THE client is 50. He bought a restaurant in November of 2019. What’s the worst time to buy a restaurant in the history of the human race? November of 2019 sounds about right.
He signed a five-year lease for the restaurant for $6,000 a month. That’s $72,000 a year.
For five years, he’s on the hook for $350,000 of commercial lease payment for the restaurant. Being a new restaurant, the first four months were a constant struggle to pay the $5,000 a month lease. Daily sales were hovering between $500 to $1,000 a month, then sales increased to $2,000 a month in January 2020, but started slowing down again to $300 to $500 a month in February and March 2020. The rest as they say, is history. The pandemic lockdown started end of March 2020. Restaurants were the principal losers in the lockdown. You can’t open the restaurant. There are no sales whatsoever. You got PPP loans, which could be forgiven if they are used to pay payroll and rent.
The client did apply for PPP but since there really was no track record except for four months being a new business that it was, he got a measly PPP loan of $10,000, which he used to pay two months of rent.
He reopened the business this month and was able to pay half a month’s rent to the landlord who asks for unpaid rent of $60,000 for last year, and $20,000 for this year from January to April of 2021. He considers some kind of repayment plan but with the very slow sales right now of $300 daily, he doesn’t know how much losses he has to bear with for the next 12 months, let alone just another six months. He decides to call it quits and finally throw in the towel, as he just doesn’t want to think about the restaurant anymore. It just gives him a headache, migraines, almost every night. Can’t sleep. It’s just not worth it, he thinks, it will be the early death of him with so much worrying of how to make ends meet and repay $80,000 of unpaid rent. I can’t really blame him for feeling depressed.
On the bright side, his residence that he bought for $300,000 only three years ago is now worth $500,000. I asked him how much mortgage balance he owed. He said nothing owed. The house is fully paid. With houses in short supply and mortgage interest at 2.3% for new house purchases, there is a strong demand for houses that push the prices sky-high. Of course, if you sell your house, you do get a big chunk of cash, but that’s not enough to buy another house here in LA. You’d have to move to AZ or TX for a good price on houses there. Good price meaning, house prices are still reasonable over there. Even NV has reasonable housing prices. A normal house in LA would cost on the average $800,000, that’s not reasonable. I remember our first house in LA was only $130,000. For that very same house today, we would have to pay $850,000. As Bill Gates said, you’re not stupid for being born poor. But if you die poor, yes, you’re stupid.
The client is in luck because the homestead exemption in CA today is now $600,000 of equity. This took effect on January 1 of this year. Even with his house at a current fair market value of $500,000, all equity, he would still be able to wipe out the $350,000 of future unpaid restaurant and the unpaid back rent of $80,000, or total wipe out of $420,000 of personal liability, with a Chapter 7 petition because of the new amended homestead exemption. Before January 2021, client would not be able to wipe out the $420,000 liability without losing his house to the BK trustee. Under the old law last year, the Chapter 7 trustee will sell his house at $500,000, give him $100,000 as his homestead exemption, and use the rest to pay the $420,000 unpaid future and back rent!
In the midst of his misfortune, Chapter 7 that now allows him to keep his $500,000 fully paid house exempt completely under bankruptcy law proves to be his good fortune. I mean this was totally unbelievable and unheard of before the new homestead exemption of $600,000 took effect this year.
If you need debt relief, please set an appointment and I will analyze your case personally.
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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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