Small business owner unable to pay creditors anymore

1) Will collections be handled any differently being that there is business debt involved? YES. Make sure to discuss this with the bank or debt management company. Not all debt management companies handle business debts. Different banks will handle business debt differently.


2) I have all of my credit card accounts linked up with my business checking account for paying online, do they have the right to withdraw money without my consent, possibly over drawing my account? I am especially concerned with Bank of America, because that is who I have my bank accounts with, and I am indebted to them between 4 credit accounts.
Close the bank of america checking account right away. They will cease funds for payment of BOA debt.

3) Should I close out my existing bank accounts and open new ones in which my creditors will not have access before I stop paying them?
YES
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i do not know what is the exact solution you should try but do know one thing that i am also going through the same precarious condition as that of you. :oops: :oops:

Wow, thanks for such quick replies!!

Actually, I was thinking about handling this myself if possible, not using the assistance of a settlement company. Would that be a mistake? Actually, I researched different companies to see how it worked, and called one of them, not too impressed by how he treated me or what he had to say. That's when I came across this forum and decided to maybe try it myself.

info3333: what do you mean by "they will cease funds for payment of BOA debt"? Do you suggest I move to another bank entirely?

manoj_gopale: You own a business and are in debt too? I plan to keep posting about whatever I choose to do or whatever happens to me throughout this process. Hopefully it will help others in my shoes.

Debt Management doesn't seem applicable here since there is little to no income. It seems as though there is a little money in the bank to make some payments. I reccomend you try debt settlement first. You can do it yourself or hire a professional debt settlement (DS) company. Typically a DS will negotiate the debt to about $18,000 of the original $45K and cut the payments in half. If you set up a three year repayment program your payments woud be about 687 per month. You may be able to extend it to a 4 year plan at 515 per month.

Do you own a home? If so, you may want to consider mortgage modification as another means of increasing cash flow.

Yes. Get another bank ASAP.

I am in the exact same boat- personal + biz credit card debt, 9 cards about $65,000. I have stopped paying on the personal cards and 1 business card with Amexp because they sent me to collections after being late just once. I am trying to keep current on 2 cc of my husband's (at least his credit will be okay) and 3 biz cc as the biz is still operating but not making much money.

So far, my biz cc do not show on credit reports. However, I know that I am personally responsible (there are virtually NO biz CC that do not require a personal guarantee). As far as the one defaulted biz cc from Amexp, they have offered to transfer me to an optima card at a lower rate if I pay off the past due. I am considering this AND considering just trying to settle although I do not have much extra $$.

If the biz is a sole prop, I think you are personally responsible for everything. I would also close the acct. I run only my current payments through my biz acct and have no cc with the bank that I use.

I am also looking for employment and my biggest concern is someone checking my credit - it is NOT good and will not be for years as I try to settle these things. So, you may have the same question as me about seeking employment when you may be dealing with creditors.

Looks like there's more and more of us out there. I'm so glad my tax dollars with be bailing out the same banks that are charging me 29% interest and refuse to even try to work with me. I am the point of saying to heck with them all- I want to keep my house and car and pay for the basics. I have paid huge credit cards off in my life and never was even 1 day behind. Times have changed for sure.

Prospective employers can decide to check your credit and use this information to influense the hiring decision. Unfortunately your credit is not going to change anytime soon. Start the DS or Bankruptcy sooner rather than later. The sooner you get started, the sooner it's finished and the sooner you can start working on credit repair.

neteffect: Yep, sounds like we are in the same boat, real similar anyway! First of all, I have never had cc debt more than $2K in my life, and that was only when I had to re-stock my store, I would pay that off timely and with no problem. Secondly, I have never been so much as a day behind either, and now this has to happen, really is heart breaking, isn't it? As for my credit, it's actually ok as of right now, mid 700's somewhere, but I have a feeling that's about to plummet. Does your credit standing affect your ability to get a job? I don't know about that, guess it depends on the job??

Yes, I believe that I will be personally responsible for everything being the sole proprietor, and I'm okay with that, I'd rather it that way than have it destroy both mine and my husband's credit.

info3333: Thanks. By mortgage modification, do you mean asking to have the interest lowered or extending the term without re-finanacing? Years ago when interest rates had come down we modified our mortgage to a lower rate, it was a very minimal cost and saved us over $100 per month. Didn't even think of that. Could that be done with a vehicle loan as well?

Exactly. Things work a little differently now. Banks will only work with customers who are experiencing a financial hardship. They can not afford the giant wave of foreclosures so the are doing anything they can to help homeowners stay in the homes. Give them a call and see what they can do. If you have any trouble, let me know and I will help you steer around some roadblocks.

Auto loans can be entered into debt settlement. I have never personally tried or heard of someone modifying an auto loan but it may be possible. I know we enter them into debt management/settlement programs but don't recall modifying one.

Credit is not going to improve until I get thru settlement and that will be at least 2-3 years. Thus, I am nervous about the job hunt. I will not declare bankruptcy because of CC debt. I have never missed a home or car payment in the last 15 years and am current on several CC and plan to remain that way. It's the ones who jacked up the rates and cut the cc lines that I can't pay anymore - AND I did continue to pay for months and months until my income dipped once again.

Believe you me there are going to be many of us who had perfect credit that come out of 2008-2010 (let's hope it doens't go beyond that) with bad credit. But, your home, health, and relationships are far more important than feeling guilty over this. I know - I still struggle with the disbelief that I am so far from where I was 3 years ago. But, owning a business is risky and this economy has sucked the life out of many a small biz.

If at possible, look for a job quickly while your credit still looks good. I know this is going to be a challenge for me (as is finding a job in this economy), and I hope it doesn't prove to be too much of a roadblock- then I am looking at working at McDonalds even tho I have an mba.

I think that we would qualify for a financial hardship, it's definitely worth trying, and we definitely will give it a try. As for my vehicle loan, I was unable to make a payment in January, so they worked out that they gave me a two month break from payments, and tacked them onto the end of the loan. That was a brief help, but come March I will be in the same situation again. Would they settle for a lump sum like the cc companies should I ever sell my business and have the money?

As for my 9 credit cards, actually one is close to being paid off, so make it 8, should I cease paying them all at once? I really need to start concentrating on paying things like our mortgages and taxes again. Speaking of taxes, we are also behind on those for both the home and the business, this is the first time we've been unable to pay, I don't know what happens now. I am also 9 months behind on submitting my sales tax for the business, and when I am able to come up with a month's worth, the penalty fees that I get hit with are almost as much as the tax itself! It's so depressing.

We are working on adding a tax service to our platform but right now I would reccomend you call one of those guys on the tax commercials to see how they work and what they charge. I know they negotiate taxes with the gov't but don't know much more than that. Make sure you are comfortable with their fees and processes. As I tell all of my clients, you need all of the information to make a good decision and one you will be comfortable with throughout the program.

Yes, you can settle the auto debt in a settlement. If you like, feel free to email me about the credit cards by clicking on the button below in the signature.

Yes, neteffect, you are right about looking for a job quickly, in fact I filled out 2 job apps today, didn't submit them yet but I will ASAP. It's a little bit bruising to my pride having to look for a job after thinking that I would be running my little business for the rest of my life, but oh well, things change, right? I think this economy is setting many people on a path that they never expected to be on.

I also had a similar situation. Had a gift shop for 10 years, and had it for sale for a few of the last 10 years. Finally just had to close, and was left with a mountain of debt. Went the debt settlement route. Am a little over one year into the program and have settled 5 of my 9 accounts. Also had to get an outside job, but I don't mind it any more. I realized that being self-employed is nice on the side for extra income (selling on Ebay, etc.) but as a sole source of income, it's not for me. I need a guaranteed paycheck, especially while I am in this settlement program. The best thing about this whole thing, is I have learned in the past year how NOT to rely on credit cards for ANYthing. An important lesson. Once this is all behind me, I will be debt-free for the rest of my life, with the exception of a mortgage and maybe a car loan here and there. So I am feeling very positive about my horrible mess.

Yes, it does hurt after putting so much (everything) into buiding a business. It was a dream I waited a long time for - the sad part is that the business IS making money, slowly. I have a great product but I had an eight month delay - that killed me; ate up my savings and budget for marketing. If I had the $$ to market, I'd be making enough to at least live. Have very wealthy in-laws but they do not want to help. Oh well.

SusieQ - did debt settlement affect your ability to get a job? I am shooting for jobs that pay $75,000 + and know the vetting process is usually fairly rigorous. Being in collections won't look too hot. Especially when there are so many qualified applicants out there to choose from right now. The other option is consulting if there is any work out there for that----

No, the debt settlement didn't affect getting a job, but I wasn't applying for anything super great, either. I live in a small, rural county with limited opportunities, and I was considered a huge asset in the retail industry so was snatched right up. Twice. Quit the first one because I didn't want 11-hour shifts, applied for another one and got it immediately. It's definitely not a 75,000 a year job, though. lol. I supplement my income by selling on ebay (what was left from my store inventory has done very well) and by doing other various things around the area for people including desktop publishing. It's simply a case of doing what I have to do, for the time being.

Thanks, it is comforting to hear of people in similar situations a mine. My business is somewhat of a gift shop as well, and I also live in a very small rural community with very limited opportunities, that's why I decided to start my own business... to create my own opportunity.

Anyway... I noticed on my caller ID when I came into work this morning that Citi had called while I wasn't here last night, looking for payment, no doubt. Now I am nervous wondering what to say when they call back, should I even answer it? They are my 2nd largest balance, next to one of my Chase cards, the balance being nearly $8K, and the truth is that I have only enough money to make either a payment to them, my mortgage (home) or my electric...which is also 3 months past due and about to be cut off. I can't operate without electricity, so I think that needs to take priority right now.

What do I do??? Do I answer the phone and be up front with them telling them that I can't make a payment? I know they will be pushy about it. Or do I ignore the calls for a while? My better instinct tells me that it's probably best to be honest and up front about my situation rather than call dodging, any advice? Please?!

What I generally do is look at the caller id and talk to each of my creditor atleast once a week so that you dont totally neglect them. be upfront and tell them the real situation, dont give out nos. like you are making x and you need y to survive and all that. Just tell them that you intend to make a payment but just not at this point.

FIRST CLOSE YOUR BOFA CHECKING AND SAVING Acct!!!!!!! ASAP

Thanks, good advice. I feel badly about having to close my BOFA accounts, I have such great relations with the people at my bank, they treat me so well compared to other banks I've been with. But I guess I have to do it for my own safety.

So you tell them that you intend to make a payment, and does that satisfy them, I would imagine that they would keep insisting on an amount and date of a payment. Are you able to end your conversations amicably? I would think it wouldn't be good to have to hang up on them if they won't back down and accept what you have to say. But I assume that you don't actually intend on making "payments" since you are aiming to save up and settle out, so do you hold out until you have what you feel is a satisfactory amount to offer and then put it out there or wait until they start offering it to you? Sorry for so many questions, but I have a million!

I understand all your questions and curiousity, I have been through it.. ask the other senior members here :lol:
Just tell them that you dont have any money in the bank right now and you might have some next week and keep repeating the story. Some reps are understanding but might use harsh words but just accept it. Key is NEVER EVER GET RILED!! Be Calm and Confident on the phone, Thank the reps for understanding the situation everytime they are about to hangup and be consistent with your answers, write down the names and phone nos. of people you talk to and just keep a log for your sake. I am sure it will work out. Take it easy and START SAVING every penny!!!!

Maggie- I have many of the same questions. I have not talked to any creditors yet- probably should. I am also confused about whether I should send a validation letter to any debt at a collection agency, even if I know the debt is mine and I am planning on settling - will post that question. BUT- pay your mortgage and electricity 1st! Take care of the basics. Dave Ramsey says to always take care of the basics first (what good is it going to do to lose your house, but have an on time visa payment? (Not a huge fan of Ramsey, but there is some solid advice there).

SusieQ - I think putting together several ways to make money is very smart. I really dread the thought of going back to working a job that requires of much of my time and attention. I made 6 figures before but was miserable. Finding a way to make some income on your own is great.

Thanks for all of the good advice. I know I will need more :-)

Thank you so much for the advice, and yes, I will take care of the basics first, you are absolutely right about that! And keeping a log is a great idea, I will get a notebook that I'll keep with me between work and home & keep detailed notes. Organization will be very helpful throughout this whole awful process. :)

Well, I think I've definitely decided to stop paying on my credit cards for a while and start concentrating on my mortgages, taxes, insurance, etc. again, get caught up on all of those. I received yet another notice from yet another credit card (a Chase one) saying that my APR will be increasing to nearly 17% effective April 2009. I can choose not to accept the rate increase thus closing my account and preventing me from using it for future purchases- which is just fine, I haven't used it for purchases in years, only transfers. I suppose I'll go ahead and close the account being that I plan on stopping paying them anyhow, and that will in turn raise the APR. This raises a question, once I've closed my account can they still raise my APR and charge me fees? The answer is probably yes, but if anyone knows for sure, please share with me!

I see that Citi continues to call me when I'm not here. If they call when I am here I will answer and tell them that I am unable to make a payment right now, but plan to as soon as I can, just as virtualdeal advised.

No one has answered my question about FIA card services, the letter I received about my BOFA account being 2 pmts past due. I don't know if I should call them yet, or wait a little longer. I'll search the threads and see if I can find anyone who's dealt with FIA before.

Small update, Citi just called while I was here and able to take the call, so I answered. It was a very kind woman stating that she noticed that my Citi payment was only a few days past due and noticed that I have a very good payment history. I explained to her that I was having a very difficult time with my business and was unable to make a payment at this time, she gave a phone number to call saying that they could offer me 2 options to help. 1st one being that they could defer my payment for 2 months without fees or interest, second being an offer to make partial payments for 4 months.

I suppose the responsible thing would be to call, I would probably opt to have the payments deferred for 2 months and see what happens until then. At least this way it's on the up and up and it won't be accruing extra fees. She was very polite and wished my business well, she said she understood that times are hard right now and thanked me for taking the call. Maybe because I'm only a few days late, I'm sure their tune will change as time goes on.

First of all follow all the excellent advice about closing the accounts rand sort.

second if you are searching for a settlement company search around there are plenty of fish in the sea! and keep in mind you can always file bk as a last resort if your not comfortable.

Good luck and i hope all works out well for you!

I am in the process of trying to work out settlements too. I think it is a very good idea to remain consistent with your responses to all of the creditors. On each call, I say the same thing: "My situation today is the same as it was the last time (the bank name) called. My priority is food, shelter and health." Since our situation is a disability issue, I tell them "we are both still disabled, and our disability situation is permanent". At that point, they almost always start offering payment plans. My response is: "We are very seriously considering chapter 7 bankruptcy (since we receive SSDI payments, we are not required to take the means test, which puts us into chapter 7 immediately), but we would really prefer to avoid it. I am more than willing to consider directing a small portion of disability income toward debt settlement, as I think we should be able to offer something that is better than the zero amount you would receive should we file chapter 7".

That is pretty much the end of the conversation. In many cases, I am sure the person calling has no working knowledge of how bankruptcy works. My intent is to be sure that I eventually get to someone who understands it. We are quite serious about bankruptcy, so it is easier to be blunt about it. I would rather not do it, for a whole list of reasons.

Anyway, I would suggest you write down an outline of a script to use while on the phone. The conversation may not always go as planned, but it is a good idea to be sure that YOUR talking points get into the conversation.....just my opinion.

Thank you love my things and clovisca, very good advice. I appreciate all the advice given me so far.

Well, bankruptcy is a serious consideration for me if things don't change for the better soon, so I can tell the creditors that and mean it. I would also like to avoid it if at all possible, but if it comes to that point, well then it does.

I called the phone number that the woman from Citibank had given me, and after about a half hour of talking with another very nice woman, we came to a plan that will hopefully work out for me. 12 months at 0% interest and no fees of any sort, a minimum of $85.00 must be paid each month by an automatic withdrawal from my checking account. All payments will go directly to the principal for those 12 months, and they will be a little flexible if I need an extra day or two to come up with the money, I just need to call before the electronic transfer date. I asked her what happens when the year is up and things don't look any better for me, she said that I could try to make out new arrangements at that time. I'm not in a position to settle out with a lump sum offer, so I figured that this is pretty good, much much better than 28.9% interest as it was before. Hopefully I can keep up with my end of the agreement. This is an $8K balance card, by the way.

As for Bank of America, I spoke with a rep (he called me) and gave the same explanation to him as I did to City, that I have a business with no money coming in and that my husband has been out of work and unable to find a job for over a year now. The best he would do at the time was come down to 4% interest and also eliminating fees, lowering my minimum to $130/mo. That is a great reduction in interest, but still not good enough, I honestly would not be able to commit to that payment. So I didn't agree to anything yet. I will wait a little longer and see if they won't also come down to 0% interest.

I have the due date for my 3 Chase cards coming up this week, I will not be able to pay those for the first time ever, so I'll be dealing with them shortly as well.

Hi Maggie,

I am in a similar situation and posted to you before. I understand you getting nervous about the calls and wanting to try to work things out, BUT, carefully consider making these agreements such as the one you did with Citi.

They offered me the same thing. It sounded good. The fine print said that even if I was one day late with a payment the terms would be void and the old apr would resume. If you plan on settling your other debts, is there really a reason to try to pay Citi? The acct is probably closed, or will be, when you start getting late on other debts. And I would also be very careful in giving out any bank info unless you only keep enough money in that acct for that creditor.

There are some good posts here about considering these hardship programs if you are going to try to settle. If you use a company to settle, I believe they will want you to include all debts.

I am leaning more and more toward bankruptcy (just myself, not my husband). Without hardly any income or a job right now, I would qualify for Chpt. 7 and could try to start over. I do not have the money to settle, and hoping I have it later, is just hoping. What if I don't. Even if I get a well paying job (a big IF in this economy), it will be tough to make ends meet and get an emergency fund built up. Plus, looking for employment with collections, maybe judgements, etc. on my credit, may prove to be very difficult. Bankruptcy is a last resort but it's either that or risk judgements, etc.

Good luck. Things will get better. Six months ago when this was beginning, I thought it was the end of the world. I've read a lot and now know that I will make it thru this. Is it ideal? No. I used to make 6 figures and had a large savings. But starting a business in the best of times, is risky. Hang in there. It will get better.

Hi neteffect, I appreciate that you continue to check in and offer your advice, this is all so helpful to me. You mentioned in an earlier post that you had stopped paying all of your cards, are you still not paying them? If you're not, I'm sure (as you said) that they are giving you all kind of alternatives and offering you hardship programs like they are for me, are you turning them all down? What happens when you say no to everything that they are offering you?

I think that I agreed to the Citi offer because I felt like I had to pick one of the options, and that was the only one that was somewhat feasible for me. Now Bank of America has been calling day in and day out, in fact I came in to work to find a message from them saying that it was of utmost importance that I call them ASAP to work a payment option out. I will call them, I don't want to be an avoider, but I don't want to be suckered into something that I'm not comfortable with and still can't afford. And truthfully, what I can afford to pay is zero right now. Every penny I pay to a credit card takes away from what I can pay to "the basics" (mortgage, utilities, etc.), and I can barely afford to cover that, it's a sad state of affairs. So, I'm not exactly sure what will come out of the phone call, but I will call them.

And you're right, starting a business of your own is always risky, economy aside, I knew that and I took that risk anyway. I would have been sorry if I never tried it, so no regrets, I'm just very sad to see it all go down like this, as are you and many others in our shoes. I'm very scared and nervous as I go through this, I hate not being able to pay my debt. On the same hand I feel so angry that the credit card companies are doing their best to make it impossible for people who are honest and trying to ever pay their debt off. I mean come on, 29% interest put on large debts is just out of this universe!! So that makes me feel a little less guilty, knowing that a big part of what I owe is not original debt, but crazy interest and fees.

After reading neteffect's message, the more I'm thinking about the whole hardship program deal and coming to a realization. What Citi offered me really was a good deal, I suppose, but maybe I shouldn't have jumped on it so quickly, maybe I should have held out for a bit and not agreed to anything, still insisting that I couldn't come up with a payment for them. The fact is, that even if every one of my 9 cards offers me a deal like this, I still cannot afford to pay them all each month. Now what? I thought I did good, now I'm not so sure.

Could I continue to keep this deal with Citi and not pay my 8 other creditors? I don't know if that could work or not. I'm so overwhelmed and confused!!!

Bank of America called several times for me yesterday, I waited until I knew I had a few minutes of uninterrupted time and called them back. Basically they were trying to schedule a payment, but I told them that I had no money and still couldn't make a payment at the time. I asked if there was anything they could do to help me, she said that there was nothing they could do until I'm able to pay something. She notated my account and it was left at that.

Today I've got 2 Chase accounts due, which I won't be paying, so I guess they'll be my next encounter. I'll update as it goes.

Well, here it is 5 months later and things are downright ugly. All of my accounts are now in the hands of collection agencies, the phone calls are non stop, and I still have no money to pay or settle. Bank of America has started taking money out of my business account without my permission causing me to overdraft resulting in $140.00 of overdraft fees. I called them and insisted they return the $360 they took plus the amount of fees they caused me to incur, but they said they were perfectly within their rights to do so, and will continue to do so if I don't resume payments. I will be closing my accounts with them, I should have done so months ago. They are also offering to forgive 70% of my debt if I can come up with 30%, which I think is a great offer, but I honestly can't come up with it.

I think I've got no choice but to file chapter 7 bankruptcy. I've got collection agencies and lawyers calling me everyday threatening lawsuits, judgements, liens, and wage garnishment every single day, all day long. I can't take it anymore and things aren't turning around for me.

I need to find out if I can file bk on just my credit card debt and keep my home and vehicle. If anyone knows anything about this I'd appreciate any advice!