[COLUMN] Clients with failed businesses using credit cards & business loans need debt relief

FIRST client is 34. She is recently married and now has a one-year old son. She used to be employed making a gross of $50K yearly. At the same time, she was doing a home-based business using credit cards to finance the purchase of goods for people who had no credit. She would use her cards to purchase a gift card and give that to the end buyer. The end buyer would use the gift card to purchase say a TV set, or furniture set. Then end buyer would pay her back in installments, plus a certain extra margin as her profit for providing the service of acting as a financing intermediary to enable the end buyer to obtain the desired merchandise.

Theoretically, this business model could work but is very risky. The risk that client assumed of course is that the end buyers may not pay her back on time, or may not pay her back at all. They can just say, well, we bought this TV set with a gift card, so client just gave them the gift card for free, to get away from their agreement to pay her back so she can pay back her credit cards.

Let’s just say that client is young and has no business experience at all and is too trusting of people. She actually did not get the end buyers herself. She had an in between person, an “up-line” who did the recruiting of end buyers, and I believe, this “up line” also collected the payments from the end buyers and turn over the collections to her.

To make a long story short, the end buyers defaulted on payments and consequently, client is left holding the bag of credit card debts. She now owes, would you believe, $300K of credit cards! That’s a lot of credit card debt.

For any person, let alone a young one in her thirties to owe a ton of credit cards is like being put in a prison cell with the key thrown away. Just imagine the minimum payment required on $300K of credit cards. That’s at least $10,000 a month of minimum payments every month just to keep the $300K current every month! Without question, client needs a fresh start in life without these credit cards hounding her every day for payment.

We would expect questions from the Chapter 7 trustee as well as maybe the US trustee on how she racked up so much credit card debts. But as long as she is telling the truth about what happened, that she used those credit cards, the law favors giving her a discharge to free her from those debts so she can get a fresh start in life without accumulated debt. That’s why Chapter 7 is called the “fresh start” law. Everyone wants to be productive again. How can she be productive again if she has to give $10K a month to her credit card masters just because her business failed? That’s cruel and unjust punishment. It’s like torture every day for the rest of her life.

Second client is 69 and a widow. Would you believe she bought six expensive cars costing at least $100K each! That’s $100K for each car. She owes a total of $800K in car loans! These are expensive cars, large Mercedes Benzes and Lexus, SUV’s and large sedans. They are all purchased with car loans, not leased. Her business model was to rent these high-end cars to people who want to use them temporarily maybe to show off to some people that they have an expensive car. These people would pay her rent to use the cars; then she would the rent to pay back the car loans plus make her profit. This plan is also flawed because the renter may just decide not to pay the rent, or just run away with the car. Renter is authorized to use the car but has no liability for the car payment. It’s a sweet deal for renter, and a terrible deal for client who should know better at her age.

In addition to these car loans, she obtained a business credit line of $50K to finance her car rental business. Of course, when the rents don’t come in timely, she will need some money to pay the car loans on time so that’s why she needs a business credit line.

However, client says that she was actually defrauded by two people who set up the whole business operations including setting up a company to do the car rental business, purchase the cars, obtain the business credit line, and to get the renters.

Again, this senior needs a fresh start in life without the car loans of $800K, and the business credit line of $50K. She needs the “fresh start” provided by bankruptcy law. Even seniors need this fresh start without accumulated debt. How can she retire in peace with $800K of car loans, and $50K of credit line when she’s not a billionaire? She gets social security plus she has a decent retirement portfolio in six figures that give her enough income to enjoy her life, but certainly not to carry the financial burden of paying for $800K of car loans and a $50K business credit line.

As long as she is telling the truth about how she got into this mess, bankruptcy law will give her a chance to start fresh again without the $800K car loans and the business credit line. She can keep her retirement portfolio and social security.

All these renters are now driving all over the country and getting all kinds of toll tickets from different states, and guess who gets the bill for all the traffic violations for six expensive cars? Not Donald Trump for sure.

Third client is 55. She bought a restaurant for $80K about 5 years ago. Unfortunately, the restaurant has been losing money every year. Surprise! The minute she forked out her purchase payment for the restaurant, it starts to lose money. And now, some employee wants to sue her, a job related injury. If she gives up the restaurant, the landlord will sue her to collect 3 more years of unpaid rent at $50K per year, or total of $150K.  Fortunately, she signed the lease as an officer of the company which owns the restaurant, and did not sign as an individual lessee, and did not sign as an individual guarantor of the lease, otherwise, she would also be personally liable for the $150K unpaid lease.

So, the company that owns the restaurant needs to file Chapter 7 to get out of the lease and the workmen’s comp claim.

Of course, with Trump’s trade wars, a lot of importers here are going to need bankruptcy relief soon. Either that or the Yuan is devalued by 25% to offset tariffs. A long and protracted trade war could happen and plunge the entire world into chaos and recession. Nobody wins. Nowadays, this is really a sad fact.

Bankruptcy is the only realistic and effective solution for accumulated debt. Chapter 7 is used to wipe out unsecured debt completely. Chapter 13 and 11 are used to reorganize and/or consolidate financial affairs, or to save a house from foreclosure, or to resuscitate a business. Walt Disney did Chapter 7 twice before his Disney-empire became successful. Yes, that’s true. Without Chapter 7, there would be no Disneyland today on earth, and what will we all be without the happiest place on earth to go to? In my lifetime, I have brought my family to Disneyland 23 times!

If you need debt relief, set an appointment to see me. I will analyze your case personally.

“We wait in hope for the Lord; He is our help and our shield.” Psalm 33:20

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Disclaimer: None of the foregoing is considered legal advise 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 1000 S. Fremont Ave, Mailstop 58, Building A-1 Suite 1125, Alhambra, CA 91803 or at 20274 Carrey Road, Walnut, CA 91789.

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