FREAK accident liability
I want to discuss the client with the freak accident first. The first client is 45. This is really a very unusual case. In fact, I have never encountered a case like this before in the last 30 years. The client has a rental condo that needs plumbing repair because of a water leak coming out of the walls. He hires a plumber that he knows from work. The plumber determines that the leak is coming from a water pipe that is inside the wall, so he cuts a hole through the wall big enough for him to work on the leaking pipe. He uses a blowtorch to seal the leak. The blowtorch accidentally sets the inside of the wall on fire. They try to stop the fire from spreading. They fail to stop the fire from spreading. The condo burns down. The fire spreads to the other condos in the building. Eventually, the entire building is on fire and is destroyed.
The building has a master insurance that covers the repairs for building so the building is reconstructed and everybody gets their condos back in shape. So what is the problem for the client if the insurance has paid for everything and all the damage caused by the fire? The problem, of course, is that the insurance company will sue the client to recover whatever they can and the client does not have liability insurance for the fire. I don’t know what else to call this but a freak accident. This is potentially a multimillion liability for the client in the future.
If the client qualifies for Chapter 7 relief then he has no worries anymore because it will just wipe out all of his potential liability for the damage caused. If he does qualify, he can wipe this out and have a fresh start. What we can learn from this accident is that if you should have a plumbing problem and the plumber uses a torch, you better stand behind him with a big fire extinguisher! So, just in case the same thing happens, you can immediately use the fire extinguisher on the fire to kill it and prevent your house from being burned down by a plumbing problem.
Wage garnishment
The second client is 63. She had car repossession some time ago. As far as she knows, the repo deficiency was about $25K — must have been an expensive car with that kind of deficiency. She has just received a wage garnishment order for $40K based on the repo deficiency judgment! She still works and earns a gross of $5K monthly. How does the wage garnishment work? It will take 25 percent of her gross wages, or $1,250 a month until the $40K is fully paid at a legal interest of 10 percent a year. She can’t live with such a big deduction from her wages. She won’t be able to pay her rent of $1,100 if the garnishment is done. She also owes about $30K of credit cards.
She needs Chapter 7 relief to stop the garnishment, wipe out the judgment of $40K and all of $30K of credit cards. She will get a fresh start without the burden of accumulated debt. She will be able to reestablish credit immediately. She still has a car payment. She will also be able to get new credit cards as soon as she is done with her bankruptcy because there are banks that specialize in giving new credit cards to debtors who have just come out of bankruptcy.
Huge sales taxes
The third client is 66. He operated a business for several years but did not pay sales tax for his products as they got sold. He owes $120K of sales tax. He closed his business last year. However, before he closed his business, he was audited by the State and it was determined that he owed $120K in sales tax. Well, that’s bad news. Nobody wants to owe $120K of sales tax at the age of 66; in fact, no one at any age would want to owe that much in sales tax. I mean, at 66, you get full benefits from social security but if you owe $120K of sales tax, then your social security will just go to pay the sales tax. Now, what kind of retirement is that? That would be like living in the twilight zone, wouldn’t it?
Now the question is, are sales taxes dischargeable in Chapter 7? In California, sales taxes are dischargeable. The reason they are dischargeable is because they are transactional taxes. They are not taxes, which are held in trust by the debtor. If they were held in trust by the debtor then there would be a fiduciary relationship that was breached and that would make the tax not dischargeable. So sales taxes are not excepted from discharge, therefore they are dischargeable. The caveat is that the legal prerequisites to discharge the sales tax must be met.
Credit cards
If you owe credit card debt that eats up a significant portion of your net income, it’s time to get rid of them now with a Chapter 7 wipe out or a Chapter 13 reorganization. It’s time to get a fresh start and become productive again. If you owe $30K of credit cards, the minimum payment is $1K a month just for interest payment to keep them current. In three years, you will pay $36K of interest but still owe $30K of principal. Get out of financial quicksand now with Chapter 7 or 13. Owe nothing but keep all your assets, your house, your cars, your retirement accounts and everything else you own and more of your net income for your future financial well being and the financial well being of your family. Even Walt Disney filed for Chapter 7 twice before he became successful. Hershey also filed for Chapter 7 before his Hershey chocolate business became successful. Orange County also filed for bankruptcy to protect itself a decade ago. Several Catholic dioceses filed for bankruptcy protection from child molestation lawsuits just several years ago. So, if there is too much debt, bankruptcy is a prerequisite for future success and productivity. It’s the right step to take and the simplest and best solution to take.
Disclaimer: The foregoing is an expression of opinion and is not meant to be legal advice to any reader. There is no attorney-client relationship established by this article with the reader. If you want to discuss your situation, you have to set an appointment to consult with Attorney Yang. The first general consultation is free.
“JESUS CAME AND SPOKE TO THE DISCIPLES, SAYING, ‘ALL AUTHORITY HAS BEEN GIVEN TO ME IN HEAVEN AND ON EARTH.’ MATTHEW 28:18
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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.