Debts-Relief

Husband and wife incur over $50,000 in credit card debt, and with a combined income of less than $50,000 annually, the prospect of paying off the debt is slim. They do not have any children, do not own real property and have not operated any business within the last 6 years. 

Solution: Chapter 7 may be a good solution. Since their income is less than the Census Bureau Median Income for the State of California, which is $59,086 (as of this writing on May 20, 2008), for a family of 2 people, they could pass the means test, and the presumption does not rise for them to file a chapter 13.

Husband and wife incur over $70,000 in credit card and other unsecured debt. They own a house which they reside that is worth over $500,000, secured by a mortgage in the amount of $430,000. Their mortgage payment is $3,000 a month, and they are several months behind in payments. Their combined income is just over $4,000 a month. They would like to save their house.

Solution: Chapter 13 may not be a good solution first since there is insufficient income left over each month to make a chapter 13 plan work. They could file a homestead to give them $75,000 protection in equity. Since their home equity is less than $75,000 ($500,000 - $430,000), filing a homestead could give them full protection of the house. After that, they could file a chapter 7 to wipe out the unsecured debt.  After the unsecured debt is discharged in chapter 7, and if they are still unable to pay the arrearages in mortgage payments, they could then consider filing a chapter 13 to payoff the arrearage in a chapter 13 plan. This is sometimes called a chapter 20, combining chapter 7 and a 13.

A single woman 57 years old. Her income is less than 15,000 a year. She owns a house she resides in that is worth $450,000 with a mortgage in the amount of $310,000.00. She also has over $40,000 in credit card and other unsecured debt. Can she save her house? 

Solution: At first glance, she may appear unable to save her house because there is a large equity on the house, and the equity is sufficient to payoff her debt. However, since she is over 55 years old with income of less than $15,000 a year, her homestead exemption is $150,000. With the exemption, she could file a chapter 7 and get rid of her unsecured debt.

A man and a woman have been living together for over 10 years and have held themselves out as husband and wife, but they did not have a marriage certificate. Can they file bankruptcy jointly as husband and wife? 

Answer: since California does not recognize common law marriage, they cannot file petition together jointly.

A real estate investor owns more than 10 pieces of real properties, and has been unable to sell or refinance any of his properties despite repeated reduction in prices. Several of his properties have equities, and others do not. He is behind in mortgage payments and lenders are foreclosing his properties. 

Solution: Chapter 7 is not good solution not only because all of his properties will be liquidated, but also tax consequence will be severe. Chapter 13 is not a solution because there is a cap on the secured and unsecured debt.  Chapter 11 may be the best solution since foreclosures could be stopped and a chapter 11 plan can be proposed. The drawbacks are the high attorney fees, as a Chapter 11 can be a rather complicated procedure.

An Abstract of Judgment has been recorded in the County Recorder’s Office where Mr. & Mrs. Smith own a real property. What is the consequence of a chapter 7 filing? Can the filing void the judgment lien?

Answer: When an Abstract of Judgment has been recorded, it operates as a judgment lien on any existing or future properties they own. A bankruptcy petition does not automatically void the judgment lien. If all or portion of the judgment lien is not secured by the real property, a motion to void lien can be filed to remove some or the entire lien amount. Even if they do not own property presently, such motion may be a good idea to avoid lien on any property they may own in the future.

Husband and wife’s combined annual income is more than $100,000 and they have 2 children. Their debt consists of over $90,000 in credit card debt. They own a house that has $60,000 in equity. What type of petition should they file? 

Solution: a chapter 13 is probably the best solution. Since their income is above the median income ($72,996 as of this writing on May 20, 2008) in a California family with 4 people, there is a presumption that they could make plan payments under chapter 13. It is unlikely the court will allow them to file a chapter 7 since their income is above the median.