Let’s assume that you have incurred too much debt. What do I mean by too much debt? By this I mean that you are now a slave to creditors because your debt level is beyond what your income can handle comfortably such that there is every month you have no savings. Let’s discuss the pros and cons of filing for bankruptcy for the following clients:

This client is 60 and is married. She makes about $2K a month as a caregiver. Her husband is 58 and works part time earning about $1K a month. Their combined net income is $3K. They don’t own a house. They own a 2016 Camry with a money purchase loan. They pay $400 a month for this. Last week, her bank calls her and tells her that a judgment creditor has levied her checking account. The money in that account was $1,500 and it’s now frozen. The bank gives her a copy of the notice of levy. It says that she owes creditor $18K. She tells me that she doesn’t know why there’s a judgment against her for $18K but suspects that this has something to do with the pick up that was repossessed 10 years ago. 

Apparently, the pickup creditor filed a lawsuit against her for the repo deficiency 9 years ago. But she tells me that she remembers that the repo deficiency was only $7K so why is the levy for $18K? Well, judgments accrue legal interest at 10% p.a. so now it’s $18K because it includes compounded legal interest for 9 years.

So, what’s the next judgment enforcement action from creditor she can expect? If creditor finds out who her employer is, the next step will be a wage garnishment. The wage garnishment will deduct 25% from her gross monthly income. That’s something client cannot afford because 25% of her $2K salary is $500 a month. They use that to pay their room rent of $600, or the car payment of $400. They don’t have minor children so other monthly necessities are about $1,400. It’s quite clear that even without the judgment of $18K, client household is financially tight and all they earn goes to pay monthly expenses. 

Before the bank levy, they could save a little at the end of the month. With a 25% wage garnishment imminent, what feasible remedy does client have to be relieved of the $18K judgment?

She can file for Chapter 7 bankruptcy. This will wipe out the judgment of $18K as well as all her other debts so she can get a fresh start without any debt. She can keep her 2016 Camry if she continues her car payments even if she files Chapter 7.

Pros: No more judgment of $18K and no more debt; can save $500 a month; credit score will increase every year if she handles her car payment well after Bk, and handle her new credit cards obtained after Bk well; peace of mind, no need to worry about future garnishment or bank levy from any creditor; becomes productive again; credit score increases every year and becomes very good on 5th year and perfect between 6th to 10th year. Credit score will be over 700 on 6th year. On 10th year, no record of Chapter 7, credit is perfect.

Cons: none

Client is recently widowed. Her husband died last year. She is 74. She owns a house with $150K of equity. Her social security is $1,000. And she has a pension of $2,000. Her house payment is $2,000. Pension takes care of the house payment completely, so she has $1,000 left from social security. She lives by herself. 

She should be in good financial shape as her monthly necessities in $600. She still has $400 left from her social security income.

The elephant in the room is that she owes $60K of credit cards. When she was still working, she was able to make the minimum payment of $1800 a month to keep the $60K current. But she stopped working when her husband died last year. Doesn’t want to work anymore. Just wants to live and enjoy life. 

Chapter 7 will wipe out the $60K credit cards. She gets to keep her house because her equity exemption is $175K, which covers the $150K of house equity.

Pros: No more $60K credit cards so no more pressure to pay $1800 a month of minimum payments to keep them current. Fresh start with no debt. Still owns her house and still has her social security and pension income untouched. Peace of mind and peaceful life. Saves $400 a month, which she can use to travel wherever she wants to, or use it any way she wants to.

Cons: none

Client is 40 and owns two corporations. Both businesses were doing good and making $100K a year net profit, but because of the trade war, his cost has gone up because of the increased tariff for merchandise made in China. Now, both businesses are losing money. One company has debt of $300K. The other company has debt of $250K. Creditors are threatening to sue.

Client will file Chapter 7 for both corporations to wipe out $550K of debt of the business. If creditors sue client personally which is unlikely unless he has signed personal guaranties, client can also file a personal Chapter 7 for a fresh start without debt.

Pros: Fresh start in life. No business or personal debt. Keeps all his personal assets. Look for new business to do maybe become the next Walt Disney who also did Chapter 7 twice for fresh start. Now Disney is multibillion global business. Fresh start for Mr. Disney after two Chapter 7s.

Cons: none

If you need debt relief, please set an appointment to see me. I will analyze your case personally. You only have stressful debt to lose.

 “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.” Psalm 91.  Written by Moses.

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 20274 Carrey Road, Walnut, CA 91789 or1000 S. Fremont Ave., Mailstop 58, Building A-10 South Suite 10042, Alhambra, CA 91803.