When I Decided to Consider Bankruptcy

I am self-employed. I own a corporation. I have been self-employed selling books online since 2000. Most of the time I’ve been the only employee. But in the past I had a 7,500 square foot warehouse and up to four employees (one great one and three mediocre ones. But that’s for another day.)

To me, bankruptcy was a lazy way of getting rid of debt. I wanted to honor my financial obligations. I was working hard, sending everybody something. (Let me here mention that I owed the IRS almost $40,000 in payroll taxes. I just wasn’t making enough to pay for my employees, warehousing, my house, and all the other bills. So I didn’t pay the payroll taxes figuring I’d pay them later. Apparently, this is pretty common among struggling businesses. Later you’ll find out why this is a really bad decision.) So I gave up the warehouse and the employees and moved all my inventory into my home and shop and two storage units. It cost me over $5,000 to move the inventory.

A couple of months ago I paid off a personal credit card. It was a Care Credit account for veterinary bills that I had incurred caring for and euthanizing two cats, Tiny and her brother George. I was so happy and encouraged that I paid one card off! Then I got a letter from the IRS stating that if I did not pay 3rd quarter 2007 payroll taxes they would levy my assets. I also received a letter from my mortgage holder that I needed to make arrangements to get caught up on my mortgage or they would begin foreclosure proceedings. You see, I had been paying my business debt before I paid myself, and so my mortgage wasn’t getting paid. (Another bad idea.)

I owed two vendors for product I had purchased the previous year and asked them to please be patient, their payment would be late. I had been sending them each $1,000 every month. I told them about the pending IRS levy and mortgage foreclosure. One vendor waited. The other vendor had a credit card on file from a transaction long ago. She charged $5,000 against it. I had only $500 available credit and that was needed for postage that week. (Any time I got money I paid a bill, so I was always operating on very little cash.)

The credit card company, Chase, allowed this transaction, thus taking me $4,500 over my credit limit. They added the associated over limit fee and requested that I bring my account back under my limit. Phone calls to Chase got routed and rerouted and rerouted again, and they said my agreement allowed them to honor this charge. I don’t even know if it was legal for the vendor to do this. So I then had to use another credit card for postage, taking that one to the limit and wiping out what little headway I had made there.

I was completely demoralized. What had started as a triumphant week by paying off one debt ended with me worse off financially because one vendor wouldn’t wait a week for payment. I was depressed for a week. I had trouble sleeping. My hair was falling out. I just couldn’t see a way out. I had been trying to satisfy everybody and honor all my debts, and then all my gains had been wiped out by the selfish act of one person. That’s when I set aside my pride and judgment and decided to look into bankruptcy.

In subsequent posts I’ll write about the difficulty in getting information on bankruptcy, some of the key issues, and whatever I can think of that will help you understand your options.