【楊清泉律師專欄】SENIOR SEEKS CHAPTER 13 PROTECTION FOR FULLY PAID HOUSE FROM $15K CREDIT CARDS
03/24/2016 楊清泉律師事務所SENIOR
SEEKS CHAPTER 13 PROTECTION FOR FULLY PAID HOUSE FROM $15K CREDIT CARDS; CLIENT
SEEKS CHAPTER 7 DISCHARGE FOR $30K CREDIT CARDS
Client is a young senior in his early 60’s who took an early retirement last year. He owes $15K of credit card debt and nothing else. He has a community property house that is fully paid with a current market value of $500K. Fortunately, for client, he did not refinance his fully paid house with a mortgage, so the house does not secure any mortgage. Certainly, client must have been tempted often to get some cash out from a refinance at low interest. Good for him that he did not succumb to that temptation; otherwise, he would still be paying on a new mortgage now. His wife is also taking early retirement next year. I asked why he took an early retirement at 62. He said he doesn’t know how long he is going to live, so he might as well take early retirement so at least he gets his social security now even if its less by 25% compared to full age retirement at 66.
Since he used to work as a professional for some time, I asked him if he had a pension from the employer. He said no and social security of $1,200 is all that he has now. The problem is that he still owes $15K of credit card debt, which he has not been able to pay for 6 months because of his reduced income from social security. He used to pay about $600 a month to keep them current but he just could not get the principal down from $15K. He wanted to do a Chapter 7 to wipe out the $15K. I asked him if he owned a house and what the current value was. He said he owned a house worth about $500K. I asked him if he owed anything on the house. He said he owed nothing on it anymore. So I told him that he could not do a Chapter 7 because in Chapter 7, he would lose his house. The trustee would take his house and sell it, give him $175K use the rest to pay his credit card debt of $15K, give him the rest of the sale proceeds after deducting trustee fees which could be sky high. It doesn’t make sense, in his case to do Chapter 7. Why lose your house for $15K of credit card debt. But then again, his house does need protection from his credit card debt. He is now behind by 6 months. This means that lawsuits for collection are forthcoming. Lawsuits will eventually become judgments. Judgments eventually become liens on his house. A $15K judgment will double in a couple of years. Soon enough, there will be a $60K judgment lien on his house. And, the worst part is that judgment creditors can ask the court to have his house sold to satisfy the judgment lien! This means he can lose his $500K house for $15K of credit card debt. It’s sounds unfair, but it certainly may happen if the problem is left to fester without an effective solution.
I told him that he could do a Chapter 13 without any risk of losing his house to the trustee because Chapter 13 trustees, unlike Chapter 7 trustees, do not have the power to sell debtor houses. In a Chapter 13, he can pay off the $15K over 5 years without interest; just the principal is being paid. He’s looking at a plan payment of $250/mo. To $300/mo. including court and trustee administrative fees. This is a lot less than the $600 that he used to pay which did nothing to reduce the principal of $15K in the last 20 years. Under the plan, debtor will have zero credit card debt when he turns 68. And the best part is, the Chapter 13 protects his fully paid house by preventing lawsuits and judgment liens from attaching to his house.
Credit card debts are like weeds that keep on growing and growing. In a month, a weed can grow a foot, while normal plants take so much time to grow. The most effective way of getting rid of weeds is to uproot them. If you just cut them at the base, in a month they look like they were never cut. This is the same, as client’s credit card debt of $15K, which he has paid for 20 years, yet now still owes the same amount. In a year, he paid $7,200. He thought that would cut his debt in half and it would disappear. But credit cards are like weeds; they keep growing back, unless you uproot them. Debtor’s Chapter 13 will uproot his credit card debt and pay them off completely in 60 months so they don’t grow back again. Smart decision on client’s part, I have to say, because some people just do not have the courage to make the right decision.
Client is 48, married, no children. He owns a home with $55K of equity. He bought his house 3 years ago with 3% down, so his equity has increased somewhat but still within homestead exemption of $75K. He has a live in girlfriend, and I don’t know if she qualifies as a family member that would increase his exemption to $100K. In any event, $55K is $20K less than $75K so the house is secure and protected. His problem is $30K of credit cards, which he has been paying for 5 years, at $1K minimum monthly just to keep them current. Do the math. He’s paid $60K to keep $30K of cards current for 5 years, and he still owes the same amount of $30K. Doesn’t seem fair. But that’s the way cards work. Just like weeds, they keep growing, nonstop. But since he now has a mortgage to pay, he having a hard time making the minimum payment of $1K a month for the cards. The choice he has now is to either pay the mortgage or pay the cards. It’s a no brainer. Get rid of the cards, to assure payment of the mortgage. At least, the house appreciates in value over time and home ownership is the American dream, while credit card debt is the American nightmare that sucks up your net income every month, every year. His choice is Chapter 7 to protect his house and discharge the $30K of credit cards.
“ABIDE IN ME, AND I IN YOU. AS THE BRANCH CANNOT BEAR FRUIT OF ITSELF, UNLESS IT ABIDES IN THE VINE, NEITHER CAN YOU, UNLESS YOU ABIDE IN ME.” JOHN 15:4
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.
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