A Single Working Mother of Two Young Kids
Rebecca is a single mother of two young kids. She works as an LPN in a
local hospital. She does not receive very much child support. Her hours
are steady, and her take home income is about $780 bi-weekly.(note: Rebecca
is not a real person. She is a fictional example of one of our most common clients).
How Rebecca got into trouble
Rebecca can cover her monthly expenses if she is careful. However, over
time she has built up about $12,000 in medical debt – including
a weekend emergency room visit for her daughter’s asthma attack.
She also has assorted other debt – cell phone bills, an old landlord
bill, and a small credit card. Paying just the medical bills off, within
4 to 5 years, would require a monthly payment of 3%, or about $360.
A few months ago, she could not cover her summer electric bill, and she
became desperate. She took out a payday loan for $500. The agency takes
automatic drafts from her account, every payday, for $75. This does nothing
to pay off the $500. It just pays for the interest.
The payday loan did not help her. She took out a title loan on her Ford
Explorer and paid all her bills current. However, with an interest rate
of 35%, her $4,750 loan costs her $224 every two weeks, or $487 monthly,
just to cover the payments. If she does not make the payment, she loses
her only transportation. Then she is out of a job.
Finally, she continued to lag on her utilities, and now faces a $798 shutoff notice.
"When Rebecca finishes her Plan, she will be completely debt free."
After struggling for months, she received a garnishment order from her
employer. A local collection attorney can now take 25% of her gross pay,
for an old medical bill. Now there is no way she can make her title loan
and put food on the table. She saw our television commercials and gave
us a call.
What can we do for her?
Rebecca needs a Chapter 13, and fast. The two critical issues are the garnishment
and car loan. We need to stop the garnishment, and we need to protect
her from repossession of her Explorer.
As soon as we file her case, we can stop the garnishment. This will get
her grocery money back. She is protected, as long as she is in the bankruptcy,
by the automatic stay. Creditors cannot take money out of her paycheck.
We will set up her Chapter 13 Plan to pay her title loan. This will do
two things – it will reduce her interest rate from 35% to 4.75%,
and it will allow us to extend the time to pay down the loan. If we set
the Plan at three and one-half years, we can take her $487 monthly payment
down to $131.
Payday Loan at $75 every two weeks: $162.37
Title Loan of $4,750, at $487 monthly: $487
Garnishment at 25% of her gross pay: $550
TOTAL DEBT PAYMENTS: $1,199.37
(without considering the $12,000 in debt still owing)
Chapter 13 Attorney fees and court costs: $88
Title Loan at 4.75% interest: 131
TOTAL DEBT PAYMENTS: $219
The Plan treats her medical, utility, cell phone, and other debts as “general
unsecured.” The creditors will not be able to bother her while she
is in the Plan. If she completes her Plan, those debts are cancelled by
the discharge. She pays nothing on them.
Because we can include the attorney fees, filing fees, and credit counseling
fees in the Plan, there is no up-front money required to file. The faster
Rebecca can get us her paperwork, the sooner we can get her protected.
We are able to reduce her debt payments from $1,199 to $219 monthly, and
discharge all the other debts lurking in the weeds. When she finishes
her Plan, she is completely debt free. This is the power of Chapter 13
– we can cancel most debts, and restructure the debts that remain.
All with no money required to file.