HOMEOWNER 10 MONTHS BEHIND ON MORTGAGE FILES FOR CHAPTER 13;RETIRED MILITARY FILES CHAPTER 7 FOR $40K CREDIT CARDS;CLIENT USES CHAPTER 13 FOR HOA DEFAULT

CLIENT NO. 1

Client is 52 years old with a son in college. She is an R-Nurse with annual gross income of $80K. She comes to see me with a person I thought was her husband. But apparently is not. He could be a potential suitor. Client is slim and has maintained herself well and looks young and energetic despite her long and stressful hours as an ER nurse. She has a residence, which she lives in. This has one mortgage, which is now in default for ten months. She has a rental, which is not in default. It’s positive $500 a month with the rent of $2,000. Both properties have little or no equity. She has not paid the mortgage on the residence for 10 months. The rental, on the other hand, is current. I ask her why she has not paid her residence for 10 months. She said she was planning to let the residence go and just transfer to the rental because the mortgage payment of the rental is smaller than the residence. For some reason that escapes me, she has now decided to keep the residence and wants to avoid a foreclosure, which is scheduled for next month. Her mortgage on the residence is $2,100. So, for 10 months, she owes $21,000. She also owes about $50K of credit card debt. 

Her son has just started college. She needs to give her son about $800 a month. She can’t pay the minimum of $1,500 on the $50K credit card debt anymore. Considering her objective of saving her residence, and not paying her credit cards anymore, a Chapter 7 would not really help her. A Chapter 7 will get rid of all the credit cards, but it would not provide effective relief for the residence in foreclosure other than delaying the foreclosure for about 3 more months. On the other hand, a Chapter 13 would stop the foreclosure for good as long as she is making timely payments on her Chapter 13 plan and by the end of the plan, she would be current on the mortgage again. And, after analyzing her financials, I told her that she can do a zero percent plan. In other words, her plan would only pay off the default on the mortgage, and would not have to pay anything to the credit cards. The effect, therefore, of a Chapter 13 in her case would be the same as a Chapter 7, since she does not have to pay anything to unsecured debt. If she completes all plan payments, the $50K credit cards will be discharged by the Court and with zero payments!

How much will she pay to handle the default on the mortgage? Her plan payment for the mortgage default will only be $350 a month for 60 months without any interest or penalties. So, that’s just the entire default of $21,000 being paid off over 60 equal monthly payments. And since house values are going up again, she gets to keep the house, and she gets to benefit from the increase in equity in the future. As well, instead of paying credit cards, she can help her son with money to complete his college education. Client decides to file for Chapter 13.

CLIENT NO. 2

Client is 40. She joined the Army when she was 18 and was sent all over the world to protect our great country. She recently retired from the military and is not working. She has been looking for a job in S. CA for the last 6 months but has not gotten any offers yet commensurate to her skills and talent. She received an out of state offer but prefers to live here. She has $30K of credit card debt accumulated over the last 15 years. She’s been paying about $1K a month for the last 10 years to keep the $30K current. So, she has paid $120K but still owes $30K!  Right now, she has military pension of about $1,800 monthly. While that is reasonable pension enough to pay $1,000 rent and a car payment of $500, there’s only $300 left. That means that she no longer has income to pay $1K to the credit cards to keep them current. I mean, even her food alone will cost $300. What about car insurance and gas? She decides to file Chapter 7 to wipe out the $30K of credit cards, and move in with her parents to save on rent. That way she can save almost all of her pension while she figures out what to do next in her life.

CLIENT NO. 3

Client is 58 years old. His wife works. He lost his job two years ago and has not been able to find new employment. Unemployment benefits have ended. They owe $12K of unpaid homeowner’s association fees. These are not dischargeable in a Chapter 7 because they are excepted from discharge. Association has filed a notice of levy with intent to sell the house. This is the same as foreclosure because the Association can levy your house for past due fees. A chapter 7 will not help because association fees cannot be discharged. Client files for Chapter 13 to stop the foreclosure. Her plan payment will be $200 a month to cure the unpaid fees of $12K.

“THE LORD IS GOOD, A REFUGE IN TIMES OF TROUBLE, HE CARES FOR THOSE WHO TRUST IN HIM.” – Nahum 1:17.

Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years.  He specializes in bankruptcy, business and civil litigation and has handled more than five thousand successful bankruptcy cases in California.  He speaks Mandarin and Fujien and looks forward to discussing your case with you personally.  Please call (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.