First client is 48, married and has a good job that pays $80K a year. His wife makes another $40K a year. Together, they make $120K gross a year. They have 3 children aged 5 to 12. Wife has no credit card debt. But client has about $30K of credit cards left unpaid. According to him, he has been paying $800 a month to a debt consolidator out of state for one year. However, the $800 a month is proving to be too much of a burden. He asked if he qualified for Chapter 7 fresh start without any payments to wipe out the $30K.

The problem it appears is not really his gross household income of $120K. He does have enough qualifying expenses under the means test that could make him eligible for Chapter 7. The issue is that they own a house with net equity of $200K. Since their homestead exemption is $100K of equity, he has $100K of nonexempt equity. Hence, under the Chapter 7 liquidation analysis comparison, the $30K of credit cards would get paid in full if he were to file a Chapter 7 because the Chp 7 trustee could very well sell his house, give him $100K of cash to pay him for his homestead exemption, and use the rest of the $100K to pay the $30K of credit cards in full, and use the rest of the money to pay legal and administrative costs of the trustee which is quite substantial. I represented a client as creditor in a Chapter 11, which subsequently converted to Chapter 7. At the time of conversion to Chp 7, the bankrupt debtor had $400K of cash in the bank. That’s right, close to half a million dollars in cash was available for distribution. My client’s unsecured claim was $300K. Trustee sided with another major creditor who challenged my client’s claim saying, ‘The entire $300K had been paid off by debtor prior to filing for bankruptcy.’ This claim was certainly absurd. Client had an open account relationship with debtor and had at the high point shipped debtor over $2.0M of merchandise on credit. Debtor paid $1.7, and left $300K unpaid.

We defended the adversary complaint and won. Court judgment after trial was for client for $300K. After a year more of trustee proceedings, the $400K was down to, would you believe, $15K. My client got a distribution of $5K on their unsecured claim of $300K.

In this case, young client’s option is not Chapter 7, but Chapter 13. In Chapter 13, the trustee has no power to sell debtor’s house. And, debtor can dismiss his Chapter 13 case at any time, for any reason. Whereas, a Chapter 7 case, once filed is very difficult to dismiss.  In Chapter 13, he would be paying $500 a month for 60 months to pay the $30K in full without interest, while protecting his house from judgment liens arising from the $30K. Still, $500K a month is, guaranteed to get rid of the $30K and guaranteed to stop all collection efforts by lawsuits by creditors. This is absolute peace of mind. No more creditor harassment immediately. Unlike, consolidation through a third party, his payments may just be funding the consolidator’s retirement account or the guy’s vacation house in the Mediterranean, and indeed, there is no protection against creditor lawsuits as some of them may opt to just garnish debtor’s wages instead of agreeing to freely accept monthly payments.

A Chapter 13 is consolidation by the bankruptcy court. The court-appointed trustee will not run away with his monthly payments. He can sleep soundly with the thought that his payments are being distributed by the trustee, and assured with the guarantee that the court’s injunction order will stop all creditor collection efforts, including lawsuits, letters and phone calls and wage garnishments and bank levies. All collection efforts are stopped immediately by court order. This is peace of mind and order out of chaos guaranteed by law.

Second client is 45. He is single. He owns a house with $300K of equity. But he doesn’t owe any credit cards or unsecured debt. Client went back to his country of origin to attend the funeral of his father. After the funeral, he decided to stay there for some time. I guess he was having a good time visiting friends whom he had not seen for 20 years, and lost track of time. While he was there, he forgot to pay the first and second mortgage on his house. When he came back, he realized that he had $10K of arrears in his first mortgage because the bank would no longer accept his current mortgage payment. The bank returned his current mortgage payment to him and said they would not accept the payment because his arrears were too big. After a week, the second mortgage creditor send him a Notice of auction sale for the end of this month saying that the entire mortgage of $30K had come due.

This is a slam-dunk case for Chapter 13. Chapter 13 will immediately stop the foreclosure of his house by the second mortgagee. And Chapter 13 will give him five years to pay off the arrears on the first, as well as the entire $30K of the second mortgage, the entirety of which has come due.

Chapter 13 will protect debtor’s house from foreclosure, and give him enough time to cure the default on the first and the second mortgage. There’s no problem on the income side, debtor is self-employed with several sources of income that give him a monthly net of $6K. That’s good enough.

Reminder: Even if you go abroad, don’t forget to pay your mortgages!

Third client is 43. She is going through a divorce and owes $20K of credit cards, and other unsecured debt. She doesn’t own a house. She cannot file a Chapter 7 because her last bankruptcy filing was 5 years ago when she discharged $50K of cards.

Only choice now is Chapter 13 where she will be given 5 years to pay off the $20K in 60 monthly installments. Her monthly payments to the trustee will be about $350. She wants to do it immediately so she can forget about making payments to several different creditors and just paying the minimum. She also wants to stop all the creditor phone calls. In addition, the stress caused by her divorce is a little bit much for her to handle with creditor problems. Getting rid of creditor calls and collection efforts will give her at least a lot less stress on the financial side.

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

“WHEN I AM AFRAID, I PUT MY TRUST IN YOU.” PSALM 56:3

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.