THE middle-aged client owned a retail business for some time. The business was located in a good location so the lease was for $10,000 a month. The company that he owned, which operated the business, signed a lease for 20 years worth $2 million.
Three years ago, the client sold the business to a third party. So he doesn’t operate the business anymore and he doesn’t own the business anymore. However, he personally guaranteed the commercial lease and the landlord did not release him from the lease when he sold the business. Since the business was sold three years ago, the client did not hear from the landlord since the new owner had been paying the lease. A couple of days ago, the landlord emailed the client and asked him for the rent payment for March, April, and May 2020.
Is the client still liable on the lease? Yes, of course, he is. He did not have the landlord release him for his personal guarantee on the lease, so he is liable for the unpaid balance of the lease of close to $2 million!
Aside from this $2 million “surprise” liability, the client also owes about $50,000 of credit cards. But he doesn’t own a house, so in this way, he is fortunate because he can do a Chapter 7 and wipe out the $2 million unpaid lease, and the $50,000 credit cards for a fresh start in life without accumulated debt.
Other client concerns
What are his other concerns?
1. Does his wife have to file Chapter 7 also with him? No.
2. Will the wife be negatively impacted in any way by his Chapter 7 filing? No.
3. Can he travel in and out of the country if he files Chapter 7? Yes, of course.
4. Should he be in LA to attend the hearing? No. Right now because of COVID-19, hearings are done telephonically or by Zoom. You can attend the hearing even if you are abroad. This is the way until the virus is gone.
5. Can he keep the car lease? Yes.
6. Will his credit score improve after filing Chapter 7? Absolutely. The score will be 500 upon filing, 620 on the first or second year after. Over 700 if new debts are handled properly on year 3 or 4. By the tenth year, no record of filing in a credit report and is automatically removed.
7. Can he buy a car after Chapter 7? Yes, as soon as you get the discharge, you will be able to get a car loan but the interest rate is higher. To buy a house, wait two years.
8. Can he get into business again after filing Chapter 7? Absolutely. There is no restriction or limit. Walt Disney filed Chapter 7 twice before Disney business became successful.
Disclaimer: None of the foregoing is considered legal advice. Each case is different.
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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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