Settling business card debt in collections
Ask a question.
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
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
Meet CreditCards.com's reader Q&A experts
Does a personal finance problem have you worried? Monday through Saturday, CreditCards.com's Q&A experts answer questions from readers. Ask a question, or click on any expert to see their previous answers.
- How to handle an employee misusing a business credit card – If you're a business and issuing employees cards, make sure you have the right system in place to avoid inappropriate charges ...
- I used the company credit card for a personal purchase – What to do if you use your corporate credit card for a personal expense ...
- How long can a payment processor hold funds from my business? – If payment processors are holding on to funds to investigate transactions, there are some best practices to make the system smoother ...