Debtor with $70K credit cards but good income needs Chapter 13 relief

THE debtor who is 50 has accumulated credit card debt at the rate of $6,000 a year for the last 20 years. Now, he owes $70,000 in credit cards. He needs $2,400 a month of minimum credit card payments to keep all $70,000 current.

His mortgage payment is $2,500 with a mortgage balance of $400,000. The fair market value of his residence located in LA County is $650,000, so there’s equity of $250,000. He lost his job during the pandemic but has found new employment that pays him $5,000 a month in a mid-management level. His wife is employed as a medical professional and makes about $100,000 a year. Thus, their household income is $150,000 a year. I’d say that is good income. There are already three lawsuits with two judgments against him for three credit cards that he has not paid for a year. He has not been able to pay any of the credit cards for the last eight months. So all cards are now in default. Well of course the judgment creditors want a part of his salary by wage garnishment. They’re merciless you know. It doesn’t matter that he lost his job for a year and just got a new job. They just want to get their pound of flesh. That’s the way it works in the real world. We’re not living in Mother Theresa’s world after all. If you lose your income and can’t pay your mortgage or rent, then after the mortgage and rent forbearance expires, the mortgage holder and the landlord want all unpaid mortgage and unpaid rent repaid in full, plus the current mortgage or rent.

If you still have no income, you are going to lose your house by foreclosure, or eviction. In either case, you are moving into tent city, unless you have relatives or friends who are kind enough to shelter you until you get back on your feet. Nobody wants to live under the freeway or even in a nicer tent city provided by the City of LA. But when push comes to shove, that is the reality we live in. Even with three stimulus payments and a year of pandemic unemployment income, the wolf is still at the door, ready to pounce. There are now supposedly millions of new jobs available, businesses that were closed during the pandemic have reopened and looking for people to hire. The economy is roaring back at an unheard of 6.5%. So, the job market is looking good.

Many people who lost their jobs will be able to find new jobs, and the first problem that they will face is the credit cards that have accumulated during the pandemic that were used for necessities.

Just like the client, many people will have to get relief from accumulated debt, either by a total discharge of debt by a Chapter 7 petition, or a reorganization of financial affairs paying a portion of debt. There’s nothing wrong with the client’s household income at $150,000 annually, that’s almost $13,000 a month. But even at $13,000 a month, after deducting withheld taxes, mortgage, car payments, 401K contribution, food, insurances, money sent abroad to help relatives survive COVID in the home countries, it’s a heavy burden to service $70,000 of credit cards at $2,400 a month minimum payments. At $2,400, it’s almost the same amount paid for his mortgage of $2,500.

Many people, who have close relatives, parents, and siblings in their home countries, are also in dire financial straits because COVID has made them lose their jobs. So they have no income. Thus, many people who are fortunate to have good paying jobs here have the moral obligation tugging at their hearts to send money back home for their relatives to survive. In the client’s case, he sends $1,000 a month for his relatives back home. Without this $1,000, his relatives would be homeless and have nothing to eat in their home country.

In addition, the client has four adult children with low income who live with him. That’s a lot of food expenses, as we all know. Easily, that’s $2,000 a