WE will discuss two new cases involving clients who seek a fresh start in life with no debts owed to anyone. Both sets of clients are in their forties. The first client is a couple in their forties with young children who are aged 3 and 7. Husband works for the county of LA and makes a gross of $5,000 a month, net $3,800. There is a mandatory retirement contribution of $600, which has been deducted to arrive at the net of $3,400. Under the means test, a mandatory retirement contribution can be deducted from gross income to arrive at net take home pay. Whereas, a voluntary retirement contribution is not deductible to arrive at take home pay. Husband therefore benefits from this distinction. Otherwise, a voluntary 401K contribution may qualify this household for Chapter 13, not Chapter 7. They want a Chapter 7 fresh start with no debt. Wife works as a licensed vocational nurse with a gross of $3,000, net $2,500. Under the means test, their net household income is $5,900 monthly. Will they qualify for a Chapter 7 with $80,000 of gross yearly income?
Husband explains to me that they owe a combined credit card debt of $50,000, which they have carried for the last 10 years. They pay the minimum of $1,500 a month for interest and have paid a total of $180,000 of interest in the last 10 years but still owe $50,000 of credit card principal; something that they never thought about when they were younger. But now with a mortgage of $1,300, two car payments which total $800 a month, and another $600 for child care, the monthly budget seems to get tighter and tighter. With the 7 years old starting to go to a private school requiring $300 a month, their backs are now against the wall and must make a choice of keeping their credit cards current with $1,200 a month, or getting rid of all their credit cards with a Chapter 7 wipe out, and get a fresh start with no debt. If they keep the cards current, they won’t have enough to pay the $300 tuition for their son, or they have to stop paying on one of the cars. Fortunately, the house mortgage is affordable. At first they were seriously considering getting a HELOC to pay off the cards, but adding $50,000 more of secured debt on the house, may put their house at risk. What will happen if husband or wife suffers a pay cut? Then payment of the HELOC would become a problem thereby putting the house at risk of foreclosure. That’s not a risk they want to take. Besides, they feel that having paid $144,000 of interest on their credit cards for the last 10 years and still owe the principal of $50,000 appears to be a one sided deal in favor of their creditors only. They checked the recent interest rates on their cards and found out that they were averaging 24% per year! That is a lot of interest considering the Feds have been keeping interest rates artificially low below 4% for the last 5 years. Considering all relevant factors, clients decide that they needed to wipe out all credit card debt and start fresh to be productive again. At age 50, there will be no record of the Chapter 7 filing in their credit report. If they timely pay their mortgage, car payments and the new credit cards that will be offered to them right after they get their discharge, their credit score will be perfect, even better than what their score is now.
The second client is also in his forties. He is married with a 4-year old son. He works as a clerk and makes $4,000 a month gross and $3,500 net. He migrated to America ahead of his wife who joined him 2 years ago with their son. Wife does not work and stays home to take care of their son. He rents an apartment for $1,100 and makes a car payment of $275 for a 2012 Civic.
He accumulated $40,000 of credit card debt for his travel expenses back and forth to and from his country of origin, and a big chunk of his credit card debt was incurred for immigration lawyer attorney fees to legalize his own status, and to bring his family to America. Having realized that dream, he now longs to be debt free for a fresh start in life with his family in America. Since his family has joined him here, he cannot fork over $1,000 a month for minimum credit card payments every month so two months ago he started to default on the cards. Chapter 7 is the solution to get client on a firm financial footing for the future of his family here. By the time his son starts high school, his credit will be perfect again.
“The LORD appeared to us in the past, saying: “I have loved you with an everlasting love; I have drawn you with loving kindness.” Jeremiah-3: 13.
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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.