LOS ANGELES BANKRUPTCY BLOG
Chapter 7 Success Story
Sep 27, 2010
Weintraub & Selth, APC recently helped a married couple obtain a Chapter 7 discharge of over $600,000 in unsecured debt, including $450,000 owed on junior liens from their foreclosed home and $127,000 in credit card debt. This in itself was not unusual, we get results like that for clients regularly. However these clients had been told by two other attorneys that they were not even eligible to file bankruptcy!
Dr. & Mrs. Y filed a Chapter 7 bankruptcy with another attorney in 2009. However, at that time they were ineligible to file Chapter 7 because their debts were primarily consumer debts and their income was well over the median income for a household of four. The United States Trustee filed a Motion to Dismiss their case for being ineligible. Their attorney advised them to convert their case to Chapter 13, however their debts were way over the statutory debt limits for Chapter 13, so the case was soon dismissed by the Court with a six-month bar against filing a new case. Their home was then foreclosed by the first trust deed lender, and they were left with $450,000 of debt owed to the second and third trust deed lenders, plus the $127,000 of credit card debt which they had filed bankruptcy to discharge.
Collection agencies resumed contacting and harassing Dr. & Mrs. Y after they learned that their bankruptcy case had been dismissed. The second and third trust deed lenders threatened to file suit against them for the loans on the foreclosed home. Dr. & Mrs. Y consulted a well-known bankruptcy attorney in Los Angeles who reviewed their situation and told them that they were still not eligible for Chapter 7 because of their high income, and not eligible for Chapter 13 because of their high amount of unsecured debt. Dr. & Mrs. Y were very disappointed to hear this, but then came to consult with Weintraub & Selth, APC. We saw what the other attorney had missed, which was that since their home had been foreclosed, they no longer owed that "consumer debt" to the foreclosing lender. With that loan eliminated, their debt was now primarily non-consumer debt, since Dr. & Mrs. Y were jointly liable on a mortgage loan for a small apartment building with another couple. By asking thorough questions, we also learned that most of the third trust deed loan on their foreclosed home was used for the down payment for the apartment building, so that was also considered "non-consumer" debt. Since their total non-consumer debt now exceeded their consumer debt, Dr. & Mrs. Y were eligible to file Chapter 7, since the median income eligibility test does not apply to individuals whose debts are primarily non-consumer.
We filed a Chapter 7 case for Dr. & Mrs. Y in May, 2010, and their discharge was just entered. Weintraub & Selth, APC has more very happy and grateful clients, and Dr. & Mrs. Y say that they feel a great weight has been lifted from their family and that their decision to call us for a second opinion was the best decision they ever made.
