楊清泉律師專欄：BUSINESS OWNER CHOOSES CHP 7 FOR $250K PERONSAL GUARANTIES ON BUSINESS LOANS

BUSINESS OWNER CHOOSES CHP 7 FOR $250K PERONSAL GUARANTIES ON BUSINESS LOANS;

SENIORS FILES CHP 7 FOR $55K CREDIT CARDS

Client is 45. He is actually a medical professional in his country of origin. It would have been great for him if he could practice his profession here. Unfortunately, his professional license is not recognized here. He is required to study another two years here in California to complete his professional degree, and thereafter pass the licensing board. Since client already has a family with a wife and two kids aged 6 and 7, he believes his priority is to make money to support his family, and not to study further to get his professional degree and qualify for a license to practice his profession here. His wife is a teacher and makes about $4K a month. 

Client decided to set up a business. He set up a trucking business with a business partner. They established a C-corporation with each owning 50%. The corporation purchased three trucks with installment financing provided by a bank, and leased two trucks. Client and partner both drove two trucks, and they hired three drivers for the other three. Each truck was generating about $100K a year of gross receipt. On their first year, gross receipts was about half a million $, less operating expenses of $480K. Considering that each partner got paid a salary of $2K a month which was part of operating expenses, plus the net profit of $20K and the end of the first year of operations, client’s trucking business was ok, but not that great. Business was able to pay all installment and lease payments and all expenses on time. 

The problem came about when one of the trucks got into a serious rear end accident out of state. Their truck rear-ended a car on the freeway that stopped all of a sudden. It caused a chain collision of six cars with drivers and passengers suffering a lot of physical injuries. Client’s insurance carrier had limited liability, which was insufficient to pay for all damages. So now, the injured parties are suing the business for $$700K for injuries caused not covered by insurance. Their own driver was badly injured, and could no longer drive. The business started losing money, and could not pay the banks and the leases. Eventually, the truck that caused the accident was returned to the leasing company. Subsequently, the other truck was also returned to the leasing company. Each truck had a lease return deficiency of $40K each. Unfortunately, client personally guaranteed the leases, so the leasing companies have now sent a demand to client for $80K of lease deficiencies. To make matters worse, the banks have also sent a demand letter to client for $140K to call on his personal guaranty on the bank loans for the purchase of three trucks, which are now also seriously delinquent.

What did I say many times before? Do not sign personal guaranties for business loans because you will be on the hook if the business cannot pay the loans. If you own a house, why risk your house with a personal guaranty for a business loan? In any event, client is now about to face lawsuits to collect on his personal guaranty for $220K! It doesn’t even end at $220K. The business itself will be facing lawsuits arising from the accident for $700K. Fortunately for client, even though he owns a house, the equity in the house is only $60K, well within the homestead exemption of $100K. So client opts for Chapter 7 to wipe out the $220K, keep his house and all his assets, to start life again without lawsuits. He can be productive again. Maybe he might even be able to go back to school and get his professional degree and license. In two years, with his degree and professional license, client should have no difficulty making $250K gross a year.

The other client is 62. He still works a mid level management position and grosses $60K a year. Wife is a licensed vocational nurse and makes $36K a year. They make about $100K a year, which is good. They still have a daughter in college. They send her $1,500 a month out of state. Wife has a sister abroad with a big family and insufficient income. Wife sends sister $500 a month. Husband has $40K of credit card debt. He pays $1,200 to keep that current. Wife owes $15K of credit cards. She pays $600 of minimum payments to keep them current. So, credit card payments are almost $2K a month, just to keep them current. Client says that they have been paying for these cards for ten years. They have paid $240K in ten years, and still owe the same $40K and $15K. However, client anticipates that he may just continue working for another year or so. What happens then? His income will be gone, and he will rely on social security, which is less than $2K a month. Might as well wipe out all credit cards now and save $24K this year, and another $24K next year, or save $48K in two years. Should have done it, Chapter 7, wiped out all his credit cards ten years ago, and set aside $240K more in his retirement account! And now, he would have $240K cash in is retirement accounts plus, he would have perfect credit today, if he filed for Chapter 7 ten years ago!

 “DANIEL’S FAITHFULNESS TO GOD LANDED HIM IN A LION’S DEN, WHERE HIS DETRACTORS WERE SURE HE WOULD BE DIVOURED. BUT GOD SENT AN ANGEL THAT “SHUT THE LIONS’ MOUTHS” (DANIEL 6:22), AND DANIEL WAS MIRACULOUSLY SPARED.”

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 1000 S. Fremont Ave., MAILSTOP 58 BUILDING A-1 SUITE 1125, Alhambra, CA OR at 20274 Carrey Road, Walnut, CA 91789.