Avoiding bankruptcy at all costs

don't let debt do this to you

My situation

I run a small business. Most of my friends and colleagues are small business owners. Every single one of them is in debt. There is no respite from this. According to economists, small business owners have to learn to live with debt. I've had a small business for 17 years and I can attest to that fact. One other Innkeeper colleague I knew declared bankruptcy...it ruined her business...but the rest have "learned to live with it."

You don't make a lot of money in this business and one way of seeking cash flow is to refinance your beautiful Inn, which is what I have done... five times. It enabled me to pay off my credit cards and get the cash I needed to make repairs on "this old house" (which is also my home), update the guest rooms, put in a new bathtub, and replace old, frayed linens and towels.

What does all this have to do with personal finance?

I can answer that. I am a sole proprietor. When I went into business, I had absolutely no business experience. I was taking a risk. Initially, I set up two checking accounts, one for my personal business and one for the bed and breakfast business. I attempted to use QuickBooks to keep the necessary records so that my accountant would be able to efficiently figure out what I owed the federal government. It was at this point that I made the biggest mistake I could ever have made that first year: I combined my personal and business income and expenses ...from then on, they were bound together for life of my business.

Credit Card debt

Over the years, I have indeed learned to live with debt. I have relied on credit cards and refinancing my mortgage to both take care of my personal needs and to run the business. However, since the economy in the nation has gotten so bad, I have no been able to refinance my home, which has lost value over the past three years. This eliminated the cash flow I need to run the business and pay off credit cards.

I don't want to go bankrupt...

but I've considered it because my financial situation is not good. I feel the strings of a bad economy tightening around my neck, but I don't want to lose my business. If you're wondering how I can possibly be making it at all under the circumstance, I'll have reveal that I do have a life line. It's my pension for teaching nearly thirty years in Chicago. Unfortunately, although it's supposed to be used for my personal living expenses, I have to throw it in the mixed up pot of business/personal income and expenses.

Let's talk solutions

I have entertained many ways to try to dig my self out of this situation. One solution would be to sell the business and the property and leave town. Not long ago, I managed to get that ball rolling by cooking up a risky (to me) deal with my then housekeeper who was dying to have a bed and breakfast of her own. I say risky because it was a land contract, but I didn't care. All I could think of was getting out of debt. As it turned out, the deal fell through. So I had to go back to the drawing board.

I tried finding a co-signer so I could re-finance my mortgage again (on my own, my debt to income ratio had prevented that). No one wanted to take the risk (not that I blame them). Next I began scouring the Internet for debt solutions. There were many but they all turned out to be scams. I applied for Obama's new mortgage modification program but never got past the 14 pages and pint of blood you had to send in for consideration.

Finally, something that might work

On the verge of giving up all hope, I listed my house again and got into a conversation about my financial situation with my realtor. I know her quite well; she lives a few blocks from me. Sympathizing with my situation and wanting to help me, she contacted a long-time bankruptcy lawyer friend to ask his advice on my options. He said to stay away from debt reduction schemes that promise to reduce your debt in half and recommended a consumer credit counseling service...a service in town he was very familiar with. They do not try to lower your debt, they negotiate with the credit card companies to substantially lower your interest rate so that the length it takes to pay off the debt is shortened by years.

Have I learned my lesson?

After a two hour meeting with a credit counselor, I started breathing more easily than I had since my house sale fell through in June. If I decide to go on the program, I will be free and clear of all my credit card debt in four years, saving approximately $80,000 in interest. There are a few repercussions, of course, likes closing out all my cards but one and a temporary reduction in my credit score.

What do I do if I sell my house or want to get off of the program? Those questions were answered to my satisfaction. I am not moving quickly as I might have done as recent as five years ago. If I do this, it wont be until February. In the meantime, I'm talking with colleagues, lawyer and business friends, and family...and writing this hub, a way of exploring this situation.

Again...Have I learned my lesson?

God, I hope so...only time will tell

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Comments 20 comments

Hmrjmr1 profile image

Hmrjmr1 6 years ago from Georgia, USA

Alek- Hope it all works out for ya, You've made some tough calls, and eventually they will pay you dividends, both financially and in peace of mind. God Bless.

alekhouse profile image

alekhouse 6 years ago from Louisville, Kentucky Author

Hi Hmrjmr1, Thanks for the encouragement. I needed that! looking for both financially security and peace of mind. :=)

ahorseback profile image

ahorseback 6 years ago

Hello stranger , Alekhouse Im sorry to hear of your problems , what about a reverse morgage , is that posible in this situation , sounds like you've got it together though. Best wishes to you though and hugs....

alekhouse profile image

alekhouse 6 years ago from Louisville, Kentucky Author

Thought about a reverse mortgage at one time, but I have my house up for sale and I think, with a reverse mortgage, you have to remain in your home for a given amount of time. So I might be up a creek without a paddle if the house sells. Thanks for asking.

VioletSun profile image

VioletSun 6 years ago from Oregon/ Name: Marie

Nancy, Have you considered emailing Suze Orman or posting a question to her in Facebook? Tonight she said in her show, that it is HER in Facebook and Twitter and if folks keep doubting its her, she will leave. She is tough, but very good with advice. I am thinking of asking her a question.

I emphatize with you! We got out of credit card debt both business and personal with the sale of our cabin, but we sold it at $40,000 less due to the economy, and we still owe family almost a grand, and the business does not generate sufficient income to cover the debt, it goes towards inventory. So, my s/o is working in his remodeling business again to be able to pay our siblings and for inventory. I give all of my early retirement pension to the business and household expenses. I regret ever getting involved with this, it has created financial struggle instead of prosperity.

I wish you luck, may 2011 be one of freedom!

Erin LeFey profile image

Erin LeFey 6 years ago from Maryland

Alek, thanks for opening up with some very personal information. Many of us are in the same position and are facing the same situations. I told you a while ago that I wish I could buy your house - its always been my dream but this economic crisis has left me in the same kind of predicament with a house in colorado that I can't sell. Best wishes to you and I hope everything works out for you. I think I might try that plan too. Brightest Blessings, Erin

alekhouse profile image

alekhouse 6 years ago from Louisville, Kentucky Author

VS, Thanks for the suggestion about Suze Orman. I think she is really good. Didn't know she was on FB. I think I will definitely write to her.

I hear you about the tangled mess this economy and credit cards have gotten plain, good folks into. Don't think any of us thought it would get this bad. Many financial analysts are saying it'll take 5 years to turn the situation around. God I hope not!

alekhouse profile image

alekhouse 6 years ago from Louisville, Kentucky Author

Erin, Yeah, I remember your being interested in a B&B. It actually has been great for me all these 16 years and I really have loved it. The problems I have are not due to my being in this industry, they are due to my lack of business acumen when I started and my inability to handle credit cards well. If I had it to do over.............

bgamall profile image

bgamall 6 years ago from Las Vegas, Nevada

Hi Alekhouse, I hope you will read a hub I want to post because you will see that there are macro issues making it difficult for all small business using credit cards. First, my dad had a small business. He got loans from the major bank in the day. He didn't have to rely on high interest credit cards.

Now, the banks are more greedy. Even though they know that businesses use cards and not just consumers, they have jacked the rates up on everyone because they messed up with the housing bubble and need the money. It is criminal as far as I am concerned, and congress lets them. The credit card reform act was simply window dressing compared to what they should have done. Please read this, and I hope it is ok to post it here: http://hubpages.com/hub/Never-Forget-Senate-Voting...

I hope you can beat the system with the credit counselor, but the scam in that system is that they do not lower your principle, nor do they lower your monthly payments much. That system is run by the greedy credit card companies themselves.

alekhouse profile image

alekhouse 6 years ago from Louisville, Kentucky Author

bgamail, Thanks so much for the information. I will definitely read the hub your sent me. I need all the help I can get.

bgamall profile image

bgamall 6 years ago from Las Vegas, Nevada

Yes Alekhouse you are welcome. This is the problem, the credit counseling has a high rate of failure. The card companies get something out of it and if you fail they get to add interest. If you play the game fine, but it is a very tough game to play because they set the rules and they are unreasonable rules born out of sheer greed.

alekhouse profile image

alekhouse 6 years ago from Louisville, Kentucky Author

Thanks for the warning bgamall

akirchner profile image

akirchner 6 years ago from Central Oregon

Great information, alekhouse and I hear your pain! Our son just went through bankruptcy last year when he and his wife both lost their jobs. I was so upset about it and still not sure if it was the 'best' thing to do but then again what the heck is the best thing? When you're strangling from your financial life, that isn't healthy either.

I do think though that learning how to budget is the thing that saved Bob and I many years ago because we too got into the credit card trap and before we realized it, there we were! I think the older you get though, the more we DO learn our lessons....so wishing you all sunny days from here on out!!! Wish I was closer - I'd come help for free....at least the cooking!! I'm also a fanatic cleaner if given the chance to pitch in...and painter....and..and...and.

alekhouse profile image

alekhouse 6 years ago from Louisville, Kentucky Author

What a nice post, Audrey. I wish you lived closer too. I could use a little support...the kind you appear to be capable of giving. It's so nice to have virtual friends like you. :=)

fastfreta profile image

fastfreta 6 years ago from Southern California

WOW, alekhouse, you've been through it, and apparently still going through it. I can sympathize with you, because I've been there, actually worse than you, I'll leave it there. But a brighter side is coming, keep your head up.

alekhouse profile image

alekhouse 6 years ago from Louisville, Kentucky Author

freta...thanks so much for your comments and support...very much appreciated

htodd profile image

htodd 5 years ago from United States

Nice info....Thanks for details

alekhouse profile image

alekhouse 5 years ago from Louisville, Kentucky Author

You are very welcome.

swb64 profile image

swb64 5 years ago from Addingham, UK.

Unfortunately we do sometimes run out of options, keep an eye out...

alekhouse profile image

alekhouse 5 years ago from Louisville, Kentucky Author

OK i sure will

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