THE clients are a husband and wife in their mid-60s. I asked them if they have started receiving social security benefits, and sadly they told me that they migrated less than 10 years ago so have not yet contributed at least 10 years to social security.
They have contributed for eight years and need two more years to go to qualify for social security benefits. From the time that they arrived in America, they have been self-employed with two retail-based businesses. So their SS contribution is based on self-employed income. Unfortunately, their retail business has ground to a halt as of March 2020 when the lockdown started taking place in California. Before the pandemic, the business gross was about $10,000 a month. Since March, the gross receipts are zero. They don’t see any way at this time to complete two more years of self-employment contribution to social security to complete ten years. You need 10 years of contribution to qualify for social security benefits. This is the minimum threshold. You have to be working or be self-employed with social security contributions for ten years; otherwise, you don’t get any social security benefits when you reach 62. At 62, you only get 70% of what you will be getting at 66 but you have the choice of getting social security early at 62.
Adult children to the rescue
Fortunately, the clients have four adult children who are employed and who together contribute $1,200 for them. That’s great, but hopefully, when the virus is destroyed by the vaccine — which should be available maybe by the end of this year — clients can set up another business and start contributing to social security again to complete their ten years. Their retail business has good demand from the public when things get back to normal.
In the meantime, since they have had no business for the last three months and with future business still looking pretty bad since we are not able to control the virus at this time with total lack of leadership in that area and with civil unrest everywhere in the nation, millions of Americans losing their jobs and millions of small businesses that cannot recover even with PPP loans to tide them over for several months, the present and the future look dim. We are like a rudderless boat in a tempestuous sea being aimlessly tossed about by waves that we have no control over. The captain of our ship is nowhere to be found.
Sole proprietors of retail business
In the last 8 years of doing business as self-employed sole proprietors, clients have racked up $280,000 of credit card debt! That’s almost $9,000 a month of minimum credit card payments! I guess they must have used credit cards to keep their businesses afloat during lean months in the last eight years. They have not paid the retail lease since March. They still can’t open their retail business now because their kind of business is not yet allowed to open. So with $280,000 of credit card debt, and another $60,000 of commercial lease that they can’t pay because there is no business due to the pandemic, the clients decided to start fresh without accumulated debt with a Chapter 7 petition.
They will wipe out the $280,000 of credit cards and the $60,000 of an unpaid commercial lease. With this decision to file for Chapter 7, they are on track to become productive citizens again when things get back to normal. Maybe by the end of the year, they can start another business and complete their social security contributions. Two more years, that’s not a long time and it’s certainly doable without $280,000 of credit cards weighing them down and choking them. Chapter 7 is the right decision. This is 100% correct.
Corporation owes $400K commercial lease guaranteed by stockholder spouse
The next client is 58. Still young. Ask my other client who is 92. He says at 58, you’re just a baby. I quite agree, not a baby, but still young. He has a lot of questions and I answer them one by one. He and two other individuals own a corporation that operates a buffet restaurant. It’s obvious that buffet restaurants have a difficult time getting started again, notwithstanding the greetings from the Golden Corral saying they have re-opened. You can go to the Golden Corral now and eat there in the restaurant. I guess they serve their food now like dim sum on carts, maybe? And you know Souplantation decided to just close their business permanently after 40 years because of the virus. I really like their fresh food and soups and I’ve been going there once a week for the last 30 years. I was looking forward to their re-opening, which alas, is never to be.
Back to the client’s problem with their buffet that has been hard hit by the virus. Nobody wants to be exposed to the risk of getting the virus by eating at a buffet where people “share” food by getting food from the same plates with the same service spoon. Certainly, sometimes people cough or sneeze into the shared food plates, donating the virus if they are asymptomatic. We are made to understand that lots of people are asymptomatic so there are a lot of virus carriers who have no symptoms of being sick but may spread the virus. So buffets are particularly open to this kind of virus spreading because the way food is served. Buffets were very popular before because we can all we can there. We gorge ourselves with all the good food at buffets. Now because of the virus, people shun buffets.
A drastic change of fortune, sad to say for the client.
The client’s business has not paid rent of $20K a month for the last 3 months since March. So that’s $60K owing. There are two more years of unpaid rent so that’s another $480K.
Well, why not just close the business permanently with a Chapter 7 filed by the company? Well, someone near and dear is on the hook on the commercial lease as well.
The client’s husband signed a personal guarantee on the lease, so he’s liable for the $60,000 plus the $480,000 of an unpaid lease if the company does not pay it. What did I tell you? I said never personally guarantee the lease of your business. I told you this years ago and I repeated this many times in different ways.
PPP to the rescue?
Well here comes the PPP, the pandemic SBA loan that the business got recently. The business got $150,000 of PPP (whether or not that is personally guaranteed is another issue) for the purpose of paying rent. That pays four more months of rent. So maybe the client can use that to negotiate a way out to settle the lease for good and have the husband’s personal guarantee cancelled? Sure, that’s worth a try. If that works, then let’s see what happens next. One issue would be the PPP is a loan so it has to be repaid, right? And the purpose of the PPP is to pay the rent to continue business, not to settle with the landlord for future rent, right? There are new and different issues involved obviously. So what happens if there is still no business after PPP? You can’t operate a business that has no revenues. No amount of PPP can solve the problem of no revenue. PPP just delays the inevitable. Cirque-de-Soleil just filed for bankruptcy in Canada, its home base. It has $1B of debt and no revenues. All shows worldwide have been cancelled.
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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.