Husband and wife are both 66. They were my clients 15 years ago. I do not remember how much credit cards were discharged then but I do remember that their problem was too much credit cards. After they wiped out these cards in 2001, they were able to buy a house. They were also able to rebuild their credit scores pretty fast with timely payments on the house and car loans. As their credit scores improved came the avalanche of new credit cards that were offered to them. For a while, they had no difficulty paying for the new debts because both of them were still working. Don’t forget that 15 years ago, they were only 51. At 51, you don’t really think about getting older. But, time does not walk; it flies. All of you remember the day you left your country of origin. That could be 30 or 40 years ago. You left a young man or woman of 20. Now as you read this article, you are 50 or 60, probably with grandchildren. Where did all that time go? I don’t know, all I know is, time feels like it goes much faster here because we have to do everything ourselves so we are busy all the time. We have to clean the house, cook and pick up the kids ourselves, and we still have to work. We wake up early in the morning and we are just busy doing something the whole day until it’s time to sleep which is late at night.

We look at our nice cars and beautiful houses, and we conclude that the American dream is truly worth it. At least, we have something to show for all our hard work. Our children also succeed. They go to college, become professionals, and make good money. So this is what the good life is all about. The problem is that we can’t really make time stand still, can we. If we could, then we would all press the pause button so that we can enjoy this kind of life indefinitely. Let’s get back to clients, who I would say, did buy the American dream after their first bankruptcy in 2001.

They now have a house with $170K of equity. They did not have a house in 2001. Well, that’s all good until they tell me that they have new credit card debt of $100K. Well, that’s not good, particularly for seniors at 66. You know you need at least $3K a month to pay for minimum interest on $100K of credit cards. $3K a month at 66 is a luxury that seniors at 66 normally do not have. In fact, $3K a month is a heavy burden for any person at any age to handle. I’m thinking there’s no problem with the house because at 66, the homestead exemption is $175K plus 6% cost of sale. The house is now worth $400K so 6% is another $24K to be added to the $175K homestead exemption. As a result, in a Chapter 7, clients will be able to keep their house. No problem.

I ask them for their income. Wife has social security of $800. Husband has social security of $1800 and still works the same job that he had in 2001. This nets him $2500. They have household income of $5100. That’s not bad at all. They can easily pay the mortgage of $1700 so their house is not at risk. At $5100, they still qualify for Chapter 7 under the means test. There is no presumption of abuse.

Looks like a clear-cut Chapter 7 case to wipe out the $100K credit cards. But wait. I ask them how many cars they have and what kind of cars are these? They have a new accord that they just purchased with a car loan. And what else? They have two luxury cars, although older model cars that are both fully paid. The mileage on one of them is less than 40K and the other has mileage of 100K. Well, those are not a lot of mileage especially for one of them. Chapter 7 trustees are focused on luxury cars that are fully paid even older model ones. A luxury car, even one that is 8 years old with low mileage can still have a blue book value of $10K to $15K. The combined current value of the two luxury cars is at least $18K, less the car exemption of $3,500, exposing a non-exempt car value of $14,500. This means that in a Chapter 7, the trustee will take the two luxury cars and sell them, unless clients settle with the trustee so that he lets them keep both cars. The new car is not a problem because it has no equity. In the context of Chapter 7, to settle with the trustee means that clients will have to offer to buy back the luxury cars from the trustee for at least $10K to $12K in cash. Clients wince at the prospect of buying back their cars, which have been fully paid for some time.

The painless way of dealing with this situation is to file a Chapter 13, not a Chapter 7. In Chapter 13, clients will pay the $14,500 non-exempt equity for the two luxury cards through a 60 months Chapter 13 plan. They get to keep their house and 3 cars. They only pay $250 a month for 60 months to the Chapter 13 trust. Out of the $100K that they owe, the plan allows them to pay 14.5% of the $100K card. In other words, Chapter 13 will allow them to pay $14,500 over 60 months, no interest at the rate of $250 a month. After the 60th payment, the court will discharge $85,500 of their credit cards. So at the end of the 60th payment, they will owe nothing to the credit card companies. For $14,500, they get rid of $100K of debt! The debt relief provide by Chapter 13 is immediate because: instead of making $3000 of minimum monthly payments, under the plan, they only pay $250! That’s an immediate relief of $2,750 a month. In addition, after paying 60 payments of $250, they will owe zero to credit cards, whereas if they don’t have Chapter 13 relief, they will have to pay $180K for 5 years, and still owe the same $100K after five years!

Chapter 13 is a super great deal for clients! I think this is the best Christmas gift that they can give themselves!

We celebrate the birth of our Lord and Savior on Saturday! Best wishes to you and yours on this Blessed day!

“FOR GOD SO LOVED THE WORLD, THAT HE GAVE HIS ONLY SON, THAT WHOEVER BELIEVES IN HIM SHOULD NOT PERISH BUT HAVE ETERNAL LIFE.” JOHN 3:16

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.