Client files chapter 7 for $40K credit cards
CLIENTS are seniors. Husband is 72. Wife is 71. Both are retired and receiving combined social security and pension total of $4,015/mo. Husband is still in good spirits although he is not in good health. He has been on dialysis for three years. He had hypertension when he was still working and left that condition untreated for years. He was ignorant of the fact that untreated hypertension destroys the kidneys because too much blood flows through the kidneys for too long. Damage to the kidneys by untreated hypertension is irreversible, unlike damage caused by overdose of medication, which is reversible. By the time that client was educated on the cause and effect of hypertension on the kidneys, it was too late; his kidney function had been reduced to 10%, requiring dialysis, 3 X a week. But what about a kidney transplant? His doctors say that because of his age, he may not survive a kidney transplant. So he has resigned himself to being tied up to a dialysis machine to live. Wife is healthy, and they both seem happy. Their problem now is two-fold: 1) Their loan modification request was rejected two weeks ago, and they are now 8 months in arrears in their mortgage 2) IRS has placed a tax lien on their house for $15K for back taxes from 2005 to last year, 3) Credit cards of $30K.
They said that they wanted to keep their house because it had $150K of equity. They bought the house for $40K, forty years ago. Now its fair market value is $450K. They refinanced five years ago and owe $300K on the mortgage. Their default on the mortgage is $17K, the IRS is hounding them to pay the tax lien and threatening to sell their house if they don’t pay up, and they can’t pay the $1K monthly to keep the $30K of credit cards current.
Can a chapter 7 help clients in their situation? NO. Chapter 7 will not give them the opportunity to cure their default on the house, and Chapter 7 will not resolve the tax lien problem. It will discharge the $30K of credit cards, but the two main problems will remain unsolved. However, Chapter 13 will allow clients to “freeze” the default on the mortgage and give them 5 years to pay that off without any interest, and Chapter 13 will “freeze” the IRS tax lien and allow clients to pay that off over 5 years without interest. And in Chapter 13, in clients’ case, nothing has to be paid to the $30K credit cards, those will just be discharged in full. How much will they pay on their Chapter 13 plan of reorganization? On the mortgage default of $17K, that will be $283 a month for 60 months. On the tax lien of $15K, that will be $250 a month for 60 months. They don’t have to pay any portion of the $30K credit cards because their home exemption of $175K covers their entire equity in the house of $150K. Together with court administrative expenses, their plan payment will be $586 a month, more or less.
Can they afford $586 a month of plan payment to cure their mortgage default and to pay off the tax lien? Their household income of $4,015 monthly is good enough to provide them a disposable income that is more than $586 a month because in Chapter 13, they don’t have to pay $1K a month to keep their $30K of credit cards current. Under their reorganization plan, the pay credit cards nothing. If they complete plan payments in 60 months, they will be back on current status on the mortgage, will owe IRS nothing and IRS will have to remove the tax lien on their house, and they will owe nothing on credit cards. So, Chapter 13 is perfect for senior clients. It’s too bad there is no Chapter 13 to cure his kidneys. For that, he has to ask our God, Yahweh, or His one and only Son, Jesus Christ, for a cure. Jesus resurrected his friend Lazarus who had been dead for 3 days. Jesus healed the blind and performed numerous miracles of healing the sick and resurrecting the dead, to prove that He is the Son of God. So, healing his kidneys, this is something between client and Jesus but it is certainly possible. He needs to ask and it will be given.
Chapter 7 Client is 50 and single. He has a good job that pays him $55K a year. He doesn’t own a house and has just bought a new car. He doesn’t want to continue payments on his old car where he pays $258 a month for a title loan at 22% interest. He wants to give up the old car and he wants to get rid of $40K of credit cards. Chapter 7 is perfect for client. He can keep his new car, surrender his old car and not owe any return deficiency, and discharge $40K of credit cards. With Chapter 7, he can become productive again and start saving money again. Without credit card payments and the old car payment, client is looking forward to beef up his retirement account at least by $800 a month.
“Ask & it will be given to you; seek & you will find; knock and the door will be opened to you.” — Matthew 7:7
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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.