SENIOR CLIENT WITH BUSINESS FACES CROSSROADS WITH $70K CREDIT CARDS

Client is 72, married and owns a small business. He’s been operating the business for the last 30 years. At its height, when times were good, the business had 10 full time employees. He used to net between $120K to $150K of profits after tax. That’s a nice and decent profit. Well what happened to the business?  It got left behind due to change of technology. What does getting left by technology change mean? Let’s use an example of a huge business that literally got killed by technology change. Ever hear of the work KODAK? If you at least 50 years old, you certainly know what KODAK was. When the first cameras were commercially produced probably in the late 1800’s, KODAK started making cameras and film, black and white then colored film. I had a brownie camera myself given to me as a gift about 1958. To use this camera, you have to use KODAK film. No focusing required. Just point and shoot. Made in the USA. This was less than 10 years after the end of the WW2 and American products ruled the world. Everything was American: cars, T.V’s, radios, cameras, film etc.

Nobody in the world could compete head to head with KODAK. No one. Of course, other film manufacturers started to come out of the woodworks like Fuji film. But there was no real competition to KODAK. It made tons of money every year. It was smooth sailing for decades for KODAK. Until, digital cameras came into the picture. Interesting enough, digital cameras do not use film. What’s more interesting to note here is that KODAK itself invented digital cameras in 1975. Steven Sasson invented the first self-contained digital camera, .01megapixel, for KODAK.

But for another 25 years, KODAK ruled the world with its film. In 1990, it’s total worldwide sales was $16B and it’s net profit was $2.5B. It employed 70,000 people. Yet, in 2012, KODAK file for bankruptcy relief. KODAK could not survive the onslaught of digital cameras coming in from Asia. Remember, digital cameras, which KODAK invented in 1975, do not use film. It was so sure that it’s brand and product was so well known that digital cameras would die. But technology changed and people preferred to use digital cameras, which were more convenient to use without film. 

I won’t tell you which technology my client was involved in. But client also sat too long on his laurels and his business became the victim of technology and got left behind. With the new technology, less and less people needed his service and product, so there is no doubt client has gone the KODAK way. He still has 2 employees and able to breakeven. So what’s the problem? He has $70K of credit card debt is what the problem is.

He needs $2200 a month for minimum credit card payments monthly. When your business is breaking even, $2200 a month is a big deal; that’s $26K of profit at the end of the year or $26K of interest expense. I don’t want to get into the details of what he owns aside from the business, but obviously the $70K of credit cards is now a very irritating situation for him. He has received “hard money” offers to pay off the credit cards. These are high interest loans to pay off the cards. In other words, they lend you $70K to pay off his credit cards, but he ends up paying more than $2200 a month to service the hard money loan. Now, that’s a no brainer, isn’t it? Yeah, replace the debt with higher interest loan, that’s a great idea, like a square wheel.

Well, it so happens that after careful analysis of client’s asset structure, he can actually get Chapter 7 relief, for a fresh start. Keep everything including his business but wipe out the $70K with a Chapter 7 discharge. The higher interest loan would cost more than $70K, probably $200K when it’s fully paid off. A consolidation would also cost at least $70K over 5 years. With Chapter 7, client gets a fresh start without paying a cent on the $70K. That’s $200K cheaper than the higher interest loan, and it’s $70K cheaper than consolidation. So which would alternative sounds the best for client? In 5 years, with a Chapter 7, his credit score will be back over 700 and he did not have to pay any portion of the $70K. If he chose the higher interest alternative in 5 years he would be out $200K. If you don’t see the benefit of Chapter 7 relief, I don’t know what else to tell you. But client did the right thing and chose Chapter 7 relief to get rid of the $70K.

“BY CANCELLING THE RECORD OF DEBT THAT STOOD AGAINST US WITH ITS LEGAL DEMANDS, THIS HE SET ASIDE BY NAILING IT TO THE CROSS.” COLOSSIANS 2:14

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.