Shocked by business debt revelation

iVillage Member
Registered: 01-24-2005
Shocked by business debt revelation
15
Mon, 01-24-2005 - 11:19am
Five years ago my husband quit his job to start his own business. I wasn't very happy about it, but he didn't discuss it with me beforehand, he just came home one day and announced it was a done deal, he'd given his notice. Whenever I've asked him how the business is doing, he is evasive but since he brought home a (small) paycheck and had clients, I figured he was at least breaking even.
He accidently left a P & L statement at home which I found and was stunned to see he was losing a great deal of money. I confronted him and he admitted he is deeply in debt. He has no plans to give up his business. He says he can slash expenses and start breaking even. Of course this does not address how he will pay off the debt---which is mostly on credit cards, of all things! He didn't want to work with a bank when setting up his small business.
I am 54 years old and we have 2 teenage kids, no savings and almost no retirement, everything was poured into this business. I work part time(not for him)
I feel extremely overwhelmed. My husband says if his company goes bankrupt, it will be the corporation, not us personally, but I am still sick with worry.
If he dies, will I owe all that money? How can we retire with a huge huge debt?
Is there any resource I could tap into for help/advice?

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iVillage Member
Registered: 06-18-2004
Mon, 01-24-2005 - 11:35am

You may want to consult with an attorney that specializes in corporate law. Are you sure the business is a corporation?

I know it must be difficult for you and unfortunately I can't answer any of your questions. I can, however, offer you prayers and support. Most of the ladies here are here for support.

Good luck and let us know how things go.

Kellie

iVillage Member
Registered: 02-19-2004
Mon, 01-24-2005 - 2:58pm
I don't know how it works for sure, but I can't imagine the credit cards are in the business' name and he's not personally responsible for them. Maybe it would go through corporate bankruptcy, but even if they were bank loans they would have him sign as a personal guarantor. Sorry you are having to sleuth to find all this out. It really shows a lack of respect and responsibility on his part.

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iVillage Member
Registered: 03-28-2003
Mon, 01-24-2005 - 3:25pm
Your dh may very well be right. The debt may belong to the corporation solely, assuming his business is set up as a corporation, and that there has not been comingling of business and personal assets (which would be considered "piercing the corporate veil"). it is a really tough situation to save for retirement with a business that is not performing too well. My parents went through this same thing...my mom got sick and passed away, my dad is no longer able to run the shop. Business assets were sold, the corporation dissolved and now my dad is living with $960 of social security income per month. Not the way to go at all. The business assets more or less covered the liabiliteis but there was nothing left over. There are ways to start saving for retirement, you should get in to see an accountant. IF dh is committed to continuing his business, i would get involved with the bookkeeeping and make sure things are up to snuff. It takes a long time sometimes to make a business work, and sometimes it is very difficult for people to throw in the towel and go back to work for someone else. Ask your husband to show you the articles of incorporation, that will at least let you know that the proper paperwork has been filed with the state. Good luck! H
iVillage Member
Registered: 02-25-2004
Mon, 01-24-2005 - 4:31pm

I am sorry you are so overwhelmed right now and with reason. I wish I had advice to give, but unfortunatly I know zilch about corporate law.

Just wanted to let you know that I'm hoping the situation betters itself for you.

iVillage Member
Registered: 01-24-2005
Wed, 01-26-2005 - 12:02pm
Thanks lovechrisngeorge. Sometimes it helps just to get it out and feel like someone else is listening. Needless to say, I cannot discuss this with ANYONE I know.
iVillage Member
Registered: 01-24-2005
Wed, 01-26-2005 - 12:08pm
Thanks for the advice gheatherr. I am quite sure his business is incorporated with the state. He keeps his business finances separate from our personal ones, but I am not sure what qualifies as comingling. He pays for cell phones that the whole family uses, for instance. His assets are not enough to cover the debt his business is now in. I don't know how he keeps getting more credit extended to him with nothing to secure it.
I doubt very much he would let me do any of the bookkeeping, or even open them up for me. All I know to do is try to save money on the side, but it is very hard when we are living on a shoestring as it is.
iVillage Member
Registered: 01-24-2005
Wed, 01-26-2005 - 12:12pm
How does personal guarantee work? Wouldn't he have to show he has personal assets worth as much as the amount of credit extended? Even if we sold our house and everything we own it would not cover this debt. At what point do the credit card companies just say no?
Maybe I need to talk to a bankruptcy attorney just to get info (sigh) More expense!
Thanks for the advice firstamendment.
iVillage Member
Registered: 01-24-2005
Wed, 01-26-2005 - 12:15pm
Kellie,
I appreciate so much your kind thoughts. I'm sure his business is incorporated..I know it is. But how a bankruptcy would unfold, I don't know. The attorney/accountant who does our personal income taxes also does his business taxes. Maybe I could talk to him, if he doesn't invoke some kind of client/privledge.
iVillage Member
Registered: 02-19-2004
Wed, 01-26-2005 - 1:02pm
The person doing the guaranteeing might not have enough assets to cover the debt completely, but it's more than they would get from just the business. I think it's usually standard practice to get a personal guarantee from the business owner, especially when extending credit to a fairly new business (I used to have a client for a leasing company, and they got personal guarantees all the time when leasing new copier and other equipment). But it's possible they didn't do it.

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iVillage Member
Registered: 03-27-2003
Wed, 01-26-2005 - 2:36pm
Well, I can tell you that if the debt is in the business name or your husband's name alone, you shouldn't be responsible if he goes banckrupt or dies. My Dad had a great deal of debt that was in his name alone. He bankrupted it and died a few years later.
My Mom wasn't responsible for the bankruptcy or the debts after my Dad died. BTW -- it really sucks to realize this when someone is terminally ill.
Just make sure you weren't listed as a coapplicant or authorized user on the credit cards. You should be able to tell by pulling your credit report and checking for anything you do not recognize.
You should also consider how are you filing your taxes? Do you file jointly and is the business tax "passed through" and to a schedule C attached to your 1040? If so then you could be liable for the taxes.
My DH started his own business and it took a few years for us to finally start breaking even. You can try to get a SBA loan. If your DH has a business plan, he can get the loan.
Good luck!
Sandra

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