Defrauded seniors left with $100K debts need Chapter 7 relief 

SENIOR No. 1 and senior No. 2 are in the same boat. They each have car repossession deficiencies of over $100,000, and business credit card debt of $50,000. Just by looking at these figures, you know there’s something not right.

At their age, why should they each have several car repo deficiencies of over $100,000?

What is a car repo deficiency? A car repo deficiency arises when the debtor becomes delinquent on the car payment or lease payment. The creditor then goes to your house in the dead of night and hauls your car away. When you wake up in the morning, your brand new car in the driveway is gone. The creditor then sells your car at wholesale, which means they get a lot less than what they should get if it’s sold at retail. They apply the net proceeds from the sale to what you owe them and collect the unpaid balance from you.

Thus, it’s aptly called the car repo deficiency.

For example, you bought a brand new M-Benz E-350 for $50,000. You got a car loan for $48,000 at 9 percent p.a. interest. Total payments for five years will be $60,000. You become delinquent on the car payments. The creditor repossesses the car. They sell the car at wholesale for $30,000. The repo deficiency, which you owe, is $30,000. Yes, you still owe them $30,000 even though you don’t have the car anymore. Why? Because by contract that you signed with the creditor, you agreed to pay them $60,000. When they sold the car at wholesale, they only got back $30,000. So, they can still collect $30,000 from you, because by contract, you owe them $60,000. I know it’s not fair to you, but that’s how contract law works.

In the case of these two seniors, one of them owes repo deficiencies for 5 expensive cars.

If each repo deficiency is $30,000, then five times that, the senior owes $150,000 of repo deficiencies. This senior also owes a business credit line of $50,000. So, easily, senior owes probably $200,000. But why will a senior buy five expensive cars and get a line of credit for a business of $50,000?

The answer, of course, is that there is a story that needs to be told so other seniors won’t be defrauded too.

The senior is approached by an acquaintance who offers her an opportunity to participate in a business that will give the senior $30,000 profit if she does something. This something is that the senior will fill out a form giving her personal financial information to the acquaintance. The acquaintance will then use the personal information to apply for business credit cards in the name of the business and senior, as well as to buy or lease several expensive cars. These cars will be rented out so that the rental income will be used to pay the car loans and car leases. The money generated from this business endeavor will be so good and immediately that the business will very shortly give senior $30,000 of cash back just for letting the business use her name and good credit.

Of course, what actually happens is that once the credit lines are available for use, the acquaintance sucks out the money and the business pays the bank zero. The cars are rented out, and the acquaintance collects all the rent money for the cars but does not pay the car loans or leases, so eventually, the cars are repossessed with the senior holding the bag. The acquaintance ends up with a lot of cash, which is used to buy the acquaintance a house, for instance.

OK, here’s another good scam. I can let you stay in the White House for $2,000 a month payable one year in advance sent to my Wells Fargo account No. 123. Believe it or not, someone will believe that for $24,000 he will be able to stay in the White House with rent paid one year in advance. The saying that there’s a sucker born every minute is true; hopefully that sucker is not you. As a general test, just use this standard to avoid being scammed: If it sounds too good to be true, then it’s not true. Remember this, a fool and his money are soon parted. All these sayings are true.

All of the money is sucked out while the senior’s name is on record as being the debtor so the collectors go after the senior to get whatever is owed to them repaid. Pretty good scam for the scammer, but very bad for the senior victim who certainly doesn’t need this kind of problem during her retirement years.

I recommend that the seniors both file for Chapter 7 relief. What will happen in Chapter 7? The seniors will be relieved of all liability for these credits, car loans, and leases that were fraudulently obtained in their names. The creditors will not be able to sue the senior to collect on the repo deficiencies and it doesn’t matter that the seniors do not have the cars in their possession. The creditors will have to locate the cars at their own expense.

Of course, what actually happened leading to the defrauding of the seniors will have to be adequately explained to the bankruptcy court so that the U.S. Trustee (UST) will not object to the discharge of these debts. Otherwise, it may be argued that seniors are not victims but participants in this fraudulent scheme. The creditors may show up at the 341A hearing to ask the debtors how this came about because it is the signature of seniors that appear on all loan applications. This must be handled properly or a UST objection to discharge may arise.

Certainly, if they had come to see me before signing all these documents, I would have told them not to proceed as this was clearly a scam. But since it already happened, the best remedy for a fresh start for seniors is Chapter 7.

If you need debt relief, please set an appointment to see me. I will analyze your case personally.

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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 1000 S. Fremont Ave, Mailstop 58, Building A-1 Suite 1125, Alhambra, CA 91803.
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