Abandoned wife files chapter 7 to discharge collection lawsuits for $20K
Client no. 1
IS it even legally possible that your social security benefits can be garnished? If creditors can get your social security income when you retire, how can you have peace of mind when you retire? To be sure, not every kind of creditor can garnish your social security, because social security income is generally exempt from garnishment. So who can garnish your social security? The bad guy who doesn’t care if you live or die has been, is, and will always be the IRS. The IRS can garnish your social security for unpaid taxes. The IRS is the shark that will eat you alive. But the shark does have a heart and is capable of a little mercy. The IRS usually will not garnish more than 15% of your social security income! Still, receiving 15% less of social security can make or break your monthly retirement budget, especially if, all you rely on at retirement is social security and nothing else.
Client is 63 years old with a previous Chapter 7 discharge in 2008 when he wiped out $30K of credit cards. He took early retirement at 62 because he said that he was getting depressed with life. He has been receiving social security of $1,315. Recently, he received something that made him more depressed, a letter from the IRS saying that they were going to garnish a portion of his social security for unpaid income taxes for 2009 of $10,000. It appears that client liquidated all of his 401K of $85K in 2009 because his son needed a heart bypass surgery and had no medical insurance. Son lived in client’s country of origin where the cost of heart bypass surgery was significantly less than here, but nevertheless reached $60K.
Here’s how the IRS problem arose. He did not declare the liquidation of the 401K in his tax returns because he knew that if he disclosed it, his income would increase by $85K, resulting in higher income tax liability which he had no ability to pay. The nondisclosure gave him temporary relief but as Benjamin Franklin said, “In this world nothing can be said to be certain, except death and taxes.” So, eventually the IRS assessed her additional taxes. What he did not expect that the IRS would also assess her an “accuracy penalty” of 25% because she knew that she liquidated her 401K but did not disclose it. An “accuracy penalty” also makes that tax non-dischargeable because it shows conduct or intent to evade taxes. Client cannot discharge this tax even in a Chapter 7.
Client will file Chapter 13 to stop the garnishment and pay the IRS without interest and penalty at $170 a month for 60 months. This is still a better deal than an installment payment plan or continued garnishment, both of which have interest and penalty.
Client no. 2
Client is 45 years old. Husband abandoned her 5 years ago and left her with $40K of credit card debt. Husband worked as hotel manager for a big hotel in Los Angeles. A woman lawyer represented the owner of the hotel. The lawyer conducted audits of the hotel operations. The lawyer would fly in from abroad and spend a long time with client’s husband discussing hotel business. They had meetings late at night. Apparently, the lady lawyer found client’s husband attractive. Being the hotel manager, he had access to the hotel rooms. One drink led to another, and soon enough, they were in the hotel room purportedly inspecting if the sheets were clean enough. You know the rest of the story.
Suspecting something was going on, client asked husband if he was having an affair with the lady lawyer that her husband had introduced to her in a business party. Husband replied, “ No way, she is so ugly! I wouldn’t touch her with a ten foot pole!” Eventually, husband decided to divorce client to marry the ugly lawyer who got husband promoted to regional manager for the hotel chain. Husband promised to pay off the community property credit card debt of $40K. He made minimum payments for 3 months then stopped altogether. Client paid the minimum of $1,200 monthly to keep them current for 5 years. After paying $72K in 5 years, she found out that the principal owed was still $40K! She defaulted on the cards. Now she faces collection lawsuits for half of the cards. Client now decides to file for Chapter 7 relief. She should have done it 5 years ago and she would have saved herself $72K and would have very good credit again by now close to 700.
“The sovereign Lord is my strength; He makes my feet like the feet of a deer, He enables me to go on the heights.” – Habakkuk 3:19.
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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.