Your Business Credit

Big debt from business failure? Try talking to creditors


A couple who closed their 20-year-old business struggle with $50,000 of remaining debt. It’s a stressful situation but there are ways of tackling it

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Dear Your Business Credit,
We have closed our construction business after nearly 20 years of business. We both have well-paying regular 9-to-5 jobs now with benefits. There is still debt left over from the business totaling about $50,000. We cannot quite make the payments, though we have been making them so far. The largest bill is $30,000 with American Express on a pay-over-time card. The second bill is a bank line of credit. We want to pay this off, but the monthly minimums are too high. Should we contact them and ask for different terms? Do you know how American Express will respond? Any other ideas? Thanks. — SJ

AnswerDear SJ,
Bravo for committing to paying off your debts. What you are doing is not easy — especially after dealing with the stress of closing a small business you ran for 20 years. But ultimately, it will help you protect your credit scores, which these days affect everything from your housing options to even the companies that will hire you.

Yes, it is worth talking with your creditors. When I contacted Robert F. Brennan, a consumer protection attorney in La Crescenta, California, he did not think it would hurt you to contact both American Express and the bank and try to negotiate lower monthly payments.

“There’s no harm in doing so,” he said in an email. “AmEx and the bank both want to avoid the consumers declaring bankruptcy so, no guarantees here, but they often will work out forbearance or a repayment plan.”

I am assuming that when you say “we” you are a married couple or life partners. Before you try to negotiate lower payments, make sure you have data on hand such as how much you each earn and what you are spending on recurring monthly bills. It will be hard to make a case for reducing your payments if you can’t illustrate exactly why you cannot afford what you are paying now.

You mentioned that you have been making the payments so far, even though they are a hardship. Your creditors will very likely ask why you can no longer do so.

Another option is to refinance your credit card loan on one of the peer-to-peer lending sites, such as Lending Club or Prosper. If you have excellent or good credit, you may be able to get a better rate there than you are paying on the credit card.

However, these sites aren’t a panacea. If your credit score has taken a hit because of problems at your business, you may not be able to get a lower interest rate than the one you already have on the credit card.

Also, look for opportunities to increase your income so you can build momentum in paying down your debt. It is hard to take a second job if you already work full time. However, you may be able to earn extra money through freelance work you can do on the weekends or in the evenings without running yourselves ragged. The site JobMob has published a list of the top freelance marketplaces that may give you some good ideas.

I’m going to assume you are already watching your spending and avoiding any purchases that add to your debt. If you need a few more ideas on how to find money to pay down your debts, look up the term “voluntary simplicity” in a search engine. You’ll find some interesting blogs by people who have chosen to spend only on what really matters to them and pare away the rest.

To me, it is a more realistic approach than trying to “live in a yurt,” as someone once put it to me. Putting yourself on an extreme spending “diet” can make you feel so deprived it backfires. In the long run, making gradual changes in your financial habits usually works best.

Good luck with paying your debt and please let me know how you fare if you negotiate. I am rooting for you.

See related:‘Joint and several liability’ clause shares business debt risk, Am I liable for my business’s corporate card debt?, Time to refinance small-business debt? Five questions to ask

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