San Diego Bankruptcy Attorney Thomas Gorrill, Esq. wrote the following story pertaining to a recent client experience. Please take a moment to learn how an ethical San Diego Bankruptcy Attorney objectively analyzes a client scenario before making a professional recommendation. If you, or someone you care about has a similar situation, please consider contacting Mr. Gorrill for a free initial consultation.
San Diego Bankruptcy Attorney Thomas Gorrill
A woman phoned me the other day in a panic for help. She had discovered her husband had run up credit card debt of $137,000 without telling her he had recently opened a series of credit card accounts. He had not only maxed out the cards, but had also cleaned out their retirement accounts and put the funds into an "aggressive" investment in the hope of doubling their money.
She wanted to file a Chapter 7 Bankruptcy to discharge the credit card debt, which is why she was referred to me. For over 30 years, I have been helping folks buried in huge debts for one reason or another. There were some serious problems in this case, and I had my doubts whether Bankruptcy would be the best option.
There are two basic types of Bankruptcy proceedings. In a Chapter 7, the debtor is seeking a discharge to end his/her personal liability on as much debt as possible. Some debts, such as alimony and most taxes cannot be discharged. The typical Chapter 7 Bankruptcy takes about 90 days to complete.
Chapter 13 is the other type of Bankruptcy in which the Debtor is trying to reorganize his/her financial affairs. The most common type of Chapter 13 is filed to stop a foreclosure by proposing a repayment plan to cure the arrears on the mortgage. These cases take 3-5 years to complete, and the percentage of cases with plans that are fully consummated is low.
In this particular case, a Chapter 7 Bankruptcy was not a viable solution. For starters, the husband earned a sizable salary, and I wasn't sure they could pass the "means test" which Congress enacted in 2005 to make high income earners ineligible for Chapter 7. Second, the value of the family home had increased in recent months so they had about $275,000 in equity, which exceeded the homestead exemption in our state. This meant if they filed Chapter 7, the Bankruptcy Trustee would sell their home, hand them their homestead exemption of $100,000, and disburse the rest of the sales proceeds to Creditors. These folks did not want to lose their home.
Chapter 13 was no more appealing. They were current on their home mortgage, and since they had substantial equity in their home, they would have to repay all $135,000 of the credit card debt within 60 months...the maximum time allowed for a Chapter 13 case. While the interest would cease accruing on the credit card accounts, the Trustee charges about 7% in our district on the funds paid on the plan. This family's entire disposable income would have to be committed to the Chapter 13 plan payments for up to 5 years, so while the Chapter 13 was pending, they would not have funds for rebuilding the retirement account lost in that risky investment.
Instead of filing some sort of Bankruptcy petition, I referred them to an experienced, reputable Mortgage Broker to refinance their home and pay off the credit card debt. Refinancing will enable them to take some of the equity they would have lost in a Chapter 7 while spreading out the repayment of that credit card debt over 20-30 years, rather than 60 months in a Chapter 13 Bankruptcy. A long-term loan with reasonable monthly payments would allow them to begin putting money back into the emptied retirement account. More importantly, the interest they paid on the new loan to retire the credit card debt will be deductible on their taxes, unlike the Trustee fees of approximately 7% they would have to pay in the Chapter 13 proceeding.
I always tell potential clients that Bankruptcy should be the last resort. In this instance, Bankruptcy was not an optimal solution that fit the given circumstance of the case.
1Mr. Gorrill is a sole practitioner with offices in San Diego, California. He represents debtors and creditors in bankruptcy. His first cases were Chapter 7 and 13 cases for individuals. Several years later he joined a larger firm and represented bankruptcy trustees and debtors Chapter 11 reorganizations. He has been in practice for over 30 years.
Mr. Gorrill has tried numerous cases before the bankruptcy court in San Diego and has also represented clients in several appeals, including an appeal to U.S. Court of Appeals for the Ninth Circuit which resulted in a published opinion.
Mr. Gorrill has been a lecturer on bankruptcy and is recognized by his peers and professionals as a highly skilled bankruptcy attorney, having received the highest rating the Martindale-Hubbell organization bestows on lawyers (AV) for their professional knowledge and ability, as well as ethical standards in the conduct of the practice of law.
If you would like to discuss your financial and legal options, please contact The Law Offices of Thomas B. Gorrill at 619-237-8889, email Tom@GorillaLaw.com, or visit www.SanDiego-Bankruptcy.com to speak with a caring and ethical San Diego Bankruptcy Attorney.