Seniors are husband and wife aged 70 and 65. Wife is a young and healthy 65. Husband is a healthy 70 still looks strong. Both are still working with good income. Husband grosses about $100K a year. Wife grosses about $70K a year. With $170K gross for the household, there should be no financial problem, right? Wrong; but why? They owe $110K of credit card debt, which uses up about $4K of their monthly net income for minimum monthly payments! They have been servicing these credit cards for, believe it or not, 20 years. From $20K, it grew yearly to $80K, then to $110K. They never paid off all the balances despite their good income. I guess you just don’t think about the future and take the easier way out of monthly minimum payments. Let’s say the cards stood at $110K for the last 10 years because it certainly looks like that from where we stand right now. That’s $48K a year for minimum monthly credit card payments x 10 years. That’s a cool half a million dollars right there that they transferred over to their credit card masters! And how much do they owe right now after paying half a million $ to MasterCard since 2008? They still owe the very same principal of $110K! Now what have they been thinking, really? That it’s ok to keep on paying $48K a month forever, until they die? Makes no sense whatsoever. Even Chairman Kim Jung Un knows that there this is a bad deal for them. 

Indeed, this is a very bad deal. It’s time to nuke these cards to where they belong, 6 feet under.

If clients had wiped these cards out in 2008, they would have $500K in their wealth portfolio right now, instead of $110K of credit card debt. But when push comes to shove, clients realize now at their age that these accumulated debts are sucking them dry. Fortunately for them, they also both have hefty retirement accounts to rely on. But even hefty retirement accounts won’t be enough to solve their financial problem. Their combined retirement accounts are close to $700K. The rule of thumb is you can use 4% of that taken from income generated, without diminishing the principal and still make the $700K grow yearly because the track record of the stock market is yearly growth of 7% annually in the last 100 years stock market crashes in 1929 and 2007 when the market lost 50% of value. Those who did not liquidate but hung on to their equities came roaring back in the next couple of years to recover the losses and go beyond them. 4% of $700K is $28K of extra money for clients when they retire. Husband will be getting $2K of S.S., while wife will be getting $1500 of S.S. So, clients will be retiring with $24K from S.S. for husband, plus $18K for wife for a total of $42K a year from S.S. plus $28K income from their retirement portfolio of $700K.

Clients will be quite comfortable when they retire with $70K of gross income yearly, or almost $6K a month. Their house mortgage is $2,500, leaving them a balance of $3,500 a month for the rest of the necessary monthly expenses of $2K. So, even in retirement, they will be saving $1,500 a month, or $18K a year, which they can add back into their retirement portfolio, right? So their retirement portfolio will keep growing until it reaches $1.0 M soon enough where they can draw $40K from a year. That’s really not bad, not bad at all. 

But with the $110K of credit card debt, they will need $4K monthly for debt service. Even if their retirement income is $6K a month, credit card debt service wipes out almost 70% of their income! That doesn’t sound good, no sir, it doesn’t sound good at all.

Clients seek Chapter 7 wipe out of the $110K when husband retires in one month. But they also own a home with $300K of equity. This means that after their homestead exemption of $175K, there is still non-exempt equity of $125K. So, Chapter 7 is out of the question. In Chapter 7, clients will lose their house even as they realize $175K of cash. Even Chairman Kim Jung Un knows that Chapter 7 will be a bad deal for clients. So, client must use Chapter 13 instead to handle the $110K of cards without incurring any risk of losing their house. Client Chapter 13 plan will allow them to pay off their credit cards debts over 60 months without any interest. In 5 years, they will owe zero of credit cards so they enjoy their entire retirement income of $6K a month without having to worry about paying another cent to MasterCard or visa.

Next client is 66. She just bought a house with $200K down but owes $400K mortgage on it. The problem is that she owns two businesses that are losing tons of money. She is very worried that suppliers will start suing the company for unpaid debt. Well, that’s easily solved with Chapter 7 for each company. The second problem is that she personally guaranteed the lease of the warehouse for $10K a month and there is 3 more years on the lease. How many times must I tell readers that they should never personally guarantee businesses leases or business debts?

Client is on the hook for $360K on the personal guaranty of the lease. Fortunately for her, she can do a Chapter 13 to handle that. In Chapter 13, she will have to pay $25K of the personal guaranty over 60 months without any risk of losing her house. That is a great financial reorganization for her. She wipes out $335K of the personal guaranty if she completes 60 payments of $500 a month to the trustee. The bankruptcy court will enter an order discharging the $335K soon after completion of plan payments.

If you need debt relief, set an appointment to see me. I will analyze your case personally.

“YOU HAVE MADE THE LORD YOUR DEFENDER, THE MOST HIGH, YOUR PROTECTOR, AND SO NO DISASTER WILL STRIKE YOU, NO VIOLENCE WILL COME NEAR YOUR HOME.”  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.