Suite 2800, Gulf Tower
Pittsburgh, PA 15219
412-391-8000
1-800-360-9392
Josef and Zelda
Josef and Zelda immigrated to the United States from Eastern Europe. Almost immediately, Josef found a job as a security guard earning a net income of $1,500 per month, and Zelda obtained a position as a teacher in a private school earning approximately $1,200 net income per month.
They were able to establish credit without any difficulty and obtained credit cards for the local stores and also a VISA with a local bank. In addition to those expenses, they had their rent payments, utilities, and other necessary living costs.
As they made their monthly payments each month and as it became know that their credit was excellent, Josef and Zelda began receiving frequent solicitations by mail from other companies offering credit cards. Unfortunately, Josef accepted every single credit card that was offered to him.
As time passed, the credit cards that were offered included higher and higher credit limits, some as high as $10,000 dollars. In addition, some of the loan companies would send check facsimiles in the mail for $2,000 or even $4,000 and all they needed to do was make a trip to the loan company, sign the papers, and they received an actual check for that amount of money.
As they acquired more and more credit cards and loans, they made substantial purchases on each of these cards for new furniture, a new television, clothing, vacations, and anything else they desired. Initially, it was not difficult for them to make the payments on these accounts, since the monthly payments were so low. In almost all cases, they could have a balance of $4,000 and make a monthly payment of less than $100. They didn't happen to notice that most of those minimum monthly payments went towards interest and life insurance costs, and that the actual amount that was paid on the principle of the outstanding obligation was minimal. In addition, to make matters worse, they would routinely make a minimum monthly payment and innocently charge substantially more than that each month.
Eventually, overextended, they began borrowing money from one card to make a payment on another. Then, with all their cards loaded to the limit, they were unable to obtain any additional credit. At that point, they found that they could not make these minimum monthly payments on all of these various obligations and still retain a healthy life style.
Within a very short period of time, creditors began threatening them for payments. Josef and Zelda's first reaction was to visit a consumer credit counseling service that they had seen advertised on television. But unfortunately, Josef and Zelda only discovered that they were so far in arrears that the best repayment program that the counseling service could establish still constituted a debilitating strain on the couple.
Initially, because of the guilt they felt over the entire situation, they considered both a Chapter 7 and a 13. In a Chapter 7 Bankruptcy, they could eliminate all of these unsecured obligations and not repay anything to the credit card companies, personal loan companies and other creditors. By filing a Chapter 13, they would be obligated to repay their creditors to the best of their ability, by making payments over an extended period of time up to five years. In such a case, the amount that is re-paid to unsecured creditors can be as high as 100 percent, or as low as 30 percent, depending upon the financial situation of the debtor. If anything less than a 100% repayment cannot be afforded, then the remaining total is eliminated.
To properly make their decision, Josef and Zelda added up their monthly income which was approximately $2,700. Then, from that total, they subtracted their monthly living expenses including rent, utilities, food, clothing, laundry, newspapers, medical expenses, insurance, transportation expenses, recreation, cable TV, etc., and found that they were $200 a month short. Realistically, there was nothing that could be paid to the unsecured creditors at all. Therefore, a Chapter 13 repayment plan was totally unfeasible and would have had no benefit at all to any party involved, including the creditors. The couple chose the Chapter 7 Petition and were able to discharge the unsecured debts.
Click here to read more case histories.