Asian Journal- The Filipino-American Community Newspaper

The Tribune, the parent company of the Los Angeles Times, Chicago Tribune and the Baltimore Sun, filed for Chapter 11 bankruptcy this week to restructure $12 billion of debt. The Tribune had interest payments due for this year of $1.0 billion and another $500 million of interest payments due by June next year. In other words, their monthly debt service payment required for interest alone to keep $12 billion of debt current is close to $100 million.

Actually, Sam Zell, who acquired it last December, bailed Tribune out last year. Mr. Zell said that a precipitous decline in revenues in a bad economy with a credit crisis "makes it extremely difficult to support our debt"; hence, another business behemoth felled by too much debt. In the last two months, we saw very large banks, insurance companies, and national retailers make a bee- line to bankruptcy court all seeking the court’s protection from creditors and permission to continue operating while they hammer out reorganization plans that jettison most of their debts in the hope of coming out of bankruptcy leaner and profitable again.

Last week, CEOs of the Big 3 car -makers from Detroit, went to Washington with tin cups in hand, asking lawmakers to lend them $34 billion to save them from bankruptcy. Indeed, too much debt can kill the biggest businesses on this planet. These are companies with worldwide operations and are household names anywhere in the world, with billions of revenues and assets. But no matter how big the business is, and no matter how profitable it is, if it has borrowed too much money, the cash flow it generates will be eaten up by interest payments! Thus, even the owner of the Los Angeles Times cannot continue operating its business if it owes $12 billion because it needs $100 million a month to make interest payments. What is true with the cash flow of big business is true with individuals.

For instance, client’s household income is $120,000 yearly. His take-home pay is $8,000 monthly. His mortgage is $5,000 monthly. He has 3 car payments that total $1,200 monthly. Utilities, groceries, insurances, gasoline and baby-sitting expenses total $1,800 monthly. All of these monthly expenses for client’s basic necessities eat up all of his net income of $8,000. If client had no other debt, then he could probably coast along without too much financial problems for the next few years. Unfortunately, client still owes $50,000 of credit card debt requiring at least $1,500 minimum monthly payments to keep them current. Since all of client’s next income has been used up by basic necessities, he borrows from credit cards to keep his credit cards current. Every month he deposits $1,500 into his checking account by taking cash advances from credit cards. By next December, instead of owing $50,000 of credit cards, he will owe how much? He will owe $50,000 plus $18,000, or close to $70,000 of credit card debt. The problem as client explains it to me is that he has ran out of credit cards to use because all of his cards have been used up. However, he explains further that his wife still has $50,000 of credit cards available to be used. At this time, his wife has no credit card debt. Should client tell his wife to use her credit cards too so he can keep his credit cards current? Client further states that he can borrow or liquidate his 401k of $30,000 to keep his cards afloat for another 2 years instead of using his wife’s credit cards.

What should client do? He should seriously consider filing a Chapter 7 bankruptcy to get rid of his $50,000 of credit card debt. He should not dip into his retirement account, and he should not ask wife to use her credit cards. With a Chapter 7 petition, he can keep his 401k of $30,000 intact, and his wife can still keep her good credit intact.

If you need debt relief, contact my office. I will analyze your case personally.

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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave., Bldg. A-1 Suite 1125 Unit 58, Alhambra, CA 91803. (Advertising Supplement)

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( Published on December 13, 2008 in Asian Journal Los Angeles p. C4 )