Senior needs chapter 13 to handle IRS and unsecured debt of $40K
Client No. 1
CLIENT is 57. When he comes to see me, he tells me that he has just spent two years in jail and is now on probation for involuntary manslaughter, which means he was convicted of having killed someone by accident. He explains to me that he had just dropped off his wife at Target and was running low on gasoline. He decides to fill gas at a station across the street. He gets out of Target’s driveway and moves onto the left lane to get into the gas station. All of a sudden a motorcycle hits him. The rider of the motorcycle is unconscious on the street. He calls 911. The police and the paramedics come. The rider is in a coma for a week, and then dies. So, I said what’s the problem; it looks like you were on the correct lane to enter the gas station, and it looks like you got rear-ended. That should mean that it was the rider’s fault that he died. After some incomprehensive mumbling, I figure out that there was a camera in the gas station that showed that client was on right lane, not the left, when he got out of Target. He then makes a U-turn to get to the left lane. Halfway through the U-turn, the motorcycle hits the driver side of his car. Well, that settles it, that’s a slam-dunk negligence case for an illegal U-turn against client that is caught on a video camera. No matters what he says, the evidence is indisputable that it was his fault that caused the accident. It is his responsibility that the rider died. It’s an open and shut case.
Faced with the video, he pled guilty to involuntary manslaughter and served his time. But the criminal conviction and incarceration is not the end of client’s misadventure. After he is placed on probation and a halfway house, he has to face the criminal restitution procedure, and of course, the heirs of decedent are going to come full force with their wrongful death lawsuit for civil damages. Client now presents me with a copy of the wrongful death lawsuit filed by the brother of decedent seeking $1.0 million in damages for the death of his brother. Where will client get $1.0 million? Nowhere.
Client cannot file a Chapter 7 because damages from wrongful death are not dischargeable. He cannot file a Chapter 13 either because he will have to pay about $17,000 a month for 60 months because the claim is not dischargeable. I mean, client is not the lottery office, is he? Client only makes $4K a month as a bookkeeper. Should he offer himself as a slave to the brother for 20 years to work off the debt? At least by 77, he will be a free man again then he can write a book entitled “20 years as a slave.” Seriously, what can client do to escape with his head still on his shoulders and live the rest of his life in peace?
After doing an analysis of his assets, I found out that his house has some equity and because last month client’s wife just turned 65, his non-exempt equity is $50K. This is certainly the best news for client. This means that because of his asset structure, plaintiff will have to settle this lawsuit for $50K. Insurance has paid $30K, which is policy limits. The reason plaintiff will have to accept a settlement of $50K is the rest of his equity of $175K is covered by the homestead exemption. Therefore, even if plaintiff gets a judgment for $1.0M, the only viable asset that plaintiff can get from client is the equity of his house. But because of the homestead exemption, plaintiff can only put a lien on $50K of that equity. Client on the $175K of equity can avoid the lien of $1.0M by claiming the homestead exemption.
After negotiating with plaintiff counsel, a settlement of $50K was accepted by plaintiff. Hooray! The next problem is how to get $50K which client does not have. I told him to get a home equity loan or a reverse mortgage for $50K. Client was able to get a reverse mortgage for $50K because his wife is 65. So, we settled his wrongful death lawsuit of $1.0M for $50K! That’s a great deal. It’s heaven sent. Praise be to God, Adonai, for helping out this client!
Client No. 2
Client is 75. He already filed a Chapter 7 with another lawyer in 2011. Therefore, he cannot file another Chapter 7, although he wants one, because it is not yet 2019. He can only file another Chapter 7 after 8 years from 2011. Only Chapter 13 is available to help him reorganize and give him debt relief. What precipitated his new financial problems? At 75, he should be not having financial problems anymore. His Chapter 7 it appears was caused by his inability to pay for a rather large first mortgage of about $800K for his previous residence. The property was upside down because it was only worth $500K. At that time, he decided for a fresh start at 71. Client and wife are a charming couple who are both professionals and retired for some time. They have no problems except for their new financial crisis. What happened was they bought an SUV last year. It turned out to be a lemon. First, the transmission had to be replaced. That’s bad enough for a slightly used SUV. Then the electrical went haywire damaging the computer of the car. It was a big money hole! They decided that they did not want the SUV anymore. So, last month they bought a new SUV. When they told the creditor of the lemon SUV that they were going to return the car, they found out they would still owe about $12K after the car was returned.
In addition, they owed the IRS about $20K and about $24K of credit card debt. Client has actually good income for a retiree. With his wife who is also a retiree, they still get $10K a month half from social security and half from pensions. How will Chapter 13 benefit client? 1) The $20K owed to the IRS will be paid over 60 months without penalty or interest. 2) Because social security is not considered as income under the means test to calculate disposable income, client may qualify for a low plan payment that may pay only a portion of their unsecured debt. Chapter 13 will provide substantial debt relief.
“Our light and momentary troubles are achieving for us an eternal glory that far outweights them all.” – 2 Corinthians 4:17
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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.