When I say young senior, I mean 60. She’s a single mom with two adult daughters who are over the age of 21. One daughter is still in college but has a part time job. The other works full time. Both daughters live with client in her house, but she does not claim them as dependents in her income tax returns. When we filed her Chapter 13 three years ago, she had disposable income of $900. However, at that time, her job security was already in question as another company had just purchased employer and heads were rolling. Client was able to keep her head for three years but lost her employment recently. Without work, she no longer has disposable income. Our first attempt to end her case was filing a motion to pay off the 33% plan by liquidating $10K from her retirement account. The Chapter 13 trustee objected to our motion to pay off the plan unless the pay off was 100%. Well, that wasn’t a good deal because her unsecured debt was about $100K which meant that client had to come up with $90K more to get a Chapter 13 discharge, that’s a 100% plan pay off. 

Client had two other options dismiss the Chapter 13 case, or convert it to Chapter 7 and get a discharge of $90K of unsecured debt. The problem is that for the last three years, the value of her house, just like most houses in Los Angeles and Orange County, have been appreciating significantly. We checked Zillow, which estimated the value at $400K, and REDFIN estimated it at $440K. Whereas her house only had $30K of equity when she filed for Chapter 13 in 2013, now she has equity of $160K. The other problem was that she had testified at the Chapter 13 hearing last week that her daughter was independent, although she lived with her. And she did not mention that she had a second daughter who also lived with her, a full time college student. So, the trustee concluded that her claim of homestead exemption should only be $75K, not $100K.

We refused to reduce the exemption claim to $75K because the trustee was not on solid ground with her argument that debtor had testified that daughter was independent, therefore, she is not considered to be part of the family unit. We argued that the other daughter was a full time college student, therefore, unable to take care of herself. So by definition, she is part of debtor’s family unit. As a result, the homestead exemption of $100K is correct. Settlement offers and counter offers were made. The negotiations were fruitful and trustee settled for a reasonable amount to allow the debtor to keep her house. Even though debtor was not employed, she was willing to liquidate a part of her retirement account to pay for the settlement to keep her house. Daughters were willing to buy the house from her anyway later on, so she gets her settlement payment back.

Nowadays, the correct value of the residence is critical to keeping the house safe from the clutches of the Chapter 7 trustee, because house values are at their peaks again. Mortgage rates have been kept very low by the Feds for a long time. The last time house values peaked was 2007, just before the mortgage crisis, which bankrupted a lot of big banks. When the crisis hit, house values dropped by more than half. Now, all of that has been recovered, and new highs are being achieved. Therefore, a lot of factual and legal analysis must be done before deciding which path to take, Chapter 7 or Chapter 13.

The second client is 72. Her husband passed away some time ago. She has a daughter who has just started college. I guess she must have married late. She now receives only social security and has no other income. However, she owes $70K of credit cards, which requires $2100 of monthly minimum payments. Her social security is $1,600. Let’s not even go further. Client doesn’t own a house. She rents for $1,000. Well, with $600 left after rent is paid, and a daughter in college, let’s just say that there’s tremendous pressure on her to budget her expenses. Obviously, there is no money to pay $2100 for credit cards every month, is there? So, she chooses to make the $70K credit cards DISSAPPEAR with a Chapter 7 petition. Just imagine the number of calls she gets everyday from these cards trying to get their pound of flesh from her. That’s no way to live no matter how old or young you are. $2100 a month for credit cards is equal to a mortgage of $400K. I mean you can literally buy a house, condo or townhouse for $400K with nothing down, instead of carrying $70K of credit card debt. Think about where you want your hard earned money to go. Would you rather be the proud owner of a house, or the proud owner of $70K of credit cards? 

At 72, client finally realized that she should have gotten rid of her credit card debt a long time ago. If she got rid of them ten years ago, she would have saved up $252K now. Instead she gave $252K to her credit cards of $70K, and she still owes the same $70K after ten years! Think hard what you should do now because the earlier you get rid of credit cards, the faster you can save money and be productive again. Even at 72, it’s not too late to get rid of them, better late than never.

 “THE LORD HIMSELF GOES BEFORE YOU AND WILL BE WITH YOU; HE WILL NEVER LEAVE YOU NOR FORSAKE YOU. DO NOT BE AFRAID; DO NOT BE DISCOURAGED.” DEUTERONOMY 31:8

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 Fujian 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 OR at 20274 Carrey Road, Walnut, CA 91789.

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