THE client is 50 and got divorced 10 years ago. Her ex-husband decided that working was not good for him so he just disappeared.
They had one daughter that client has taken cared of since the divorce. The daughter is about to graduate from college and will be working soon. The daughter, also a single mom, has a daughter who is two years old.
The mother and daughter are helping each other out, like the former taking care of her daughter and granddaughter with her monthly income, which nets her $5,000 a month. Their rent is $1,200 a month. The daughter has college expenses of about $1,000 a month up to June of 2017.
There are also babysitting expenses of $500 a month for granddaughter. The daughter also has about $20,000 of her own credit cards, which she pays for herself from her part time job. In other words, the client pays for all expenses of her household, which consists of her daughter and granddaughter.
At the end of the month, the client has to produce $1,800 to make minimum payments on $60K of credit cards. It’s pretty difficult to budget a payment of $1,800 for credit cards, when daughter’s college expenses are $1,000 a month plus $500 of babysitting expenses.
The decision to wipe out $60,000 of credit cards is easily made, thus saving the household $1,800 a month immediately. The daughter expects to work as a certified nursing assistant and maybe gross $3,000 a month. She will take over payments for the babysitter and will pay half of the rent as soon as she starts working. The mom’s credit score will become perfect again at 750 in about five years, increasing yearly from the date of Chapter 7 filing.
She will get new credit cards within six months of discharge. I suggest that she takes those cards but pay them in full at the end of the month just so she can build up her credit score faster without carrying new debt. The client has an old 2000 Corolla. I suggest that she trades that in before we file the case for a newer car, perhaps a 2016 model so she doesn’t have to worry about car repairs for the next few years. One credit card company has filed a lawsuit to collect $8,000. Let’s face it, how long can you fork over $1,800 a month to keep credit cards current when you have a daughter and granddaughter to take care of? $1,800 is more than client’s rent of $1,200.
So I am happy that client qualifies for a Chapter 7 wipe out of her $60,000 of credit cards. Her family really needs relief from those debts!
Business owner seeks to discharge $40K credit cards
The second client is 55. She owns an e-commerce business that sells through Amazon. I was surprised that the rent she pays to Amazon to stock and ship her merchandise is “expensive” to say the least.
The client used her credit cards to stock up on merchandise that is resold through Amazon. She sells nearly half a million dollars a year but turning a profit appears to be a problem because the small margin that she makes goes to pay Amazon for rent on the Amazon website.
With the rent that she pays to be included on the Amazon website, the client has not made any profit for the last two years. She has been losing $1,600 a month. She covers the loss with credit cards. So she now owes $40,000, which paid for the loss in 2015 and 2016.
She got married two years ago. Her spouse owned their residence before they got married. So, even if the residence has a large equity, it mostly belongs exclusively to the non-filing spouse. There is no problem exempting the house even if the equity is large. The client decides to file Chapter 7 to get rid of the $40,000 credit cards.
Maybe her business could start turning a profit if her supplier lowers their pricing. This is what she will work on at the same time that she seeks Chapter 7 relief. She gets to keep the business even if she files for Chapter 7 relief.
Young debtor seeks to discharge $50K credit cards
The third client is only 38 years old and married. The couple has a 4-year-old son. He plans to file Chapter 7 to discharge $50,000 of credit cards which he is having a hard time paying. He makes $2,000 a month gross as a certified nursing assistant. He wants to get rid of all his credit card debt.
The wife, who does not need to file Chapter 7, has a bunch of student loans with a current balance of $75,000 and $10,000 of her own cards. The husband and wife have a de facto split on household expenses and debts. He pays for his own debts. She pays her own debts. He pays a portion of the utilities. She pays the entire rent of $1,800. He pays for one car. She pays for two cars.
The wife grosses $10,000 a month as a medical professional. So, their household income is $12,000 a month, or $144,000 a year. Can the client get a Chapter 7 discharge of his $50,000 of credit card debt even if their household income is $144,000 a year?
Based on analysis of relevant bankruptcy law, the client should be able to get a Chapter 7 discharge even if the household income is $144,000 a year. Under the worse situation, if there is opposition from the U.S. Trustee, there is a small chance that client may have to convert to Chapter 13 where he will have to pay a portion of the $50,000 over 60 months.
Let’s just say that, if non-filing wife’s expenses are adequately documented, client should be able to qualify for a Chapter 7 discharge. This is what I call a borderline case. You can file it as a Chapter 7 since the means test will not show a presumption of abuse, and if there is no viable opposition, it should go through as Chapter 7.
If your debt burden is too much to handle, come see me regarding Chapter 7 or Chapter 13 reorganization. It’s better to do it earlier than later.
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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 or at 20274 Carrey Road, Walnut, CA 91789.