Client is 38 & single. He is a professional with a license and makes about $100K gross a year. He lives with his parents and a younger brother and he pays the rent for the family residence, about $1,800 @ month. He doesn’t actually live in the family residence but lives somewhere else near his place of work where he pays for a room. He spends weekends at the family residence while weekdays he sleeps in the rented room near his workplace.
He has $60K of credit cards. But the big gorilla in the room is that 10 years ago, client was involved in a business. He apparently was the CEO of the business but was not actually involved in running the business. A business deal turned bad, and the business and client were sued for $1.0 M breach of contract. Client never filed an answer, so a default judgment for $1.0M was obtained against him. Ten years later now, creditor has tried to enforce judgment of $1.0M by levying on his bank account and thereby obtained $5K of cash from client. Client filed a Chapter 7 petition a couple of months ago. A default judgment can still be litigated as an adversarial case regarding dischargeability if fraud was part of the complaint. If an answer was filed and so the case was litigated and there was a finding of fraud by the state court, all bets are off. This judgment will not be dischargeable.
Client also owes $26K of incomes taxes for the year 2006 to the IRS. In addition, he has $40K of credit cards which are all current.
Let’s assume that the $1.0M judgment is dischargeable because it’s based on a breach of contract cause of action. If no answer was ever filed and it was in fact a default judgment for $1.0M, then we look forward to litigating the dischargeability of this million dollar judgment in Federal court in the event that the judgment creditor objects to its discharge.
Are the $26K owed to the IRS dischargeable? Yes, assuming conditions for discharge are met. What are the conditions? There are time requirements. The return must at least be 3 years old, and the IRS must have made an assessment at least 240 days before the bankruptcy was filed. Another requirement is that there must have been no fraud involved. There are other requirements but I would say that client would have no problem complying with the discharge requirements for the $26K. If the IRS objects to discharge, then the correct response from client would be an adversary proceeding against the IRS in the Chapter 7 case to have the trial judge determine if the $26K is dischargeable.
All of the $40K credit cards are dischargeable. So, a discharge order in this case will wipe out the following for client:
$1.0 M judgment, 2) Income taxes of $26K for 2006, and 3) $40k of credit cards.
The discharge gives client a fresh start without any debt at the age of 38. It’s a great deal of course. Who wants a $1.0M judgment hanging like a heavy yoke around your neck anyway? I mean, client now earns $100K a year but if he has to pay the $1.0M back, what kind of life would that be for him? Not much fun to say the least.
Looking back, it would have been better for client to do his Chapter 7 petition at the age of 28. That would have wiped out the judgment 10 years ago. By now at the age of 38, he would have perfect 800 credit score again and no record of the bankruptcy. Well this happens when the person refuses to face the problem head on and resolve it at the right time. The problem remains and festers and becomes bigger and bigger like a snowball going down a hill. Ignoring it doesn’t solve the problem or make it go away. Judgments can be renewed every 10 years for another 10 years. In other words, as long as the creditor renews the judgment before it expires on the 10th year, the judgment is still in effect in perpetuity. For all intents and purposes, the judgment can be valid for the entire lifetime of the debtor and even after death. After death, the judgment becomes a claim against the assets of debtor. So spare your descendants the headache of having to deal with your debts when you die by getting your fresh start by wiping out all your debts while keeping all if not most of your assets while you are still alive and kicking because in 10 years, there is absolutely no record that you ever filed, and your credit score becomes perfect again as long as you handle new credit on a timely basis.
Please note that Walt Disney filed for Chapter 7 twice before his business, Disney which includes theme parks worldwide, Marvel, movies etc., now worth billions of $ became wildly successful. Milton Hershey of Hershey Chocolates; also filed for Chapter 7, before his chocolate business became worldwide business also worth billions.
I mean, I don’t think you can say that you’re smarter than Walt Disney or Milton Hershey, right?
So, fresh start under bankruptcy law is something good, it’s something very good. Even Orange County filed for bankruptcy relief about 15 years ago. It still looks pretty good over there next door, doesn’t it? What’s forever 21 doing now? It’s under bankruptcy reorganization. What did Pres. Trump’s businesses do in the nineties? They filed at least 4 bankruptcy reorganizations.
If you need debt relief, please set an appointment. I will analyze your case personally.
“OUT OF THE SAME MOUTH COME PRAISE AND CURSING. MY BROTHERS, THIS SHOULD NOT BE.” JAMES 3:10
Lawrence B. Yang is a graduate of Georgetown University with a Master’s Degree in Law and specializes in Bankruptcy, Business, Real Estate and Civil Litigation. He speaks English, Mandarin and Fujian and has successfully represented thousands of clients in California, including companies overseas. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 20274 Carrey Road, Walnut, CA 91789 or1000 S. Fremont Ave., Mailstop 58, Building A-10 South Suite 10042, Alhambra, CA 91803.
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