Senior seeks Chapter 7 to wipe out $40K credit cards
ONE of the many problems of owning a business is: getting sued by the employees. Employees always think that employers have deep pockets to pay for lawsuits. Perhaps some large businesses can afford to pay big chunks of money for lawsuits, but most actually, cannot. If you own a small restaurant that is making some money, getting hit with a discrimination lawsuit filed by a handicap guest who wants money because the restaurant did not have wheelchair access, that single lawsuit is enough to kill the business. Even Volkswagen with billions of sales worldwide will be straining to pay off its settlement liability for fooling around with the emission standard compliance of its cars.
Of note are the employees of businesses, which require them to provide services that are not that easy to clock. Home care facilities have live in caregivers who may be in the facility the whole day. In fact, they could be living in the facility rent-free. So, the record keeping of when they actually work and don’t work becomes a big deal. The employee lawsuits typically allege that they work a lot of overtime, or are asked to work a lot of overtime, which they are not paid for. Since the employees live in the facility, its difficult to determine the actual hours worked, unless employer has a bulletproof work time record system. If you as an employer want to win this kind of lawsuits, you better make sure that your work time recording system is impeccable, 100% accurate and easily understood by the Court when these are presented in evidence. Otherwise, it will be employee testimony, normally several employees who will testify to the same thing, that they practically work 24 hours a day and only got paid for 8 hours, that will do you in. The Department of Labor looks at employees as saints and victims of employers who are greedy demons. Unfortunately, that’s the truth isn’t it? Just look at the name of the department. It’s called Department of “Labor.” It’s not called Department of “Employers.” That department protects the laborers, the employees, not the employers. There’s a red carpet that employees walk on to get to the complaint department. For employers, you get to walk on a pile of you know what.
Employers will say that they practically treated caregiver as their own daughter. Employees will say that they were treated as modern day slaves. Some employers even end up in jail for being slave owners and for false imprisonment of employees. Therefore, just so you have documentary evidence on your side as an employer, you better make sure that your documentary work time record system is airtight and bulletproof. If your record keeping has been short of this standard, you always have the option of bankruptcy to get rid of these lawsuits, for a fresh start, although the type of bankruptcy you qualify for depends on your asset structure.
Client owns three facilities. All three are profitable. Client has gone through several layers of asset protection. The typical asset protection may use an LLC or a corporation to own the businesses while the ownership of the facility is separately held by a different LLC. There could be variations of how the real estate is held and how the shares of the business, that own the facilities are held, but ultimately the purpose is to protect the real estate, which is the facility, from lawsuits that are directed against the business. Although there is some measure of protection provided by asset protection steps, they do not provide absolute protection from lawsuits. The reason is that the LLC’s or corporations are all U.S. corporations even though they may be located in different states. Given the fact that U.S. Courts, particularly Federal Courts have nationwide jurisdiction, they have the power to penetrate or set aside the veils of corporate fiction if it is determined that the corporations were set up fraudulently to avoid judgment. A simple test is to find out when the asset protection corporations were set up. If they were set up after the claims, or knowledge of the claims arose, then this is a big red flag that favors setting aside the corporate veil. On the other hand, if the entities were established long before the claims arose (the longer the better), the stronger the protection they provide. Another point to consider is that if the assets being protected have no equity, what’s the big deal anyway, there’s nothing to protect.
Client has been hit with a $3.0M lawsuit from just several employees that you can count with your right hand. They all claim the same thing. They worked a lot of overtime and never got paid for working overtime. With penalties and unpaid overtime because their employer was as evil as Donald Trump, they have a total claim of $3.0M against client employer. Even if Client’s businesses are profitable, client does not make millions a year, far from it. Her profit is low six figures just enough to pay herself and her husband a reasonable salary every year. Well, of course, employees have also sued client and husband as individuals even though the businesses are owned by corporations and legally separate from the owners. The first thing that needs to be done is to extricate them from the lawsuit based on the ground that there was no intermingling of funds between them and the businesses. If they can have the Court dismiss them as defendants, then that’s a big victory for them because they won’t have to consider personal bankruptcy. But if they can’t, they could lose their residence once the $3.0 M judgment is entered. So, we will have to do this one step at a time. The companies can always do their own bankruptcies; either Chapter 11 of 7 will solve take care of the $3.0 M lawsuits.
The next client is a senior who is 66. Her husband died two years ago. She has retirement income of $3K a month, which is good enough. Her adult children live out of state. Her daughter lives in Toronto and she has asked her to move to Toronto. Client doesn’t want to live there because it’s just too cold in winter. Those of you, like me, who have lived in the East Coast, know how unpleasant winter weather is there. We all know how good we have it here in Los Angeles with our mild weather and with the sun shining practically everyday of the year. Although Hawaii weather is still better than ours, California climate is really very good. We just can’t complain about how good the weather is here. Living in California is as close as we can get to paradise on earth.
Client has $40K of credit cards that she has been paying for 12 years. She pays $1200 minimum a month, or $14,400 a year. For 12 years, she has paid $172,000 and still owes the same $40K. If her husband were still alive, maybe she would not even think about getting rid of these cards that require her to give 40% of her retirement income to keep current. But since she really has to get serious now and decide whether she should get rid of these cards now that she is retired and living on a lot less income than before, there is really no real dispute on what the right decision is, is there? Client decides for Chapter 7 to discharge $40K of credit cards. Without these cards to worry about, she can save $1200 a month, that’s a no brainer. Besides, her credit score will keep on going up every year after she files bk. Three years from now she’ll be at 650 which is a good score. She will get new credit cards again a few months after she gets her discharge, although I suggest that she just pays them up in full every month, just to build up her score faster. On the 10th year, there is no record of the bankruptcy filing. On the 7th year, her score will be about 730.
“Cast all your anxiety on God because He cares for you.” — 1 Peter 5:7
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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, Building A-1 Suite 1125, Alhambra, CA 91803.