First client is 82. He is married. “What’s the problem?” I ask. He says that he owes about $15K of credit cards and his wife owes about $10K of cards. Together they owe $25K. He says he doesn’t know how much longer he has before he dies but it doesn’t appear like they can actually finish paying off the $25K of cards. I ask him why this pessimism when they both look healthy. “Yeah, I feel ok. In fact I was still working a regular job before co-vid started in March, then I was laid off. The problem is that we’ve been paying for these cards for such a long time and the balances don’t seem to be decreasing at all.” I asked, how much minimum payments they pay. He said they owe about ten cards and pay a little on each card but it adds up to $1K a month. He says he called up the credit card companies and they were told that at $1K a month, it would take another 25 years to fully pay off the $25K of credit cards. “I don’t think I have another 25 years to live and I don’t want the credit cards to be a problem for their adult daughter who lives with them.”

Well of course he’s making pretty valid points here. Who wants to spend another 25 years paying $1K a month to pay off $25K of credit cards? That’s $300K to pay off $25K. Yeah, it’s a pretty profitable business for mastercard and visa. Go buy their stocks. They keep going up. It may not take all of $300K but it’s going to take a whole lot more than $25K and a very long time for client to pay off these credit cards; probably at least $150K to pay off $25K. With minimum payments monthly, you’re just paying current interest so the balance remains the same while you age. Your hair will turn white but you will still owe the same amount of principal after 10 years, 15 years or 20 years. So here we are now with client just getting the feeling that he’s been paying the cards for a long time with minimum $1K payments a month, but he still owes the same $25K so he’s now wondering when he will actually pay them off in full because he’s now 82 and was just told by creditors that it will take another 25 years. 

Client owns a house. He owes about $100K on it. “What’s the current fair market value?” I asked. He said it’s worth about $500K. I asked him how many people on title? He said 3. This means he and his wife own half, and the other party on title owns the other half. His share of equity would be $200K while homestead exemption would by $175K, leaving a non-exempt equity of $25K. This means he can’t do a Chapter 7 unless he’s willing to lose his half share of the house. In Chapter 7, the trustee has the power to sell his half share, give him $175K in cash, and use the $25K difference to pay the $25K of credit cards. Theoretically this is the way it should work. But the trustee has administration and selling and legal expenses to cover. These use up a big chunk of money. Trustee may not make any money after giving client his $175K if the house is only worth $500K. So we check Zillow. It says that Zillow estimates at $640K. Well that does it. There’s enough room for the trustee to make money on it at $640K. It’s not safe for client to file Chapter 7 to wipe out $25K. 

“I will only file Chapter 13 for you because I don’t think you want to lose your house in Chapter 7 for $25K of credit cards, right? I tell client. He agrees. Chapter 13 will protect his house from lawsuits and liens from their credit cards with about $450 monthly payments in a Chapter 13 plan to the trustee for 60 months. That’s already $550 less than the $1K he pays monthly for minimum payments. And, there’s no interest. So, after 60 months the $25K is fully paid thru the court, so the court enters a discharge order saying client no longer owes any credit card debt. Client decides to file Chapter 13. Right decision. Better late than never.

Second client owes $40K of credit cards. He’s much younger at 62. He’s married but they don’t own a house. They just rent. This actually makes it a lot easier to qualify for Chapter 7 because no house to look at. House values now as you know are sky high because interest is at all time low. You can get a 30-year fixed rate mortgage to buy a house at less than 3%. Never heard such low rates ever before. Lots of people want to buy houses now even with the pandemic going on. It’s literally once in a lifetime situation with interest this low. So trustees in Chapter 7 are very well aware of how high house values are right now. If there’s a house involved with large or borderline equity it’s the better part of caution to file for Chapter 13 so as not to put the house at risk of being lost in a Chapter 7, unless you really want to cash out on the exempt equity now for whatever reason you may have. I can think of situations where client would rather get cash of $175K being a senior and wanting to move out of state because houses are cheaper say in TX or AZ and you can get a really nice house fully paid for $150K. No more mortgage to worry about. Life becomes a lot easier with no mortgage to worry about having a fully paid house. Most seniors depend on social security, which doesn’t go a long way after the mortgage payment. Some seniors just want to cash out to start a new life elsewhere.

In this case, senior still works and makes about $3k a month. Wife does not work. He nets about $2,400 a month. You know the minimum payment on $40K of credit cards is at least $1500 a month. It only takes less than a minute for client to decide to go for Chapter 7 to wipe out the $40K. Right decision. 

If you have too much debt and need relief, please set an appointment to see me. I will analyze your case personally. 

DISCLAIMER: NONE OF THE FOREGOING IS CONSIDERED LEGAL ADVICE. EACH CASE IS DIFFERENT.

“YOU ARE MY SHEPHERD. I WANT FOR NOTHING… THOUGH I WALK THROUGH THE VALLEY OF THE SHADOW OF DEATH, I WILL FEAR NO EVIL: FOR THOU ARE WITH ME… YOU BRING US TO LIE DOWN ON GREEN PASTURES… YOU PREPARE A TABLE FOR US IN FRONT OF OUR ENEMIES & YOU ANNOINT US WITH OIL…“ Psalm 23 written by King David 1000 BC.

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.