Avoiding bankruptcy at all costs

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