If any lesson is to be learned from the economic meltdown, it is that having too much debt can kill your business. In the last 3 months, Indymac, Countrywide, Washington Mutual, Wachovia, Bears & Stearns, Lehman Brothers, AIG all went bankrupt because of too much debt. These financial institutions were old and established institutions. Some of them had been in business since the civil war. Their assets were in the billions of dollars. But the mortgage meltdown caused them to become unable to pay for their debts resulting in their immediate bankruptcies. Large nationwide retailers have not been spared. Linen N Things, Levitz furniture, Sharper Image, Steve & Barry’s and even Mervyn’s, all household names and established businesses are in bankruptcy. All of them cannot pay their debts and have been forced to seek relief from bankruptcy courts. And last week, the big 3 car makers from Detroit, sent their CEO’s in private jets to Washington with tin cups, to plead for $25 billion of bail out funds so that they can continue operating. The once mighty titans of American industry and technology who at one time or another ruled the global market for cars, have only enough cash to operate for the next 3 months. If the government does not bail them out, they will have to seek relief from their debts in bankruptcy court.
The problem is that for businesses and individuals, borrowing money and assuming debt was a matter of course and part of the American lifestyle. Individuals who really could not afford to buy a house purchased houses with nothing down assuming very large mortgages. After buying these houses, equities were sucked out through refinancing in a matter of months. Net proceeds from refinancing were used to buy new cars and pay for vacations abroad. While they were vacationing abroad, individuals used credit cards to pay for food and shopping in Asia or Europe. The end result, of course, is accumulated debt.
I see many clients who have purchased half a million dollar houses for their residence, and several rental houses with nothing down, thinking of reselling them in a few months for a tidy profit. Instead of realizing a profit, the houses have lost their equities and cannot be rented out with positive cash flow. So clients use their credit cards to pay for mortgages that they really cannot afford. It is not unusual to see credit card debt of over $100,000 in these times. The minimum payments on these cards eat up a significant portion of client’s net income. What is confusing homeowners are the myriad homeowner rescue programs being offered by the banks. But the fact is that no matter how you package a large mortgage that you really cannot afford, the debt you have assumed for the house is truly burdensome. Even if the mortgage payment is reduced from $5,000 a month to $4,000 a month, $4,000 a month is still a big amount if you compare it to your net household income of $7,000. For a $4,000 a month mortgage payment to be affordable, you must be making a net of $20,000 a month! So, you must take a long hard look at your mortgage payments and compare it to your net income and household expenses every month before you decide to accept a modified mortgage payment. Maybe the best thing to do is not to keep the house and wipe out all your credit cards with a chapter 7 bankruptcy.
With a chapter 7 bankruptcy, you can wipe out all your debts while keeping most if not all of your assets. You can keep your residence if you want to, keep your cars, keep your furniture, & keep your retirement accounts up to a million dollars. You can even keep the cash value of your whole or universal life policies up to a certain amount. In other words, you get to keep everything you own but you get to wipe out all your debt. Only in America!
If you need debt relief, contact my office. I will analyze your case personally.
***
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 1000 S. Fremont Ave., Bldg. A-1 Suite 1125 Unit 58, Alhambra, CA 91803.
( Published on November 29, 2008 in Asian Journal Los Angeles p. C6 )
| < Prev | Next > |
|---|
