A disparity in monthly payments to discharge credit cards 

“So now I say to you, if you have accumulated debt, take it easy, we can get rid of those burdensome debts that weigh you down every day of your life with Chapter 7 or Chapter 13. Don’t even think of killing yourself, it’s not worth it.”

A HIGH-income earner only pays $400 per month to discharge $130,000 in credit cards, while another, who lost her job, must pay $700 per month to discharge $40,000 in credit cards. Why is there a disparity? 

The first client is a senior who still earns $120,000 a year, as a registered nurse but owes $130,000 of credit cards. The second client is also a senior who just lost her job as an accountant and now relies on social security of $2,000 a month. At first glance, you would think that the first senior who makes $120,000 a year should be paying more because, not only is her income high at $10,000 a month, she also owes a significant amount of credit cards at $130K. The minimum monthly payment on $130,000 of credit cards is at least $4,000 a month. That’s $48,000 a year of just interest payments. In 10 years, she would have paid $480,000 credit card masters, yet she would still owe the slave owners the same $130,000 of principal!

This first client is 62. When she came to see me the first time, she was visibly stressed out. No kidding. Her face was contorted literally and she looked pale. Her husband could no longer work. He had a stroke a while back and just couldn’t get back to his former self. So he just stays home and takes it easy. The client still works a lot of overtime and, with overtime her gross income is $13,000 a month. But she says that she can’t work overtime anymore due to deteriorating health. Her regular pay is $10,000 without overtime. Without the overtime income, there’s no way she can set aside $4,000 a month to for minimum credit card payments. It’s time to break free from the chains of slavery to debt. It’s likely that if she kept on working with overtime, she would have a heart attack, and nobody wants that. As I said many times before, what you owe your creditors is money. You absolutely do not owe them your life. 

I had a client who was 55. He was a professional and well known in his field of endeavor. He grossed $500,000 a year. That’s right, half a million dollars was his yearly income from his profession. He also invested in some business venture that started losing money and that starting requiring him to cover the losses. First he had to cover losses of $5,000 a month, then $10,000 a month, then $20,000 a month. That was draining him financially and emotionally. He had retained me for bankruptcy reorganization and I thought everything was going well. But a day before he was to come to sign the bk petition, he killed himself. I regret to say that I never told him that he should take it easy because what he owed his creditors was money, not his life. 

So now I say to you, if you have accumulated debt, take it easy, we can get rid of those burdensome debts that weigh you down every day of your life with Chapter 7 or Chapter 13. Don’t even think of killing yourself, it’s not worth it. Think of how your family will survive without you to take care of them. Come and see me instead and we will discuss how we can make your life easier and make your productive again by getting rid of those nasty debts.

Going back to our high-income client who owes $130,000 of credit cards that needs $4,000 a month of minimum monthly payments, she owns a new house with $90,000 of equity. The house is worth about $500,000 and her mortgage balance is $410,000 so that makes her equity in the house $90,000. The entire $90,000 is within the homestead exemption of $100,000, so if her income was a lot less than $120,000 — let’s just say if her income were only $80,000 a year — she would straight out qualify for Chapter 7 and be able to discharge the entire $130,000 of credit cards without a single payment.

But given her income of Chapter 7, she would certainly lose her house to the trustee who would sell her house and use the net proceeds to pay off the $40,000 of credit cards; then give her the rest of the money received from the sale of the house. This would be too bloody. No one wants to lose his or her house for $40,000 of credit cards. That would be like cutting the nose to spite the face, right? Or to put it differently, that would be like amputating your leg because you have an ingrown toenail, or trying to kill a mosquito with Thor’s hammer. You get my drift.

I suggested to the second client that we should do a hybrid debt consolidation strategy. This is something I concocted myself based on long experience with dealing with creditors. I once had a case where debtor owed $700K to one bank. Believe it or not, the bank settled that for $25,000. That’s a 3.5% settlement. It’s almost incredible, I couldn’t believe it myself when the bank accepted our settlement offer. It’s effective to a certain extent and works almost like a reorganization, but it’s not bulletproof. But in this case what other choice does the client have? A hybrid debt consolidation strategy at least has attorney representation so she will have some protection instead of being completely unprotected. The goal would be to avoid having judgment liens on her house. The goal is to protect her house and eventually be able to get out of the $40,000 of credit cards. 

If you need debt relief, set an appointment to see me. I will analyze your case personally.

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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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