[COLUMN] Clients fit into classic Chapter 7 profile & eligibility for honest debtors

DIFFERENT clients have different financial and asset situations, which make them start thinking about getting rid of accumulated debt. Nobody starts with borrowing money with the intention of defaulting and not being able to pay back.

Certainly, in my over 30 years of practice in bankruptcy law, I have seen potential clients — not many actually, very few — who have deliberately perpetrated fraud by borrowing a lot of debt without any actual intent of paying back. But by and large, clients are referred to in bankruptcy law as “honest debtors.”

Bankruptcy law provides “honest debtors” with the opportunity to start fresh again in life without the burden of accumulated debt.

This is a very important right and privilege given to individuals in the U.S. to give every individual the chance to become productive people again without the burden of accumulated debt, with the caveat that this privilege is given only to an honest debtor.

Who is an honest debtor?

Let’s give an analogy. You live everyday without the intention of getting sick. But then everyone who is human actually does get sick once in a while. When you do get sick, then you need medication to get well. Say you’re perfectly healthy, enjoying life then, all of sudden, you get COVID-19 that’s so severe that you can’t breathe and you need to get intubated. Intubated means that since you can’t breathe on your own, a procedure that involves sticking a tube down your throat into your windpipe forces air in and out of your lungs using a ventilator. Our Latino brothers and sisters refer to this as the dreaded “El Turbo”. Imagine your lungs to be a balloon and the ventilator forces air into the balloon then sucks it out again, air forced in, then sucked out continuously. Then, you’re given maybe a host of new medicine like Remdisivir to fight the inflammation in your organs and lungs. If the medical treatment works, then you eventually recover and you’re back to normal good health.

So the analogy is that you go through life living and enjoying life every day. You like to travel and eat. So year after year, you travel and tour a country that you haven’t been to before. You charge all the costs and expenses to your Visa and MasterCard. In year one, you owe $5,000; in year two, $10,000; in year three, $15,000; in year four, $20,000; in year five, $25,000; and in year six, $30,000.

In addition, you like to eat in restaurants, not even the high class ones like Mr. Chow, just the ordinary restaurants that serve good food. Every time you eat out, it costs $100. You eat out 3X a week. So in one month, your eating out costs you $1,200 a month, all of which you charge to your credit cards. Every year of eating out, you add $14,000 to your credit card debt. Do the math, in just six years of eating out costs you more than traveling abroad every year. Six years of eating out adds $80,000 to your credit card debt.

Therefore, in six years of enjoying life by traveling abroad and eating out, your total credit card debt is $30,000 plus $80,000; you now owe $110,000 just by enjoying life. Now you walk into my office and tell me you owe $110,000 of credit cards and you need $3,500 to keep them current every month. Your income before the pandemic hit was $100,000 a year. Your wife used to make $50,000 a year. With the pandemic, your income is reduced by half, and your wife lost her job. She’s been getting pandemic unemployment of $3,000 a month. You own a house and the mortgage is $2,000 a month. Your home equity is $350,000 because the fair market value of your house in LA is $750,000 and your mortgage balance is $400,000. You pay $500 a month for a MB 350 2018 model with another two years to go.

So the question is are you an honest debtor? And the answer is YES, of course you are. Remember our analogy? You were going through life enjoying each day of your life, but all of a sudden, you get hit with a serious case of COVID that requires the El turbo. Don’t tell me that it was your intention to get COVID all along. Of course, it’s certainly not true that it was your intention to get COVID all along.

The same is true with your accumulated credit card debt of $110,000. You were just enjoying your life traveling and eating out, not realizing that your debt was getting bigger every year, because that’s what those credit cards are designed for. It’s designed for a slow build up that prevents you from feeling the build up. Your income was good before the pandemic hit. Therefore, you’re exactly the honest debtor that bankruptcy law envisioned. You need a fresh start in life without the burden of accumulated debt of $110,000 that requires $3,500 a month to keep current.

In Chapter 7, you will keep your house, your car, all your other assets within applicable exemptions, even if your house equity is now $350,000, you keep it as you get rid of your $110,000 in credit card debt! That is a sweet deal, but absolutely necessary to give you a fresh start in life to make you productive again.

This is the reason why Walt Disney filed for Chapter 7 twice. After his second fresh start without accumulated debt, his business, started becoming more and more successful until now, it’s a multi-billion dollar business worldwide!

This is also the reason why Milton Hershey filed for Chapter 7 once. After getting a fresh start without accumulated debt, his Hershey chocolate business became more and more successful until it became the multi-billion biggest chocolate business that is the biggest and most successful in the world!

In short, Mr. Disney and Mr. Hershey were both honest debtors, same as you and all my clients, all of whom are honest debtors.

So they get a fresh start in life without accumulated debt, keep all —if not most — of their assets so they become productive again. In fact, some of my previous clients are now millionaires after being given their fresh starts some time ago.

Another client also has $400,000 of equity in his house and he owes $200,000 in credit cards. He used these cards to fund his business before the pandemic struck. His business is now dead in the water, and not able to recover. He needs a fresh start in life by wiping out the $200,000 of credit cards. He is also an honest debtor who deserves to become productive again. I have no doubt that with his determination he will become a millionaire in the near future after he gets rid of accumulated debt of $200,000. After becoming a millionaire, he will become a multimillionaire then, maybe just maybe, he may be so talented that he may even become a billionaire.

If you need debt 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.

                (Advertising Supplement)


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