THE client is a 70-year-old widow who lost her beloved husband five years ago.
She owns a house with a reverse mortgage of half a million, which she took when her husband died. The mortgage accumulates at the rate of $2,000 a month or $24,000 a year. You can keep the balance from increasing if you pay the interest portion only every month.
The client did not pay any mortgage payment for the last five years so the reverse mortgage balance has ballooned to $500,000. She can live in the house until she dies even if she hasn’t paid any mortgage from the time she took the reverse mortgage until death. So it lets you live in the house until you are gone without having to pay anything but the mortgage balance goes up every month by the amount of mortgage payment due.
Of course, it can eat up even a large equity by the passage of time. This works for many seniors since you can’t bring anything with you to heaven when you die, right. You don’t need a house in heaven because Jesus has prepared a mansion for each one of us there.
However, the client is still alive and kicking and beset with credit card problems of $60,000. She pays at least $1,500 a month to keep these cards current. What is her income now at 70? Social security gives her $1,900. And she has a pension of $200 from a previous employer. Her total income is $2,100. She doesn’t have to pay rent or mortgage since she is on a reverse mortgage. Her total living expenses is $1,600. So if you add $1,500 a month for minimum credit card payments to living expenses without rent or mortgage of $1,600, total income needed to meet credit card payments and living expenses is $3,100. But her income is only $2,100. So she is upside down by $1,000. If she discharges the $60,000 of credit cards, she will free herself of $1,500 a month and her $2,100 income can easily pay her $1,600 of living expenses. Without credit card debt she would still be saving $500 a month!
It’s clearly to her benefit to get a Chapter 7 discharge of the $60,000 credit cards now. However, if the current fair market value of her house is such that her equity is a lot more than $175,000, even if she is on a reverse mortgage, she would be better off with a Chapter 13 so as to eliminate any risk of having a problem with a Chapter 7 trustee that would be wanting to sell her house even if her house is on a reverse mortgage.
This client’s case needs a novel approach but definitely, she needs immediate debt relief from $60,000 of credit card debt.
Chapter 7 trustee stipulates to dismiss adversary against client before trial
Client no. 2 is a foreign company that has been supplying a California company with merchandise for eight years on open account. The client gave the company a line of credit of $2 million for the purchase of their product. The company lost a major lawsuit and was forced to file for bankruptcy, leaving the client holding the bag for $300,000. A Chapter 7 trustee filed an adversary complaint against the client for $80,000, representing a preferential payment by the company to the client 90 days before the company filed for bankruptcy. Under bankruptcy law, the trustee can get the $80,000 back from the client; unless the client can prove that ‘new or contemporaneous value,’ was given by the client for the $80,000
This adversary case against client adds insult to injury. The client is already owed $300,000 by the company and here comes the trustee who wants to get the $80,000 that was paid to the client 90 days before the company filed for bankruptcy. It’s like a horror story. This would definitely push N. Korea to let their missiles with miniature nuclear bombs fly off over the Pacific Ocean into the office of the Chapter 7 trustee, wouldn’t it?
I was all prepared for the trial this month after giving all the client’s evidence to the lawyer of the trustee to prove that the client did indeed supply “new or contemporaneous value” to the company 90 days before it filed for bankruptcy. But I received counsel’s advise that the trustee is now willing to stipulate to dismiss the adversary complaint against the client. That’s good news for the client and myself. I certainly hope that the N. Korea situation ends up favorably like my client’s case. I pray cooler heads prevail and the dogs of war are not let loose.
If you need debt relief, set an appointment to see me. I will analyze your case personally.
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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.