SOMETIMES debtors cannot decide whether they should seek debt relief through Chapter 7 wipe out of all dischargeable debts or a consolidation and reorganization through a Chapter 13. They usually ask me what they should do in their financial situation. I know after handling thousands of bankruptcy cases in the last 30 years, debtors are often depressed about their lives because of the heavy burden of accumulated debt. The worse case scenario was my client many years ago who killed himself a week before we filed his case. It was unfortunate that he took his own life because he left behind a wife and two minor children and a successful professional career. He was enjoying gross income of $500K annual income from his profession but had borrowed money to set up a business that initially did well. Since the business was doing well, he borrowed more money to expand the business, including putting up his house for collateral for the business loans. When the economy slowed down, his business started losing money. He then resorted to borrowing more money to cover the business loss for 18 months. His business was losing $10K a month.
After financing losses for 18 months, he came to see me for bankruptcy relief. He looked pretty calm when I interviewed him. How many times must I say it, “YOU OWE YOUR CREDITORS MONEY, YOU DO NOT OWE THEM YOUR LIFE!” Don’t even dare think of killing yourself to get out of debt. Death does not extinguish debt. When a person dies, there is an estate of the deceased that is created in a probate case. Creditors of the deceased can file in their claims in the probate case. So, if you owe too much debt now, you should look at your financial problems objectively. You should choose the solution that best serves your needs. You should seek to protect your own interest and future. You should not succumb to the pressure of differing opinions from friends or relatives. For instance, I had one client who decided to withdraw her Chapter 7 petition because her sister did not approve of it. Client had a mountain of debt, which she absolutely had no way of paying unless she could work four jobs, and she was three months behind in her mortgage payments. Objectively speaking, the right solution for her was a Chapter 7 to wipe out $80K of credit card debt and use the money saved from not having to pay $80K of credit cards to update her house payments. Without credit card payments, she would save $2400 a month. She would have paid off her mortgage arrears in 3 months. She would have obtained a fresh start without the burden of accumulated debt. Instead, she wanted to make her sister happy and chose not to protect her own interest, her own future. She was not thinking clearly. After 6 months she returned to me saying that she wanted to go through with her Chapter 7 case because her house was already foreclosed and she still owed the 2nd trust deed holder was still calling her to collect $50K of the 2nd mortgage even though she no longer owned the house, and the $80K of credit cards are calling her night and day.
Eligible debtors should consider the following objective reason to seek bankruptcy relief:
1. Based on debtor’s net income and expense analysis, debtor has no ability to pay off his or her unsecured debts. In other words, even if debtor’s intention is to pay off debt, realistically speaking, debtor cannot pay of debts over a reasonable period of time. This means that debtor will be locked in permanent indebtedness, a slave of debt! Therefore, correctly, debtor should find a legal way of getting out of debt as soon as possible. Here in America, bankruptcy is the legal way of getting out of debt and becoming productive again while you keep most if not all of your assets including your house, cars, retirement accounts etc. The right to bankruptcy is guaranteed by the constitution and even Walt Disney filed for Chapter 7 twice before Mickey Mouse and Disneyland became successful. If Mr. Disney did not obtain a fresh start twice before, we would have no Disneyland to enjoy today.
2. Too much debt destroys the household’s ability to save and invest money to secure the family’s future. If debtor makes $5,000 a month but has to pay out all of the $5,000 for monthly overhead and to make minimum payments on credit card debt of say, $30K, debtor is living a hand to mouth existence. Debtor saves nothing and invests nothing year in and year out. With accumulated debt you condemn yourself to Sisyphean existence. I don’t mean you become a sissy. You become like SISYPHUS. In Greek mythology, Sisyphus was the king of Corinth who was punished for his deceitfulness by the Greek gods (who are of course false gods), to roll an immense boulder up a hill, only to watch it come back to hit him, repeating this action for eternity. So your “Sisyphean existence” means a laborious and futile existence. By the time that debtor realizes that he has worked for 20 years without nothing saved and invested, it will be too late because by that time, debtor will be pushing sixty. Most people save and invest money whilst I their twenties to fifties. Debtors who have too much debt unfortunately are robbed of the ability to save and invest for decades. Thus, a smart person who has too much debt but wants to save and invest must immediately correct the debt situation or else he or she will get old poor.
The last thing a senior wants to have at retirement is debt. If you service $30K of credit card debt for 20 years, you would have paid your credit card masters $240K and still owe the same $30K when you retire at 66. If you got rid of these cards with Chapter 7 at the age of 46, you would have invested $240K starting at $12K a year and growing at $12K a year. Properly invested, you could have $400K saved when you retire at 66 and zero debt. Even if you made the mistake of carrying these cards into retirement, you must get rid of them now because now you depend on social security, which is just enough to cover basic monthly necessities. Whether you are 40 or 60 or 70, you must get rid of credit cards now and become productive again!
3. Re-establishment of credit can start immediately. Debtors are able to begin reestablishing credit by paying their car and housing loans timely. Debtors will be able to get new credit cards soon after they obtain discharge. There are banks that give new credit cards to debtors who have completely their bankruptcy because these debtors are actually very good credit risks. They still have good income, have no more debt, and are now more careful in their financial affairs. BK filers qualify to buy houses again on the second or third year after BK filing if they have been paying their new loans on time. Buying a new car is no problem. On the day of the discharge, you can bring your discharge order to the car dealer. You can get a car loan at higher interest.
“Whoever goes to theh Lord for safety, whoever remains under the protection of the Almighty, can say to Him ‘you are my defender and protector. You are my God; in You I trust.’ — Psalm 91
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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.