Get that debt deal agreement in writing
Good luck enforcing a repayment deal struck over the phone
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Dear Your Business Credit,
I have a business charge card that I have used for both business and personal use. I owned an LLC, which has recently stopped making money. I tried to negotiate with the credit card company to allow me to pay a certain amount, which was half of what they were willing to negotiate. I spoke with three different supervisors that told me that they can't change the amount the computer said is the minimum I can pay. They told me paying a partial payment will not help.
After a couple of months of not paying because I could not afford to, I got a call from a representative from the credit card company, and I told him I could only pay $100 per month. We agreed that is what I would pay and I said if I can pay more I will pay more. He said that the account would remain in the closed state until I can pay the minimum amount to bring it current. I said okay.
I was able to pay another $100 before the month was over, and two days later I get a threatening phone call from a collection agency stating that my account will be escalated to litigation and I will be sued if I can't either pay the full amount in excess of $25,000 or a $2,000 payment each month.
What are my options? The company is closed now and I am unemployed. My husband is the only one that is employed. Can they come after him and his wages? What can I do? I want to pay the debt that I owe, but I can't afford to do this at this time. -- Jon
Ugh! Your situation seems very frustrating. It sounds like your phone call was with a low-level employee of the credit card company who did not follow up on your deal to pay $100 a month. That's why it's always important to get these agreements in writing.
Now that you know the credit card company does not want to cooperate, it's important to get clear on what matters most to you. Is it more important to protect your credit score -- or do you want to unburden yourself of this debt?
If you want to protect your credit score, then there's no shortcut. You need to come up with the money quickly. One way you could do this is by looking for a high-paying temporary job as you continue searching for a permanent one. Depending on what type of work you do and your cost of living, you may be able to come up with the $2,000 a month this way, but it would cut into any unemployment benefits you are receiving in the short term. You might also look at selling something valuable, such as a car, that would enable you to make a big dent in your debt.
Another option worth considering is to borrow the money from someone else to repay the credit card company now, and then work out a payment plan. For instance, perhaps your spouse would lend you the money. Reading between the lines, it sounds like you have decided to maintain your finances separately, so I'm going to assume you ruled out this option, but perhaps there is someone else in your life who will make a loan to you.
Just because you are unemployed now, it doesn't mean you will always be. The job market, while not completely healed from the recession, is better than it has been in years.
If you can't come up with the money, you have two basic choices. One is filing for personal bankruptcy protection under Chapter 7. The bankruptcy will cover you alone and won't cause your spouse to become bankrupt, too, according to Walter F. Benenati, a credit attorney in Orlando, Florida. However, it will not prevent creditors from going after your mate for any joint debts. Get legal advice from an attorney familiar with the laws of your state before you proceed.
In addition, as I explained in a previous column, "Business at risk in personal bankruptcy," not everyone is eligible for Chapter 7. You must pass a means test. A judge may ask your spouse to provide six months' worth of data showing how much he has earned to the court, Benenati says. "Sometimes people are punished and not able to qualify because the spouse makes too much," says Walter.
The other option is to make another attempt to negotiate a payment plan. If the credit card company put your payment plan in writing, you could potentially use that as a defense with the collection agency and continue making the payments you agreed to, says attorney Steven Weiss, of Shatz, Schwartz and Fentin, P.C., in Springfield, Mass.
If you can't make any progress that way, then you may have to do a strategic default -- but here again, it is important to get legal advice from an attorney who knows the laws of your state. Your creditor should not be able to go after your husband's wages unless he was a guarantor of the account, according to Benenati. However, if you are an owner of your home, the creditor may be able to put a lien against your home.
Ultimately, says Weiss, you must do a cost-benefit analysis. "Making minimum payments if ultimately the debt can't be paid is putting good money after bad," he says.
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