Seniors need relief for credit cards
GAS prices are very high at $7 a gallon at some stations. The Ukraine war is entering its fourth month. Inflation is at 8.2%. And the pandemic is still around. Given this environment, not all businesses here are able to survive. Many businesses are operating at a loss for some time and are no longer liquid enough to pay their debts.
For instance, small businesses like Asian restaurants are suffering large reductions in sales. Some have lost 50% of sales just because of the virus problem. I don’t want to get further into it, except to say that many small businesses are now suffering. They can’t repay debt.
Now comes the client who owns several businesses. Some of his businesses are losing money and one remains profitable. The ones losing money cannot continue operating for lack of funds. They cannot pay their debts as they come due. The ones losing money can’t pay their debts so they need bankruptcy relief. The problem that comes to mind is, how does the owner of the businesses, as an individual, get affected by the bankruptcy of the unprofitable businesses?
You need to see if the owner has made himself liable in his personal capacity.
For instance, if one business rents a warehouse that owner personally guaranteed the lease of, then there’s a problem. If the business can’t pay the warehouse lease, then the landlord will go against the owner as guarantor. This can become a big problem. Why? If there are three more years of the lease and the monthly lease is $20,000, then the personal liability of the owner as guarantor of the lease is $720,000. This is a large amount of debt.
Thus, if this were to happen, then the owner himself has to look at the possibility of his own personal bankruptcy. So the idea is if you are a business owner, as much as possible, do not guarantee the debt of the business. Let the business stand by itself. Of course, in reality, this is not easily done. Most creditors require owners to put some skin in the game. This defeats the purpose of setting up a corporation for the business because the personal guarantee makes the corporate veil useless.
When the owner files for personal bankruptcy, you have to be able to exempt the value of the profitable business, which operates as a corporation. It is the market value of the ownership that is scrutinized. Of course, in private companies, it’s not easy to determine the value of the business. If there are no buyers, then the private business is almost zero in value. This is a tricky question. Unlike shares in a public company can be easily valued because the shares are publicly traded. If you own 10 shares of Tesla right now, you can sell that for $700 more or less in the open market, so the market value is $7,000. But if you own all the shares of private company A that with gross receipts of $1 million a year and just barely breaks even, what is the value of that?
The second client is 62 and owes $40,000 in credit cards. He still works in the post office and makes a gross of $70,000. He is married and the wife grosses about $30,000. She’s about five years younger. They gross $100,000 together but net about $70,000, which is about $5,800 a month. They have two teenage sons. They rent a house for $2,100, and have a car payment of $500. It’s getting really tight because $40,000 of credit cards requires $1,300 a month of minimum payments to keep them current. Almost 25% of their net household income goes to credit card payments every month. This demand on their income is becoming a big strain on the household since their sons are going to college soon. With college, they will have new and more expenses. So you see the problem. They need to get rid of the $40,000 cards now. Either pay them off, which they can’t. Or, wipe them out or cut them down substantially. Chapter 7 will wipe them out. Chapter 13 will provide them with a reorganization plan that provides for a manageable monthly payment, a partial payment of the $40,000.
And, whatever you decide to do, do not liquidate your 401K to pay the $40,000 because 401K up to $1.0M is exempt in bankruptcy. Keep the $1.0M for your retirement, that’s what it’s for. That’s why the law exempts 401K and other ERISA qualified retirement accounts up to $1.0M, actually, a little more than $1.0M now. In other words, you can wipe out the $40,000 credit cards, while keeping your 401K, or without touching your 401K.
If you need debt relief, please set an appointment. I will analyze your case personally.
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Disclaimer: None of the foregoing is considered legal opinion and no attorney-client relationship is created between reader, any third party and attorney.
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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.
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