Settling business card debt in collections

By  |  Published: January 2, 2017

Your Business Credit
Your
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, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for CreditCards.com.

Ask Elaine a question or read her prior answers in the 'Your Business Credit' archive.
Question Dear Your Business Credit,
I had a business credit card with a major bank for a number of years, but got into a financial hardship about 1.5 years ago and became unable to keep up with this, along with other credit card debts. The bank unexpectedly started pulling funds from my business checking account, up to $5,000, which put me in a worse financial position, so I closed my business checking account with them.

In January 2016, they charged off the remaining balance of $4,300, and since then had their collections department overnight me a notification to pay this remaining balance. I phoned the person whose name was on this notice, and very soon after I contacted her over the phone, she offered to settle for $2,180.

Although I felt it was a reasonable settlement, I don't have all the funds available and needed more time to raise the money. The collector has been bullying me and giving me a deadline, and she threatened to put a lien on my personal mortgage. I happen to have a mortgage loan with them. She stated that since I signed the original credit card application as a “personal guarantor” that they can do this. Is this true and likely to happen? – Dennis

Answer Dear Dennis,
I’m sorry to hear about the high-pressure tactics the bill collector is using.

Debts that individuals incur to run a business are unfortunately not covered by the Fair Debt Collection Practices Act, which protects consumers from debt collectors who use abusive, unfair or deceptive practices to collect from them. That can make for some rough going if you fall behind on your debts.

To find out your options, I spoke with Jen Lee, an attorney with offices in San Ramon and Tracy, California, who frequently advises clients on debt-related matters.

It sounds like the bank sold the loan to a bill collector. The bill collector may now have the right to come after you, because of your personal guarantee, but Lee says she cannot just put a lien on a personal mortgage. “They would have to sue you and get a judgment against you to get a lien,” she says.

So what can you do in this situation? One option is to wait for the bill collector to sue you. But that may cost you a lot in the long run if you end up paying legal fees to defend yourself.  

Given that the settlement sounds reasonable, Lee recommends trying to work out a payment plan with the bill collector. “A lot of times, they will take a monthly payment,” she says. “Sometimes they will want a little more upfront and then take a monthly payment.”

The bill collector may not be a warm, fuzzy personality, but she probably doesn’t want to pay the legal fees it will cost to sue you. That would cut into her profits on the debt.

Once she realizes that you don’t have all of the money she wants right now, she will probably conclude that she is better off making a payment plan with you. Just make sure that if you negotiate a payment plan, you don’t cave in and accept something you can’t stick with – which could leave the bill collector with no other option than to sue you. Good luck!

See related: 10 tips for dealing with debt collectors, collection

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Updated: 10-19-2017

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