YESTERDAY, a new client I saw said that she had been in a Chapter 13 paying $400/month for the last 12 months. But next year after her car was paid off, the plan payment would increase to $1,000/month which she would not be able to pay considering that her income had decreased by about $30,000 since her Chapter 13 case started last year. Apparently, last year’s Chapter 13 filing was precipitated by a collection letter from a creditor who now owned debtor’s promissory note for a 2nd mortgage on her house that was foreclosed 4 years ago. Creditor threatened to file a lawsuit to collect $200,000 from debtor representing the outstanding balance of the 2nd mortgage. Indeed, it’s unfair that debtor should still owe $200,000 on the mortgage when the house has been foreclosed. Unfortunately, as you probably know by now, life is not fair. If your beautiful wife of 20 years decides to divorce you because she falls for someone in her workplace, or her boyfriend from high school shows up all of a sudden, while you have been faithful to her during the entire period of your marriage, is that fair? No, but every year I have one or two clients who are forced into bankruptcy because of a divorce with such circumstances. Thus, it’s a myth that only men are unfaithful. In truth, many women are unfaithful and have adultery in them. It works both ways. The man cannot have the woman, unless she agrees barring rape and coercion. Women are the most beautiful creatures that God created. The bumps and curves of their bodies are so created by design that men desire to caress them. But I digress.
Debtor still owes the $200,000 despite the fact that her house was foreclosed because she also signed a promissory note agreeing to pay the $200,000, whether or not the house has been foreclosed. So, the foreclosure extinguishes the mortgage agreement, but the promissory note survived the foreclosure. Tell me who wants to pay $200,000 on a foreclosed house?
As it turns out, debtor is a member of the medical professions and used to earn $150,000 a year, but now has a reduced income of $120,000. That’s still on the higher end without any dependents to support and no mortgage to pay. After arriving at a current net income of $6,800 monthly the income still looks high. The question is, can she qualify for a Chapter 7? If she can, then her Chapter 13 case can be converted to Chapter 7 forthwith by a motion to convert to 7, which requires an attorney to certify that she qualifies for a 7. But it looks like her monthly expenses have also increased somewhat. The idea is to be able to convince the court that due to new circumstances resulting in less net income and higher expenses, debtor now is eligible for Chapter 7 relief even if her case was originally filed as a Chapter 13. This is not a simple matter because the higher expenses must result from deductible expenses under the means test such that the combination of reduced income and higher expenses will make debtor qualify for a Chapter 7 discharge of the $200,000 promissory note. For me as a lawyer, this is a challenge that makes bankruptcy practice interesting. As much as possible, as long as there is a good faith legal argument, I would prefer to give this client a fresh start free from the burden of all debt so she can be productive again. It’s bad enough that her house was foreclosed and she now lives in a rented home, but to be still legally liable on the 2nd mortgage, it’s just too much for anyone to handle. I would like to help her create a little fairness here and completely discharge the $200,000 promissory note with a Chapter 7 discharge.
Fortunately, after carefully scrutinizing all applicable factors, client does qualify for a Chapter 7 discharge. I immediately substitute in as the new attorney and file a motion to convert her Chapter 13 into Chapter 7. A further caveat here is that she must still be able to keep all her assets in a Chapter 7.
“By day the LORD direct his love, at night His song is with me- a prayer to the God of my life.” – Psalm 42:8.
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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 appointme nt at 1000 S Fremont Ave Mailstop 58 Bldg A-1 Suite 1125 Alhambra, CA 91803.