WIDOW WITH NO ASSETS SEEKS TO DISCHARGE $25K CREDIT CARD DEBT; CREDIT CARDS WITH $50K JUDGMENT LIENS ATTEMPT TO FORCE SALE OF CLIENT’S RESIDENCE

CLIENT NO. 1

Client is 82 and recently widowed. She now lives with her daughter who takes care of her. She is a little forgetful but otherwise is in good health. Client does not own a house, or a car. She doesn’t have a 401K or annuity. Except for clothes and other personal effects, client does not own anything of value. She receives $1,000 of social security. What happens to her social security benefit of $1,000 at the end of each month? For the last 15 years, starting at the age of 67 when she retired she uses 75% of her social security, or $750 has been used to make minimum payments on her $25K of credit card debt, leaving her with only $250 for herself! Unbelievable. This is almost slavery. You work all your life to get social security when you retire. But when you retire, you don’t get your money from social security. Almost all your social security income goes to pay credit card debt. In the last 15 years, she has paid a total of $135,000 to keep $25,000 of credit card debt current! And after paying $135,000, she still owes the very same $25,000. That is certainly a good deal for her credit cards, isn’t that so? Instead of having $135K of investments, which could conservatively earn 5% or $562@mo of additional income for her, she’s still in the hole for $25K that eats up 75% of her social security income. Now that can’t be fair or right. It’s unjust to say the least.

Client finally musters up enough courage to do the right thing to protect her self. She decides to discharge her $25K of credit card debt to obtain a fresh start at the age of 82. It’s never too late to get a fresh start in life with no debt. Become productive again and keep more of your income at any age. Don’t wait another 10 or 15 years to get rid of your debt. Just think about it.  Let’s say you presently owe $25K of credit card debt. If you were to get rid of these cards now with a Chapter 7 petition, fifteen years from now you will have saved up $135,000. You can use that money to fully pay up a retirement house wherever you want to retire, instead of still owing $25K fifteen years from now. Further, your credit score will be over 800 without any record of bankruptcy even as you have $135,000 in your pocket, and you will have no debt when you retire. Think about it and make the right choice because your decision now changes your future for better or worse.

CLIENT NO. 2

Clients are spouses in their early fifties. They haven’t paid $35K of credit card debt since 2007. I guess they forgot about their credit cards. But as it turns out, their credit cards did not forget about them. Indeed, their credit cards remember them very fondly. 5 credit cards sued clients and obtained judgments against clients for a total of $35K. All of these cards placed a judgment lien on their residence in 2008. But in 2008, if you recall, the housing bubble burst causing house values to decrease by 50%. So in 2008, clients’ house had no viable equity that the judgment liens could attach to. But 7 years after in 2015, house values have recovered. Client’s house now has $200K of equity. One judgment creditor with a $20K claim filed a motion in Superior court to force the sale of clients’ residence next month to satisfy the judgment lien of $20K. Wait, is this even possible? Can a credit card with a judgment lien of $20K force the sale of debtors’ residence? That doesn’t even sound remotely possible, does it? Unfortunately, the California Code of Civil Procedure allows a creditor with a judgment lien on the house to force the sale of the house to satisfy the lien as long as there is equity that is over and beyond the homestead exemption enough to satisfy the judgment lien! Is this true? It sure is.

 Creditor’s motion enumerated all the 5 judgment liens, which now total $50K plus the balance of the first mortgage that came to a total of $200K. Creditor alleged that an appraisal report states that clients’ house is currently valued at $400K less the homestead exemption of $100K the house had non-exempt equity of $100K. Under the law, creditor was well within his rights to ask the court to force the sale of the residence at $400K.  From the $400K sale proceeds, all the debts of $200K would be paid, leaving cash of $200K, minus sale expenses estimated at $24K for brokers’ commission, or net cash available of $176K. Under this analysis, creditor is entitled to satisfy its lien of $20K from the sale of the house. So, you can lose your house to credit card debt? You sure can!

Clients will file Chapter 13 to protect the house. The $50K will be paid over five years without further interest in a Chapter 13 plan. As soon as the Chapter 13 petition is filed, the motion to sell the house in Superior Court will stop and creditors will have to wait to get paid through the Chapter 13 plan. Of course, if clients had filed for Chapter 7 in 2007, instead of not doing anything and just allowing creditors to sue them with impunity, they would not have had to pay anything at all. The $35K of credit cards would have been wiped out in 2007 thus preventing the lawsuits and the liens from coming into existence. Nipping it in the bud as they say. They would have gotten a fresh start in 2007 and their credit score now would be perfect. As it is, their credit score was rock bottom since 2007 up to now because of the unpaid credit cards, the lawsuits and the liens. Of course, they can still save their house with a Chapter 13 now, but because the equity now is too big and the liens have attached to their house, they will still have to pay for the $50K now when they could have just discharged all of their credit card debt in 2007 with zero payment. This just shows you how a wrong decision in 2007 in choosing not to file a Chapter 7 can affect you 8 years after with these cards trying the force the sale of your house because of indecision on client’s part in 2007. This mistake costs clients $50K now which they have to pay even if its over 5 years. They could have paid nothing in 2007 and have perfect credit now. Sometimes, people don’t know how to make the right decisions out of fear or ignorance. Probably came from a country where bankruptcy was taboo.

“THEN JESUS SPOKE TO THEM AGAIN, SAYING ‘I AM THE LIGHT OF THE WORLD. HE WHO FOLLOWS ME SHALL NOT WALK IN DARKNESS, BUT HAVE THE LIGHT OF LIFE.” - JOHN 8:12.

Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years.  He specializes in bankruptcy, business and civil litigation and has handled more than five thousand successful bankruptcy cases in California.  He speaks Mandarin and Fujien and looks forward to discussing your case with you personally.  Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave, MAILSTOP 58, Building A-1 SUITE 1125, Alhambra, CA 91803 OR at 20274 Carrey Road, Walnut, CA 91789.