Senior seeks Chapter 7 relief for $100K credit cards
CLIENT is 52 and married. Her husband filed for Chapter 7 relief for $30K of credit card debts two years ago. At that time, I suggested to her that she should just file a joint Chapter 7 petition with her husband so that she could also get rid of her $35K of credit cards. She said that although she was having a hard time making the payments on the cards, about $1K a month, she wanted to wait and see. She grossed $3K a month and nets $2,500. I told her then that her minimum payment of $1K a month represented 40% of her net income. That’s a big chunk of her net income. If she were making a net of $10K a month, then $1k a month would only be 10% of her net. That would not put too much of a strain on her. But 40% means that for every $1 that she makes 40 cents goes to credit card interest. She’s actually working for the credit card companies. I filed her husband’s case two years ago. Wiping out $30K of credit cards was a big relief for him. His net income was $1,500 and $1K a month credit cards was simply outrageous. More than half of his net income was being used to pay for his cards.
Both client and her husband come to see me. He says he’s pretty happy that he has no credit cards to pay for. It’s been two years and he actually got new cards, which he doesn’t use. If he uses it, the pays the entire balance when it’s due. He says his credit score is now 610. He bought a new CRV last year and paying $450 a month for it. He said that $450 a month is definitely better for a car payment because you get to use and at the end of the payment term, you own the car. Whereas with credit cards, you keep paying the minimum but the principal remains the same even after ten years. In his case, he paid $12K a year for ten years and he still owed the same $30K when he filed for Chapter 7 relief two years ago. He could have ended up with four cars of $30K each all four cars fully paid after 5 years. Or he could have just saved up $120K in his retirement account instead of forking over $120K for ten years of credit card payments yet still owe the very same $30K.
He says that wife now wants to file Chapter 7 to get rid of her $57K cards. I said I thought that was only $35K two years ago, wasn’t it, now its $57K so what happened? He says her income went up a bit when her employer was sold to another company so she started to use the cards more. But then the new owner started to lay off people to downsize. After downsizing, a significant portion of the labor force was shipped out to Mexico because labor costs there were a lot lower. Then recently, her employer started to automate. Last week, wife was laid off. Client has been looking for a new job and has actually had two offers but the net income was $2500. Considering that the minimum payments on her credit cards was almost $1,800, she said that she was now convinced that it was time to get rid of the $57K cards. In her present situation, 72% of her net income was going to be used for minimum credit card payments. To say that she can’t pay for them is a statement of the obvious.
They had another car payment of $300 for an older model Camry. It had two more years to go. Now I guess the choice is between making the car payments for the new CRV and the Camry and the basic necessities of rent and food, or $1,800 for minimum payments on $57K of credit cards. What would you do? This is an open and shut case for Chapter 7. You can’t drive your visa or MasterCard.
Next client is a 65. She is a member of the medical profession. She married late and has a 17-year-old daughter who is starting college. Her husband passed away 3 years ago due to a massive stroke. He was also a professional. Their household income 3 years ago was $150K. She still works and nets $7K a month. The problem is her $100K of credit cards, which requires $3K of minimum monthly payments. That’s also 40% of her net income. With a child about to start college, she would have to set aside at least $1K a month college expenses even if daughter may qualify for student loans. The choice is keeping the cards current and paying for her daughter’s college expenses. The choice is clear. Client decides to get rid of $100K of credit cards with Chapter 7.
Financial stress is relative. For someone who nets $3K a month, even $15K of credit cards is hard to maintain because that person would have to pay $500 a month for minimum payments on $15K just to keep those cards current. Needless to say, the order of payment priority is food, shelter, transportation etc. It’s about time you seriously consider getting rid of your debts. Your family’s future financial security depends on your getting rid of debt as soon as possible.
“God is our refuge and strength, a very present and well proved help in trouble.” — Psalm 46:1
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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.