THE PHYSICIAN
Members of the professions are normally doing well financially in the United States because they are highly paid for their skills. However, even with high gross incomes, wrong decisions, or illness can result in financial problems that require bankruptcy relief. This is what happened to my client who is a member of the medical professions. Client has been practicing her profession as a physician for 30 years. She has her own medical practice as an internist. She has an office manager who handles marketing, and two nurses. Prior to all the changes in Medicare and HMO’s, her practice was grossing at least $700,000 a year. After all expenses, her profit was at least $250,000 a year. Due to continuing healthcare law changes, her gross income dropped to $300,000. In addition to all of this, the office manager had been diverting some of the revenues into a separate account for his own enjoyment.
When her practice was doing well, she bought a million dollar house in Pacific Palisades, which had doubled in value. So, she decided to refinance the house several times to cover money lost in her practice over the years had reached $800,000. She owed almost $2.0 million on her first mortgage and, another $300,000 on a Heloc. It turns out that our good doctor also developed a gambling problem when her finances turned sour. She told me that in one night she won $1.2 million but lost the entire amount, plus another $500,000 of gambling loss, which she now owes to the casino in Pechanga. Further, she owes another $200,000 of credit card debt, which she also used for gambling.
She has now decided to retire because she is already 70 years old but she wanted to retire in peace without her creditors hounding her. She decided to file for Chapter 7 relief. Chapter 7 will allow her to keep her house which has a $150,000 of equity, her retirement account of $500,000, both her cars and all her other assets. We obtained court permission with the trustee’s consent to sell her house because she could not afford to pay a monthly mortgage of $15,000. The house was sold pretty fast for $2.4 million. She kept her cash equity of $150,000 and used that for a down payment on a condo in Pasadena, which she bought for $450,000. She will discharge $500,000 owed to the casino and $200,000 of credit cards. Thus, she will start life fresh without debt and retire in peace with an affordable mortgage, social security and $500,000 in her retirement account. I hope she doesn’t gamble her retirement account away.
THE BUSINESSOWNER
Client owns 3 large buses that she uses to bring tourists around sightseeing in California. She has a partner who invested $150,000. She signed a promissory note to pay the partner interest of 10% a month. After paying interest of $180,000 for a period of 12 months, she stopped paying saying that the business was no longer profitable because of competition. Partner sues her for $500,000 for breach of contract and fraud. She files a Chapter 13 to save her house from foreclosure because she has not paid the house for 8 months. The partner files an adversary case to have the $500,000 claim deemed non-dischargeable on the ground of fraud. At trial, we are able to establish by more than a preponderance of evidence that there was no fraud. The truth was that the business was profitable initially but started to lose money on the 8th month because of increased competition. Court orders that there is no fraud and that partner’s claim is at most $150,000 to be treated as a general unsecured debt. Under the Chapter 13 plan, unsecured debt gets paid nothing. So, debtor is happy with her plan payment that saves her house from foreclosure but pays partner nothing.
In addition, all 3 buses are returned to the secured creditors, and the return deficiency of $80,000 is also considered as general unsecured debt. Client does not have to pay the $80,000 either.
Whatever the cause of your financial problems, Chapter 7 or 13 will help you get a fresh start or reorganize your financial affairs to your benefit.
“The LORD takes pleasure in those who fear him, in those who hope in his steadfast love.” Psalm 147:11.
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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 Mailstop 58 Bldg A-1 Suite 1125 Alhambra, CA 91803.
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