WHEN I say client is young, I mean client is young, in her twenties. She is married and has a son, a toddler. Before becoming a mother, she was working full time and earning about $60K a year. That’s a good salary for a young person. So how did she rack up so much credit card debt? Wait, are you reading this right? Does she owe thirty thousand, or is that three hundred thousand? You read that right, there’s no typo; she owes three hundred thousand. Whether the amount of $300K as credit card debt is unusually large is debatable. For Michael Jackson, $300K is not a big credit card debt because he charged $500K on his American Express card for a week’s stay in a hotel in Vegas. And that’s a one-time charge.
In the client’s case, aside from working full time, she also engaged in a business enterprise or shall we say a business activity. Since her credit was very good, she was able to obtain a lot of credit cards. She used these cards to purchase gift items such as TV sets, refrigerators and other appliances, furniture, and whatever her “client” wants her to get using her credit cards. Her clients are people who do not have credit but want to buy on credit.
For example, you want to buy a new Samsung 80” flat screen smart TV. It costs $3K. You can’t qualify for credit to buy that TV for whatever reason. Maybe you just arrived in the U.S. from Timbuktu and have no credit here. Client will buy that TV for you. You get the TV, but you have to pay back the client over a period of time plus she makes a margin over her cost.
That’s the nature of the client’s business activity. Just add another layer to it. In between the client and you there is another guy. Let’s call him Mr. Z. Mr. Z is the guy who actually contacts the people with no credit but want some big-ticket items. So, in this situation, Mr. Z is the guy who collects from the ultimate buyers, and it is Mr. Z who pays the client back, plus her margin, whatever that margin is.
What happens when the ultimate buyers drag their feet and don’t pay Mr. Z back on time. Well, that’s pretty simple. What happens is that Mr. Z is not able to pay back the client. When that happens, the client does not receive the money from Mr. Z to pay back her credit cards and her whole house of cards collapses. By collapse, I mean the client starts to default on the minimum payments on her credit cards. So maybe the client then uses one card to pay the other cards, the proverbial borrowing from Peter to pay Paul.
The snowball effect of borrowing from Peter to pay Paul causes the amount of debt to keep getting bigger and bigger, until there’s no more money to borrow from anybody, and then the fat lady sings.
In the client’s case, when the fat lady sang, the total amount she owed was $300K of credit cards.
The first question that needs to be asked is whether or not this is a legitimate use of credit cards. Well, credit cards can be used for anything you want. Some people even use them to pay hookers, or to gamble in Vegas, or worse, to buy weapons of mass destruction. Credit cards don’t care what you use them for as long as you pay them back with interest on time. Just give them their minimum monthly payments and they’re happy.
It’s not unusual for debtors to use credit cards to finance a business activity. This is what the client used her credit cards for: to finance a business activity.
Everyone knows that a business can make money, lose money or break even. If her business activity had made money, the client would have no problem paying back her cards. The problem is her business did not work. Why not? Because the ultimate buyers would not pay back Mr. Z back on time. Well, the truth is, Mr. Z is not the one holding the bag. It’s the young client who is ultimately left holding the bag of $300K of outstanding credit card debt, which she can’t pay back. Even Kodak went bankrupt. Remember Kodak? Kodak was the biggest player in the film business for a very long time. It started losing money when digital cameras came in.
Remember Mossimo? Before Under Armour, there was Mossimo. Mossimo had a meteoric rise in business but it fell flat and went bankrupt in a short period of time. Ever heard of Montgomery Wards, K-mart, Fedco, Gemco? These department stores existed for a long time then went bankrupt. Sears also went into bankruptcy.
So if all these big business can fail, my young client can fail too, right?
What is the threshold question that the Chapter 7 trustee will ask my client? Did you intend to pay these cards back? And to this question, the answer is that if the client’s business was successful, then she would have and could have easily paid her credit cards back. This is called the “intent to repay.” It’s possible that her creditors will argue that if you look at the totality of circumstances, she had no intent to repay. Well, let’s see what happens. We have to pray to God for a successful resolution of this case so the client gets a discharge. The client needs His help.
The client needs a fresh start in life without this $300K hanging on her neck. She made a mistake in getting into this business that had no chance of reasonably succeeding. But she must be given a chance to start her life again without this debt, otherwise, how can she become productive again? Just think about it. Minimum payments on $300K of cards are at least $10K a month. She doesn’t own a house yet, and she just stopped working because she has a new baby. It’s ridiculous for her to be saddled with this debt just because she made a mistake in getting into a lousy business.
Just like Walt Disney who filed for Chapter 7 twice before Disneyland became a viable business, the client deserves a fresh start in life without accumulated debt.
If you need debt relief, please set an appointment to see me. I will analyze your case personally.
“Behold, I am doing a new thing; now it springs forth, do you not perceive it? I will make a way in the wilderness and rivers in the desert.” Isaiah 43:19
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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.
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