Client is a young senior. At 65, in my book, she’s a young senior. She has been living by herself since she divorced 20 years ago. Her adult children have their own lives and families. She prefers to have the privacy of living by herself. Most seniors prefer to live in their own house living their own lifestyle whatever that might be. Especially here in LA where home values are unreasonably high, even if you cash out your equity by selling your house, where will you move to? You won’t be able to buy another house in LA because houses here are so expensive, you’d have to look at moving out of state to say to AZ or TX, where houses are still reasonably priced. In Houston, you can still buy a new house with 2500 S.F. for $400K. With the equity generated by the sale of your house in LA, you can pay for the brand new house in TX in cash, carrying no mortgage. Or, if you insist on staying near LA, you can look at houses in Rialto or Fontana in San Bernardino County where $400K for a house is still well within reach. But who wants to live in Rialto anyway, it’s in the boondocks. It would be a couple of notches down your LA lifestyle.
Fortunately for client, her condo is fully paid off. It’s now worth close to $600K. The problem is that she operates two retail outlets in the food industry. Both outlets were doing great before the pandemic. 4 years of pandemic killed one of the outlets. The other outlet is still surviving and provides a source of regular income for client. In addition, she enjoys doing that business so she wants to continue doing that business.
The outlet that died as it could no longer pay the rent of $10K a month owes $180K of rent. So obviously, the landlord wants to get paid. Client did not borrow from the SBA for the PPP loans to keep this outlet going, unlike many business owners who did resort to that alternative which did help to survive the pandemic, but it’s a fact that businesses have not yet been able to get back to income at levels before the pandemic so there’s that dilemma, that many businesses have to contend with. Client only owes unpaid rent of $180K and unsecured debt of $20K. Landlord now wants to sue client for $180K.
Her initial desire is to file for Chapter 7 for a fresh start with no debt. Although theoretically her condo is totally exempt under current exemption of $630K, there is a significant risk that she could lose her condo to the Chapter 7 trustee. You never know, the trustee might have an interested buyer willing to pay $700K for her condo. Home prices are supposed to have dropped a little bit, but why even assume the risk of losing her condo with Chapter 7?
In Chapter 13, we can submit a plan that say, pays only $300 a month for 60 months, or a total of $18K without interest. This is only 9% of her total debt of $200K. Is she makes all plan payments timely, the court will discharge or wipe out $182K. And more importantly, in Chapter 13, there is zero risk of losing her condo to the trustee. Chapter 13 trustees do not have the power, unlike Chapter 7 trustees, to sell debtor houses. Being a businesswoman for 40 years, client immediately sees the wisdom of using Chapter 13 in her situation.
If you have too much debt and need relief, please set an appointment to see me. I will analyze your case personally.
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Disclaimer: None of the foregoing is considered legal advice for anyone. There is absolutely no attorney client relationship established by reading this article.
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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 20274 Carrey Road, Walnut, CA 91789 or 1000 S. Fremont Ave., Mailstop 58, Building A-10 South Suite 10042, Alhambra, CA 91803..