurance etc payments but owe $40,000 of credit card debt, you will not be able to get rid of the $40,000 of debt even if you are current on the minimum card payments for twenty years. You need at least 3% of $40,000 or $1,200 a month to be current on all minimum monthly payments. Thus in one year, you would have paid $14,400 to your credit card masters in interest payments only, no principal. In three years, you would have paid $43,200 in interest payments but you would still owe $40,000 of principal. This is certainly a good deal for the credit card companies. But it is obviously a bad deal for your family. So open your eyes and be courageous for your own family’s sake. When they garnish your bank accounts and your wages to exact payment, your plea for mercy that you have paid them so much over the years, will fall on deaf ears. Why even subject your family to this possibility in the future? They will call you early in the morning and late at night, ten times a day, even at your place of work, and they will even call up your mother in law to collect their pound of your flesh when you don’t pay them on time. Why subject your family to this kind of disrespectful treatment?
• Most debtors keep their houses, cars and other assets anyway. The beauty of BK relief is that debtors keep all if not most of their assets while being able to wipe out unwanted debts. Objectively speaking, this is a very good and an appropriate solution for debtor because he gets a fresh start with no debt while keeping all of his assets. I mean, why should Walt Disney file for Chapter 7 when his business failed the first time if bankruptcy was not good for him? Even Orange County filed for Chapter 11 when it had problems with pension liabilities, as did certain Catholic dioceses file for Chapter 11 when errant priests created hundreds of millions of molestation liabilities? Bankruptcy is actually a defensive move that the debtor undertakes to “protect” himself and his family from creditors who want everything that they can get from them, including their integrity and humanity.
• Reestablishment of credit can start immediately. Debtors are able to begin reestablishing credit after bankruptcy. Yes, you will receive new credit cards within a few months after obtaining your discharge. Sounds ridiculous but its true. The reason is that debtors who have a bankruptcy no longer have debt, and they can’t file for bankruptcy for another 8 years so they are actually very good credit risks. They still have good income, will not have any debt, and are now more careful in their financial affairs. In fact, BK filers qualify to buy houses again on the second year after BK filing. Buying a new car is also no problem as long is the discharge has already been obtained.
“The Lord delights in those who fear Him, who put their hope in His unfailing love.” – Psalm 147:11
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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.
