Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com. Her book, “The Million-Dollar, One-Person Business,” was released in 2018. She writes “Your Business Credit,” a weekly column about small business and credit, for CreditCards.com.
Ask Elaine a question, or see if your question has already been answered in the Your Business Credit answer archive.
I want to buy a house. What should I do about my business credit card debt I can’t pay?
You are personally liable for credit card debt incurred when you owned a business, even if your business closed. If your debt remains unpaid, you either won’t qualify for a mortgage or you’ll get a high interest rate, which will financially impact you for years to come.
Check out all the answers from our credit card experts.
Dear Your Business Credit,
I had a business for
seven years. In 2014, I closed my business because I was pregnant with
complications. I had opened a line of credit in 2013 for $15,000 for equipment,
not knowing I was going to lose my business. My bad credit was reported in 2014
to a debt collector and then sold off to another debt collector and so on. Does
the seven years start from when it was first reported? Also the loan was not in
the business’s name but in my name.
I don’t have the full amount to pay but maybe $4,000. I also
have other credit debt totaling close to $26,000. That does not
include my student loan, for which I don’t pay anything for one year. I have no
assets, nothing in my name at this time. I want to buy a home and am not sure
what would be best … filing bankruptcy or negotiating my debt. Please help! – Jennifer
It can be very hard to rebuild
financially after a health-related crisis, especially one that makes it
impossible to work.
Unfortunately, it sounds as if you personally guaranteed the
line of credit. If so, you are responsible for paying it back.
The seven years
start when a charge-off is first reported to a credit bureau. For collections
reported by a collection agency, it is 7.5 years from the date the debt first
became late. For more detail on this, check out my colleague Barry Paperno’s
expect big score boost when unpaid debt falls off credit report.”
Contact an attorney
In your situation, I would look for an attorney in your
state who specializes in credit- and bankruptcy-related issues. Seek advice
specific to your situation.
Some attorneys will
take pro-bono cases or operate on a sliding scale, based on income. If you
can’t find someone at an affordable rate, contact Legal Aid in your area. A knowledgeable
attorney can help you assess your situation objectively and potentially help
you negotiate a settlement of the $15,000 debt to a level you can pay.
You didn’t mention whether you are working now or have
another source of income, such as a spouse or life partner’s salary, but that
is relevant in determining if you can actually work out a payment plan you can
afford. An attorney will help you take those things into account.
Put off buying a home
It’s a wonderful idea to buy a home – one day. Now
doesn’t sound like the time to try to do it.
For one thing, you have damaged
credit. That will make it hard to get a mortgage. Even if you do get a home loan, it likely will be at a high interest rate. Overpaying for a mortgage can have financial repercussions lasting for decades.
The fact that you have no assets at the moment doesn’t bode
well for immediate home ownership, either. It will be hard to save for a down
payment and maintain a house with no financial reserves and a lot of debt.
are always unpredictable expenses that come with home ownership – a refrigerator
breaks down at the worst possible moment, the roof springs a leak or the
basement floods. You can’t not deal financially with these home-related problems, and it doesn’t sound
as if you have much room on your credit cards for emergency expenses.
Once you have your debt situation under control, work out a budget that lets you start saving for a down payment on a
house. That might require some lifestyle changes.
For instance, if you’re not
working at the moment, perhaps you will need to start another business or get a part-time job to bring in the money to save for a home.
Your financial situation isn’t an easy one, but with the right help and
planning – and some patience – you can turn it around and start planning for that
home you will buy one day. Good luck!
you have your debt situation under control, work out a budget
that lets you save for a down payment on a house.
See related: Am I liable for unpaid bills on a company credit card?, Am I on the hook for my business’s credit card debt?
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