Question
I had one large no-pay customer that will end in a court battle. What can credit cards do to me no for no-pays? Can't a person keep one home (even if it's paid off), one new truck that's paid off? What about cash advances on credit cards? A friend told me to ask them to put it in collections and that would stop the interest. I have much unsecured credit left that I can use and have never been a deadbeat, but this collection from customer could take several years and then may only pay pennies on the dollar. For years I ran a cash only business and it was okay, but as time went by I got used to just charging gas at the pump, then paying off large amounts of debt as jobs paid or as houses that I had built sold off. I would drop 100K towards bills, which after several years, made creditors just up my credit, either hoping to trap me, or just believing that I would pay as always.
I don't really see me carrying this debt until I collect for this large job, which has been seized by the FTC because the builder had much in common with Enron. Due to sawdust and lacquer fumes, most would have quit before now. Should I apply for my disability and file bankruptcy?
If I can't pay my bills, what can they take? The truth is if the FTC would leave this builder alone, he probably would pay me, however his home is worth 2 million and my house is worth much less. All I can see is bad. There's no way I can pay the high interest on 50K and keep food on the table. I just came in to take a lunch break. It's 4 pm on Saturday and I'm working till midnight as it is. I'm too damned old to kill myself trying to work like I'm 25 years old. Can I stick my paid off house in my sister's name and it not be taken? People file bankruptcy all the time and laugh about it. Maybe I'll fake my death?
Forum Responses
(Business and Management Forum)
From contributor A:
If your house is paid for, why not take a home equity loan and pay off all of your outstanding debt? You can get a 6.5% home equity loan on the net in 10 minutes. Sorry about your situation. Unfortunately for you, the Republicans had a field day with the bankruptcy laws and your disability idea is a no go as well because half of America doesn't believe in welfare or entitlements.
There are lawyer's fees, process fees, court costs, etc. that are involved, and being that you own your home (paid off), and have a truck that is paid off, I believe a judgment can be attached to your assets, and if I remember, there is a formula, whereby if you own your home (even with a mortgage), you may not even be able to file bankruptcy, as you are not insolvent (you have assets).
First things first. You need to take a look at your schedule and work in a couple of days off. Work related stress, coupled with this situation, makes it hard to put things into perspective. $50K, while a lot of money, is not the end of the world.
Second, immediately stop using your credit cards and go back to cash only. With your initial deposit, which should be at least 50%, buy 100% of your materials. This leaves the remaining amount as working capitol. It will also avoid being able to finish a job, because you can't rob Peter to pay Paul. Also, switch all your debt to the lowest interest credit card. Call them all to make them aware of the situation, and let them know of your plans, and ask for a skip payment (most credit cards will do this at least once a year without reporting to the credit agency).
Third, take a mortgage against your house for the $50K you need to cover this debt. The reason for this is, instead of looking at $1000-$2000 a month to cover the credit cards (I don't know what your interest rates are), you will be able to drastically reduce this to $300-$425 a month (6.5% - 9.0% interest rate), which is much more manageable and a lot less threatening to figure out how to come up with each month. This will be much easier to manage while you go through the courts to collect your debt. Add onto this fact that you will be able to deduct the interest each year off your taxes, and being that it is a loan to your business, you should also be able to deduct the principal off your earned income, as you are paying yourself back for the loan, also reducing your end of year taxes (check with your accountant on details and how to structure this). As business permits, you can also prepay this mortgage, thereby enhancing your credit position, instead of destroying it with bankruptcy or letting your credit cards go into collections (and the subsequent harassment you will be subject to - phone calls on a weekly basis from either the credit card companies or the collection companies - you don't need this stress and neither does your family). I'm sure your contract also stipulates the customer covering all collection costs that you also have something to use to get a judgment against the builder. This is not personal, but business. By the way, I would cancel all but two credit cards for emergency only and to maintain a positive credit rating.
Another alternative is, if the job was completed and signed off on, and you are just waiting for payment, you can also look into factoring the balance of the job. A factor company pays you about 70-80% of the balance, and the remaining 20-30% when they collect the balance, minus the fee they keep for collecting the debt. I'm not sure if this applies in your situation, but definitely worth looking into, as $10K of debt is much easier to deal with than $50K of debt.
In addition, check into Account Receivable Insurance for large jobs like this, so you can avoid being burned like this.
Finally, you are not the first or the last person who has had to deal with a situation like this... but, worst case scenario, you take a mortgage to pay off the credit cards, switch to cash only business again, and begin life again. If you ask me, the $300-$425 monthly mortgage (and one creditor/invoice to deal with which you can pay off early as business permits) would be much less stress to deal with than managing a bunch of credit card payments over a $1000 month, at more than twice the interest rate, along with late fees, over the limit fees, harassing phone calls, etc., or worse yet, filing bankruptcy (assuming you even qualify for this option) and destroying your credit.
You will also be able to hold your head high knowing that you didn't let the situation get the best of you, instead of having a negative situation spiral out of control, and having it being reinforced each week by creditors constantly calling looking for money. For $300-$425 a month, you can also avoid passing this aggravation off onto your family (wife, kids, your sister). In any case, you're not as bad off as you think, and I wish you all the best.
I talked with a friend that is a mortgage broker and his sound advice was that there are about 43 different credit card underwriters in the US using 500 different names. He said get them all, max them out, then wait a year and file bankruptcy. He swears they can't and won't do anything. He swears that's what the people do that live so much better than we do making half of the money we make. He said they do it every 10 years. I have always believed I was one of the good guys, but I don't see how I could stick the credit card companies and be any different than the people that have stuck it to me. Where are all of the retired lawyers turned cabinetmakers when I need them?
As far as the advice from your friend, the mortgage broker, I can't believe he would advocate that his friend, let alone anyone else, steal from someone else like that... You don't come across as someone who would do that for real, and your gut on that one is dead on.
No, I'm not a lawyer, or an accountant, but I have been in your shoes to one degree or another, and I have seen other shop owners and family members go through it.
As far as Consumer Counseling Services go, even though they advertise "not for profit," they charge monthly for this service, and it is a mark on your credit report.
I agree with others that you can work through this. After 25 years, it's obvious you can make money. The mortgage would just alleviate the headaches involved in managing the debt amount and bringing it down to its simplest form at the lowest interest rate, all with the advantage of tax write-offs. After talking to your accountant on how to structure this, he might even have some alternative ideas. Although, I guess if I were mortgage free, I would be trying to avoid this too...
If you want legal advice, you could also join one of those co-op legal programs for $10-$25 month, and you can ask all the questions you want. You could also get into contact with your local SCORE chapter, and they might be able to provide some direction.
The IRS can take your home. First they will put a tax lien on the property that will red flag you for any legit loans. Avoid the problems with the IRS at any costs.
Second, credit cards are considered unsecured debt, as no asset was used as collateral. However, after a long time of non-payment, the credit card companies will sue you and win a judgment. At that time your home, vehicle, wages, etc. are fair game. Also, late fees and interest continue to build and 50K can turn into 75 or 80K easily.
Third: You owe the money and have a moral obligation to pay it. However, before paying a dime on credit cards, take care of the basics: shelter, food, utilities, transportation. Then you can work through the debts.
You can't borrow your way out of debt. Taking a mortgage on your home and continuing to use credit cards will most likely result in the same situation down the road, but with less equity in your home. If you're done with credit and are now paying cash for everything like the old days, restructure your debt with a short mortgage on the house. Sorry if this sounds harsh.
Whenever I needed a draw on a job, this man just cut me a check on the spot, no waiting a single minute on your money and never bitched about the price. He knew a vast amount of every trade, knew good work when he saw it, and absolutely no illegals used for any labor. It was a good run while it lasted. He has denied any wrongdoing, but appraiser and realtor have fingered the builder as the ringleader, 4 500K homes 80% completed where seized, 2 with cabinets installed and a full set in my shop. I am sure I could bail on the credit cards but it sure would wreck years of hard work and make the next 7-10 years harder, but harder than paying off 50K? Time will tell.
I could blame him for being a crook, but I'm the one that asked for his work; he didn't track me down and ask me to build his cabinets. I have always gotten paid and became lax in deposits and contracts with this builder, much like my creditors have with me. It just now may be Ronald Reagan's trickle down economics theory. It will always land on the poor man's back. The only way to avoid this is to not be poor. Working man pays the bill.
You can visit a lawyer and get a free consultation to learn more. It's not that tough to file yourself. It's just a matter of getting the forms from a legal stationery store, and showing up when your hearing comes up.
The down side to this is your credit will be shot for 7 years (that's how long bankruptcy remains on your credit report). Of course, your credit is probably not in that great of shape now if you're not making payments. If you're able to make a profit if this problem were to go away, I'd definitely go the home equity loan route.
Read a few Dave Ramsey books. Cut any expenses you have. Keep the rent, lights and suppliers paid. From today forward, pay them before the truck hits the door to unload. Call the people you owe money to and explain the situation. Tell them you will pay them as you can.
Each month, pay the basic bills you need to pay to keep in business. Pay yourself the minimum you need to keep your personal affairs in order. No vacations. No new truck. All money that can stay in the business needs to stay in the business.
Make a list of people you owe money to, smallest debt to largest debt. Pay the minimums on everything. Any extra money goes to the smallest debt. When you get that smallest debt paid off, go to the next smallest, pay all minimums, and any extra goes to that debt. Work your way out of debt.
It makes more money sense to pay off the highest interest first, but you really need to establish a feeling of success. That's why you pay the smallest debt. Success feels good and you now have one down. Now move on to the next smallest debt.
You have an opportunity to make money that most people don't have. You have a marketable skill. Look for labor only jobs. Get a book called "Guerilla Marketing" and read it. Go advertise in the ritzy communities to install trim on the weekends. Crown molding, chair rail, anything.
I made $500 one afternoon installing an attic floor above someone's garage because no one else would do it. I made $850 teaching a class this weekend in basic cabinetmaking. You can make money in ways you have not thought of. You could do these things. You can do lots of other things.
You need to pay as agreed. You can get out of debt. As long as you are making the minimum payments, the card companies can do nothing to you. But if you are currently behind with anyone, you need to call them and talk to them. Maybe you can talk them into giving you a lower interest rate. They want to be paid as much as you want to pay them. Most of them will work with you. But it's really up to you. This is a tough spot in your career. It will pass. The more uncomfortable you make it, the quicker you will get it over with. The quicker it gets over wit,h the quicker you get to start making money for yourself again. The more uncomfortable, the more you will take steps in the future to not get in this situation again.
