San Jose Councilwoman Magdalena Carrasco—who’s running in the March 3 primary to replace terming-out Santa Clara County Supervisor Dave Cortese—filed for personal bankruptcy protection in 2019 to prevent lenders from repossessing her family home.
Last year’s Chapter 13 petition marked the second time Carrasco sought bankruptcy relief since 2005, when she turned to the courts to start digging her way out of debt she accumulated by quitting her job to become a full-time caregiver for her sick parents.
The District 5 council rep said the decision to file for bankruptcy again had nothing to do with her personal financial stewardship. Rather, she felt backed into a corner after inheriting a South San Jose house from her mother when she died of cancer in 2018.
“Unfortunately, I also inherited her mortgage,” Carrasco explained.
About a decade-and-a-half ago, she said her parents took out a loan to remodel the house—where Carrasco spent some of her formative years—and to make it more accessible for her father, who suffered from Alzheimer’s. Her parents went through a company called Specialized Lending Service (SLS), which Carrasco called “an unscrupulous lender.”
“If you look at reviews from Consumer Affairs and the Better Business Bureau, SLS has a terrible reputation for preying on elderly people—hoping to be able to make a profit by seizing their homes through foreclosure,” she said.
Carrasco tried transferring the loan to her own name after her mom died, but the lender refused and threatened to foreclose on her deceased parents’ property.
“I cannot allow that to happen,” she said. “As a single mother of four, my children may never be able to afford to buy a home in San Jose. I want my childhood home to remain in the family for their future.”
After seeking legal advice, Carrasco said she realized that Chapter 13 bankruptcy was the most feasible way to avoid foreclosure. She said the court-ordered repayment plan finalized at the end of last year will allow her to negotiate a new mortgage to pay off the predatory loan and keep her childhood home in the family.
“I am not asking the court to forgive any debt,” the East Side councilwoman insisted. “I have not mismanaged my personal finances in any way. I will still be responsible for the whole amount my parents owed, but I will now have the time to make sure SLS doesn’t try to steal my children’s future.”
According to the bankruptcy petition filed May 23, 2019, in San Jose’s federal court, Carrasco estimated her assets as up to $984,988 and liabilities as $431,084.
Chapter 13, also known as a wage-earner’s plan, allows a debtor with steady income to emerge from bankruptcy by coming up with an agreement to pay creditors within a three-to-five-year timeframe. Under the repayment plan Carrasco finalized Dec. 2, she agreed to cough up $441,109 to a handful of creditors within 60 months.
Most of what’s owed—$431,084 and some change—goes to Specialized Loan Servicing to pay down the remaining balance of the $949,448 mortgage on her late mother’s home. Another $8,200 covers back taxes. The rest, just $1,825, gets divvied up among a pest control company, two credit cards and a Direct TV bill that got sent to collections.
In 2010, Carrasco’s first bankruptcy made headlines because of her run as a business-backed candidate against then-District 5 Councilman Xavier Campos.
In a Sept. 18, 2010, article in the Mercury News, Carrasco acknowledged the public’s interest in her financial history. At the time, the council hopeful—herself an only child—told the Merc that she filed for Chapter 13 bankruptcy in 2005 after being overwhelmed by bills when her elderly parents fell ill.
In 2002, Carrasco quit her job as a Santa Clara County social worker to take care of her aging parents. A few years later, her father died. She filed for bankruptcy soon after.
Records show Carrasco exited that initial bankruptcy within a year-and-a-half, selling her townhouse and moving in with her mom to pay down credit cards and other debt.
“It was almost like a perfect storm with my work, struggling with my parents, my children,” Carrasco told the Merc in 2010. “We needed to restructure our debt. Morally, it was the only thing I could do to make sure my parents were OK.”
In 2018, Carrasco’s mother passed away after a prolonged battle with cancer. The councilwoman filed for her second bankruptcy just months later.
According to her 2019 bankruptcy filings, Carrasco now takes home just over $100,000 a year as San Jose’s D5 council rep. But nearly $7,200 of her monthly income goes toward rent and other vital expenses.
Carrasco is juggling her day job at City Hall while competing against patent attorney Otto Lee, Assemblyman Kansen Chu (D-San Jose) and software developer John Leyba in next month’s election for the county’s District 3 seat. The five-member Santa Clara County Board of Supervisors oversees 22,000 public employees in more than 70 departments that operate on a combined annual budget of about $7 billion.