Young client files chapter 7 to discharge $30k credit cards
Client no. 1
CLIENT was disabled when he was 55, which was 7 years ago. He receives $1,600 of disability pay monthly. Since he is single, he doesn’t really have too many expenses. In fact, he almost has no expenses because he lives in the family home for free so he is rent-free. He doesn’t have to pay for food, shelter or clothing, since he has a loving family that takes care of his needs. His sole possession is an old truck, which he treasures. He uses the truck to get around, hunting, camping and fishing. He actually has a life that many people may envy, but once in a while, his disability gets the better part of him. Once in a while, he gets an uncontrollable urge to borrow money from check cashing. Recently, he borrowed $3K from one check cashing office at 111 percent annual interest. You read that right: 111 percent. You get net proceeds of less than $3K, and in 12 months you will owe $6.3K! These loan sharks are not exactly like Mother Theresa. In addition to being on the hook for hyper interest, disabled client is also required to sign a power of attorney authorizing the loan shark to sell his truck as soon as client defaults on the loan. Client has also turned over the pink slip to the truck because he has secured the high interest loan with his truck. As soon as he got the loan proceeds, client went to Pechanga, had a good time there, and lost all of it gambling.
Client is good for two months. On the third month, he gets another uncontrollable urge to borrow money from check cashing. So, client goes to another check cashing store and borrows another $3K. The problem is, he only has one truck, and again, the check-cashing store asks that he give his truck as collateral. But since his disability has given him two distinct personalities when he is not taking his medication, client’s second personality whom we will call client 1-B, as distinguished from client 1-A who mortgaged the truck the first time to the first check cashing store, decides to mortgage the same truck to the second check cashing store. This time, the interest is less than the first. It’s only 98.95 percent annual interest. That’s 12.05 percent savings on interest per year right there. Client 1-B can’t wait to tell client 1-A later that he got a better deal on the loan!
Client 1-A has stopped paying the installment payments on the first loan since February. Client 1-B has stopped paying the installment payments on the second loan since March. Both client 1-A and client 1-B now agree that it’s panic time because both of them signed power of attorneys allowing the 2 loan sharks to sell the same truck upon default. To prevent the loan sharks from selling his beloved truck, client decides to seek bankruptcy relief. A Chapter 7 will not work because the same truck secures both loan sharks. Chapter 7 will discharge both loans, but all hell will break lose when two loan sharks sell the same car. Two buyers will claim ownership over the same truck. We do not want to have this kind of situation. It’s hard enough to get my software to understand that the same truck has been mortgaged twice.
Chapter 13 will protect his truck by preventing the exercise of the power of attorney to sell the truck, and allowing the two secured loans to be paid over 60 months at zero interest. Both client 1-A and client 1-B decide to file for Chapter 13 because both concur that zero percent interest is a lot better than 111 percent and 98.95 percent interest! They agree to disagree on many things, but on zero interest, there is no argument from either one.
Client no. 2
Client is only 32. I remember when I was 32, which was 3 years ago, or was that 3 decades ago? Wait, my son is 36, so how can I be 32 three years ago? I digress. Whatever, at 32, client obtained $30K of credit card debt, which he used in college to supplement his student loans. College drugs to help you study better and to help you socialize, they don’t come cheap you know. He owes $120K of student loans. He tells me that he lost his job last December, and has not been able to obtain new employment thus far. Aside from wanting to get rid of all his credit card debt of $30K, he also wants to discharge his $120K of student loans. I told him that we can get all his credit cards wiped out, but it’s almost impossible at this time to discharge his student loans. When he starts to have two personalities like the first client, and that prevents him from getting employment, then it may be worthwhile to file an adversary case to discharge his student loans. But until then, we can only get rid of his student loans. “Fair enough,” said the young client. He said that he was paying $1,000 a month to keep the cards current, and he has been paying that amount since he graduated from college ten years ago. Well, that means he has paid out $120K to keep $30K of credit cards current for the last ten years since he graduated from college.
So, I told him that if he did not have these cards ten years ago, he would have saved $120K now, and he can use that money which he would have saved to pay off all of his student loans now.
Young client decides to seek Chapter 7 relief. Good decision. If he gets new employment, which I am certain he will eventually, he can pay off his student loans probably in ten years since he doesn’t have to pay credit cards anymore. And in ten years, the fact that he filed for bankruptcy will not even appear on his credit report. In fact, in 2 years, his credit score will be over 600.
“The eternal God is your refuge, and underneath are the everlasting arms.” – Deuteronomy 33:27.
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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.