SENIORS WITH $40K CREDIT CARDS SEEK CHAPTER 7 RELIEF; CLIENT NEEDS CHAPTER 13 TO HANDLE $50K PERSONAL GUARANTY

Clients are young seniors at 62. Husband took an early retirement as he has a serious illness. Two years ago, husband was diagnosed with stage 3 leukemia. He has been undergoing treatment with a new cancer-fighting drug that is still experimental. The cancer went into remission last year but resurfaced recently. I sometimes wonder, with all our advanced technology that can send people to mars, we still cannot cure cancer. Sure, certain cancers can now be fought effectively if detected early enough and we know more about cancer now that we did a couple of decades ago. There is of course our City of Hope that boasts of being cutting edge on cancer treatment, but if you are unlucky enough to get cancer, I am sure that the thought of dying sooner than later will certainly be a constant thought in your mind. I’ve also heard of people who get cured of cancer by stem cell therapy administered by a group of German doctors in Mexico.  The cost of treatment is about $30K per session using stem cells from a fetus, which they provide. In any event, the best thing that can happen for our loved ones & us, is that we never get sick until we die of natural causes.

I rely on Psalm 91, written by Moses a long time ago, for protection from cancer and other illness for my loved ones & myself. In that Psalm, Moses says that “Whoever goes to the Lord for safety, whoever remains under the protection of the Almighty can say to Him, ‘you are my defender and protector, you are my God, in you I trust.’ He will keep you safe from all hidden dangers and from all deadly diseases. So, like Moses, I go to our Lord to keep my loved ones & I safe from all hidden dangers and from all deadly diseases. Going back to clients, since husband fell ill, he stopped working; hence his income went down as he now receives social security at 62. He took early retirement. Normally, one would wait until 67 to get full social security benefits. But with client’s illness, he may not be around at 67 so he might as well start getting social security even if it’s a lesser amount now. 

Clients are paying for a 2016 4 Runner. They pay $600 a month with 5 more years to go. They feel that it’s too much of a debt burden and have decided to return the 4 Runner. The dealer told them that even with a voluntary return of the car, they would still owe about $12K. This is called the voluntary car return deficiency. What happens is that the dealer sells the returned car at wholesale and uses the proceeds to pay a portion of the car loan. Since clients still have 5 years on the car loan, at $600 a month, they owe $36K. The dealer anticipates selling the car for $24K at wholesale. The sale proceeds of $24K will be used to pay down the $36K, leaving a balance of $12. By contract, clients have agreed to pay $36K for the car, so they are still contractually liable for the unpaid difference of $12K even if the car has been returned.

In addition, clients owe $40K of credit cards. They need $1200 a month for minimum monthly payments. Since client only gets $1,100 from social security. It’s a no brainer that they need to wipe out the $40K of credit cards as well as the $12K voluntary car return deficiency. Clients have further decided to buy a cheaper car where they will only pay about $200 a month or less on a lease. I told them to go ahead and get a smaller car, which is consistent with pre bankruptcy planning. 

Second client is 52. He owns a California S corporation, and has a residence that has $300K equity. His import distribution business was doing well since it started in 2002. But business turned south last year when gross sales went down by 30%. With a 30% sales reduction, the company is losing money. He obtained a $50K loan from bank, which required him to execute a personal guaranty for $50K. Company has not paid the loan for several months. Bank then sued the company and client on his personal guaranty last week. Since client has $300K of equity in his house, the non-exempt portion of the homestead equity is $200K. That’s a lot more than the $50K guaranty. Client does not qualify for Chapter 7 relief. However, Chapter 13 will provide relief in that client will be given a repayment plan of 60 months to pay $50K without interest, that’s about $850 a month for 5 years. Since client now works for employer and has a gross salary of $3,500 a month, and his wife also has some income, Chapter 13 will protect his house from a judgment lien of $50K from the lawsuit. If he were to opt for Chapter 7, he would lose his house. Trustee will sell his house, give him his exempt equity of $100K, then use the $200K to pay the $50K and trustee administrative and legal fees which will be substantial. 
So Chapter 7 is not the right way to go. Chapter 13, however, will provide adequate relief while protecting his residence from a judgment lien. Besides, Chapter 13 trustee have no power to sell debtor’s house.

“THE LORD TAKES PLEASURE IN THOSE WHO FEAR HIM, IN THOSE WHO HOPE IN HIS STEADFAST LOVE.” PSALM 147:11

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., 

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