SENIOR WITH $60K CREDIT CARDS WANTS DEBT RELIEF; CHAPTER 7 TRUSTEE STIPULATES TO DISMISS ADVERSARY AGAINST CLIENT BEFORE TRIAL

Client is 70. She is a widow, her beloved husband having passed away 5 years ago at 65. She owns a house with a reverse mortgage of half a million. She took the reverse mortgage 5 years ago when her husband died. The mortgage accumulates at the rate of $2K a month or $24K a year. You can keep the balance from increasing if you pay the interest portion only every month. Client did not pay any mortgage payment for the last 5 years so the reverse mortgage balance has ballooned to $500K. Client 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. Jesus has said that He will prepare a place for us when we go to heaven. John 14:2-3 “My Father’s house has many rooms; if that were not so, would I have told you that I am going there to prepare a place for you? And if I go & prepare a place for you, I will come back & take you to be with me that you also may be where I am.” So there, that’s pretty nice of Jesus to prepare a place for us when we go to heaven, right? That’s a free house in heaven for us after we die, that’s a great deal!

However, client is still alive and kicking and beset with credit card problems of $60K. She pays at least $1500 a month to keep these cards current. What is her income now at 70? Social security gives her $1900. And she has a pension of $200 from a previous employer. Her total income is $2100. She doesn’t have to pay rent or mortgage since she is on a reverse mortgage. Her total living expenses is $1600. So if you add $1500 a month for minimum credit card payments to living expenses without rent or mortgage of $1600, total income needed to meet credit card payments and living expenses is $3100. But her income is only $2100. So she is upside down by $1000. If she discharges the $60K of credit cards, she will free herself of $1500 a month and her $2100 income can easily pay her $1600 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 $60K credit cards now. However, if the current fair market value of her house is such that her equity is a lot more than $175K, 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.

Client’s case needs a novel approach but definitely she needs immediate debt relief from $60K of credit card debt. 

Client no. 2 is a foreign company that has been supplying a CA Company with merchandise for 8 years on open account. Client gave CA Company a line of credit of $2.0 M for the purchase of their product. CA Company lost a major lawsuit and forced to file for bankruptcy leaving client holding the bag for $300K. Chapter 7 trustee filed an adversary complaint against client for $80K representing a preferential payment by CA Company to client 90 days before CA company filed for bk. Under bankruptcy law, the trustee can get the $80K back from client; unless client can prove that ‘new or contemporaneous value,’ was given by client, for the $80K. 

This adversary case against client adds insult to injury. Client is already owed $300K by CA Company and here comes the trustee who wants to get the $80K that was paid to client 90 days before CA company filed for BK. 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 client’s evidence to the lawyer of the trustee to prove that client did indeed supply “new or contemporaneous value” to CA Company 90 days before the CA Company filed for BK. But I just received counsel’s advise that trustee was now willing to stipulate to dismiss the adversary complaint against client. That’s good news for 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.

“THE LORD IS NEAR TO ALL WHO CALL ON HIM, TO ALL WHO CALL ON HIM IN TRUTH.” PSALM 145:18

Lawrence B. Yang is a graduate of Georgetown University with a Master’s Degree in Law and specializes in bankruptcy, business, real estate and civil litigation.  He speaks English, Mandarin and Fujien and has successfully represented thousands of clients in California, including companies overseas. 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.