CLIENTS are husband and wife in their fifties. Their combined household income is a gross of $140,000 annually. They own a house with equity of $300,000 in LA. They have no dependents.
At this point, I don’t see much of a financial problem because they’re grossing almost $12,000 a month. Even with a mortgage payment of $3,200 monthly, there should be more than enough disposable income at the end of each month. Even with two car payments totaling $900, they should still be able to save some money every month.
But they tell me that they have about $25,000 of credit card debt on which they try to pay $1,000 a month but try as they would, for the last three years, they can’t bring the principal down. After paying $36,000 of interest from 2019 up to now, they still owe the same $25,000.
Under the means test, clients will not qualify for Chapter 7. They will qualify for Chapter 13. Applying the liquidation analysis, they can actually propose a low plan payment, but they are way over the median income in LA for a family of two.
Consequently, in Chapter 13, they will have to propose a 100% plan. What does this mean? This means that the $25,000 of credit cards they owe must be paid in full (meaning the principal of $25,000) without interest over a period of 60 months in equal monthly payments. This is about $450 a month for 60 months or five years. If clients timely pay all plan payments, then after 60 months has transpired, the court will enter a discharge order. That means that clients will no longer owe anything on the $25,000 of credit cards. Those are legally deemed fully paid. How does that work out in real life?
How the discharge order works
Well, let’s say that they owed American Express $5,000 when they filed their Chapter 13 case. After the court enters the discharge order, AMEX files a lawsuit to collect the unpaid interest of five years while they were in Chapter 13. That lawsuit is illegal because it contravenes the discharge order of the bankruptcy court, a Federal court. The AMEX lawsuit will be dismissed because it violates the discharge order and AMEX can be sanctioned by the Federal court in an amount in the court’s discretion. The bankruptcy court may penalize AMEX say $50,000 for filing the lawsuit to collect interest from clients because AMEX is in contempt of the court’s discharge order.
After applying the means test to clients’ circumstances, they have at least $1,500 a month of disposable income. Therefore, it is indisputable that clients will have to propose a 100% plan in their Chapter 13 case.
I am aware that after having represented thousands of clients in bankruptcy cases clients always have what I call “the fear factor” in doing a bankruptcy. They get nervous. “Is this the correct path for me?”
From something bad comes something good. God is in control
Don’t worry God has a good plan for you, even if something very bad has happened to you. God can and does use something done by the evil one to you to bring about something very good for you and other people. What does this mean?
In Genesis 50:20, the brothers of Joseph throw him into a well and sell him into slavery because they are jealous of him, being their father’s favorite. Their father is Jacob who is the grandson of Abraham, the father of the Israelites. Joseph is 17 years old when he is sold into slavery. He is brought to Egypt as a slave, but in Egypt, he is falsely accused of rape and is imprisoned for 13 years.
Clearly, the evil one has done a number on Joseph. But God gave Joseph the gift of interpreting dreams. The big boss in Egypt, the pharaoh keeps on dreaming about 7 fat cows, which are eaten by 7 thin cows. He’s going nuts trying to understand what this means. So he puts up a show, Egypt’s got talent, to see if anyone can interpret his dream. No one is able to give him the right answer. Finally, the chief butler of the pharaoh tells him that there’s this guy in prison who can interpret dreams, Joseph. The pharaoh summons Joseph to his palace.
Joseph tells the pharaoh that there will be seven years of extreme abundance followed by seven years of extreme famine. Then Joseph proposes to pharaoh that during the years of abundance the extra produce must all be stored in huge barns so that the stored produce will be used to feed the people during the seven years of famine.
The pharaoh appointed Joseph as the CEO of Egypt who was in charge of the storing and distribution of produce. During the years of famine, the brothers of Joseph go to Egypt to get their ration of food because there’s no food anywhere. Joseph forgives his brothers and takes care of them.
So there you are, from something evil done to him, Joseph is elevated to become the CEO of Egypt and he is able to save the lives of many people including his brothers who sold him into slavery!
This is why Genesis talks about God’s plan for us, that He can turn something evil meant to harm us instigated by the evil one, into something good for us that helps not only us by many people. “As for you, you meant evil against me, God meant it for good in order to bring about this present result, to keep many people alive.” Genesis 50:20
God is truly awesome and all-powerful!
Despite all your problems, you can rest assured that our God’s plans are to prosper you and not to harm you. “For I know the plans I have for you,” declares the Lord, “plans to prosper you, not to harm you, plans to give you hope and a future,” Jeremiah 29:11. What can be clearer than this is that God loved so that He sent His only beloved Son, Jesus Christ, who also loved us so, to die for us, to give us a chance to spend eternity with them in heaven. What an awesome and glorious plan for us underserving humans!”
Our God can and does wonders beyond our imagination. When you think all is lost, divine intervention springs out of nowhere to resolve your problems. “Do not call to mind the former things, or consider things of the past. Behold, I am going to do something new, now it will spring up; will you not be aware of it? I will even make a roadway in the wilderness, Rivers in the desert,” Isaiah 43:18-19.
Believe it or not, Walt Disney, filed for Chapter 7 not once, but twice before his Disney global empire became successful. He went on to become a billionaire after getting rid of all his debt twice. Milton Hershey, of Hershey chocolates, the biggest chocolate business in the world, also filed for Chapter 7 once before he became successful and a billionaire.
If you need debt relief, set an appointment to see me. I will analyze your case personally.
* * *
Disclaimer: None of the foregoing is considered legal advice for anyone. There is absolutely no attorney-client relationship established by reading this article.
* * *
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 20274 Carrey Road, Walnut, CA 91789 or 1000 S. Fremont Ave., Mailstop 58, Building A-10 South Suite 10042, Alhambra, CA 91803.
(Advertising Supplement)