Client with good income wants chapter 7 to discharge $70K credit cards
NO one has anything good to say about the IRS. Tax collectors were much hated even during the time of Jesus two thousand years ago. Jesus was walking along the street when He saw Matthew sitting in his tax collector booth, then Jesus called Matthew to be His disciple. Client had a confirmed Chapter 13 plan since 2013. The plan paid for her 2013 income tax owed of $10K, and $50K arrears in her mortgage. These are the only creditors that she owed. She had a 2nd trust deed of $100K, which was fully forgiven by Bank of America after we filed her motion to avoid the 2nd trust deed. She had $60K credit card debt which all got discharged in her Chapter 7 case the year before. This was really an extreme reorganization of her financial affairs that we were doing. Phase 1, she discharged all unsecured debt. Phase 2, was to handle the IRS and the $50K arrears on the mortgage. Things had gone quite well. The $100K second trust deed had completely disappeared in an instant right after we filed the LAM motion. We really did not expect that Bank of America would just forgive the entire 2nd mortgage. Our strategy was to argue that client did not have to pay Bank of America anything as unsecured debt upon approval of the motion to avoid lien because the previous chapter 7 discharge wiped out the promissory note, so there was nothing to pay even as the lien was stripped. I wasn’t sure that the court would buy this argument but it was logical and legally correct.
The next step we took was to work on a loan modification for the first mortgage. This worked out really well too. Not only did Nationstar reduce payment by $800 a month, it updated the loan such that there were no more arrears. Therefore, the loan modification cured the $50K arrears. With the LM in place, client was now completely current on her mortgage. Nationstar wrote a letter to the trustee saying that the LM cured the default and no more payments in the plan to Nationstar were needed!
So, the only debt left unpaid was the IRS of $10K. However, client failed to pay IRS her 2014 tax liability, which was $14K. This created a big problem because non-payment of the 2014 tax liability is a violation of the terms of the confirmed plan. A violation of the terms of the plan is legal ground to dismiss the case. Thus, the IRS filed a motion to dismiss case. To set things right, we had to oppose the IRS motion to dismiss on the ground that if Nationstar withdrew its prepetition proof of claim which showed a $50K default which no longer exists, the plan could be modified to pay the IRS in full over the rest of the life of the plan. We also filed an objection to the proof of claim of Nationstar because the loan modification wiped out the arrears of $50K. Hopefully, these will all combine to prevent the case from being dismissed.
Second client is 57 years old. He had a good paying job for 20 years. He cleared $150K a year every year for the last 20 years working 18 hours a day because he was so dedicated to his work. Although he was paid well, the kind of work he did was very stressful and it affected his mind. He would have nightmares involving what he saw at work. A lot of gore and blood, and he saw the evil that men do. He decided that it was time to start again in life without too much stress. Anyway, he had already qualified for a good pension. He said the money wasn’t worth the stress that he had to go through every day. The guy was a nervous wreck. He still owed $70K of credit cards. He owned a house with a reasonable mortgage payment of $1800 and two-car payments total of $1,000. He takes it easy nowadays. Does a little part time work here and there. His wife still works. With his pension and part time income, there’s enough to cover monthly expenses, but there is no money left to make minimum payments of $2K on his $70K credit cards. These have to go. With his fresh start in life, he will have no more $70K of credit card debt. This is what he wants, and it makes a whole lot of sense.
“Come to Me, all of you who labor and are heavy laden, and I will give you rest.” — Matthew 11:28
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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.
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