Can you settle business loans that are personally guaranteed?
I have a small sub S corporation with sole ownership. The business sells wholesale flower seed to the commercial seed companies mostly in the U.S. After 7 years of funding the business with a number of different credit lines, business credit cards, and credit from suppliers, I am finding I am just continuing to throw money down the rat hole in hopes to keep the business afloat.
The product is NOT recession proof, and sales have continued to decline the past few years. I have managed to over extend my privileges with my supplier and thus have been cut off until I can bring the account down significantly from $75,000.
Unfortunately with out a fresh supply of seed, it has become impossible to dig myself out of the hole. A classic "Catch 22"....I also owed as a secured loan (a 2nd mortgage)/business credit line to Citizens Bank in Oregon $22,000, an unsecured (but personally guaranteed by both my wife and I) business line of credit at $42,000 along with a business Credit Card with a balance $14,000, both from Wells Fargo , and a business Credit Card from Am Ex with a balance $18,000.
The bank debts are both delinquent less than 60 days. I have settled in June with Citizens Bank to protect my house, and have settled with my supplier, with return of inventory that he "still owned", along with equipment, and stuff that he was willing to take. In essence, I have not shut down the business, but rather acting as a "broker" putting buyer and seller together, hopefully being able to make a very small wage to help continue paying the mortgage. I just turned 62, so plan on looking into early SS to help supplement the income. My wife still works, but only brings home a monthly gross $3000, so I am not in a great spot to continue paying the business debts that now total $74,000.
But wait...there is more! I do have in cash, the remaining receivables that total $30,000. Wells Fargo is aware of the cash as it was in the business checking with them. Yesterday, I transferred that money to my a new personal account with a different bank, as I didn't feel Wells needed to know my status, especially when they call 5 times per day, wondering why I am delinquent with that amount of monies in my account with them.....
The question is, how can I fit a square peg ($30,000) into a round hole($74,000) , in hopes to satisfy the debts with an offer to settle with one lump sum? My other joices certainly are personal bankruptcy, but that saddens me, since I have carried a personal creit score 810 for many years.
—Dennis K
You can settle business lines of credit and credit cards in the name of your S Corporation (C corp, LLC, and DBA’s too), even with the personal guarantee. The process of negotiating a reduced balance on a business loan is similar to consumer debt settlement.
There are a few additional concerns, but you have hinted at most of them with the background details you provided.
Keeping Your Business Open After Defaulting on Debts
If you want your corporation to continue operating, even after defaulting on business loans, you should expect the following challenges:
- Vendors and suppliers will likely require cash payments to continue working with you.
- New relationships (depending on the nature of them) could be hindered by any impairment to your D&B listing (if applicable).
- Breaking any leases would likely lead to equipment repossession (not an issue for you based on what you shared above).
From what you have shared, you could keep your business going, and work from home. You already moved your accounts away from Wells Fargo – where you have accounts you would look to settle with. Do not have any vendor concerns (other than resolving any existing ones), when acting as a broker? Could you carry that out as a DBA, or is the S Corporation better designed to meet your purposes?
Settling an Unsecured Business Loan and Credit Cards You Personally Guaranteed
Your available cash suggests you can fit your square peg into the round hole and avoid bankruptcy by negotiating settlements on your business debts. Using low end estimates, based on my experience and today’s trends, you could come in a little under the the 30k you have. High end estimates would mean you could settle the remaining business loan and credit cards for a touch over the money you have available.
Wells Fargo settles business accounts similar to how they settle consumer credit cards and lines of credit (signature loans). They often will treat business loans over a certain dollar amount a bit differently. And you have a loan with Wells Fargo that crosses that typical threshold. On the 42k loan you may find you need to be prepared to provide a good amount of documentation, like P&L, tax return etc. Settlements on loans this size are often only approved by senior managers, but the leg work is still handled by the typical Wells Fargo recovery department. I have seen management quickly approve settlements, and have seen VP review lead to additional documentation and/or request for more explanation on areas that raised a concern.
Wells Fargo settles business loans that meet their criteria at between 35% and 45%. What you shared so far would suggest to me that you would meet Wells Fargo approval for settlement. But you should be prepared with talking points if the recent 30k you had on deposit becomes part of the discussion when you are negotiating with them.
Negotiating and settling the Wells Fargo business credit card would likely go very similar to how they handle settlement on consumer debt. You would be targeting roughly 40% of the balance as settlement. I have seen a few credit card settlements with Wells get sticky at 45% recently (have also seen some a bit lower if the hardship is relayed well).
You cannot really get fully engaged in negotiations until you are closer to the accounts being charged as a loss on Wells Fargo’s books. And there are some things you can be doing to better set the table for your settlements. But this fact – you must be several months late before you can settle your line of credit and business credit cards – should cause further contemplation and comparison to filing bankruptcy. More on this below.
Assume you settle both the business loan and the credit card with Wells Fargo at an even 40% of the balances. You have the roughly 22.5k you will need to knock those down.
Settling with American Express is something of a moving target of late. Amex does not do much negotiation and settlements directly with their account holders (business or personal). They use mostly outside third party collection agencies and attorney debt collectors. What you target as a settlement will often be contingent on who is collecting for AMEX and how long the account has gone without payment. The range of settlements are between 35 and 60 percent (if not being sued). I cannot really say what to target until you know who is collecting. Lets assume you settle the business credit card with American Express at 50%. That additional 9k on top of the amounts required to settle your business debts with Wells Fargo.
Preserving your Credit Score When Settling Lines of Credit and Credit Cards in Your Business Name
Your concern about credit score you have worked so hard to maintain, were you to file personal bankruptcy may be misplaced. You mentioned you are not yet 60 days late in paying the business loan and credit card, and these debts are personally guaranteed. Take a look at you and your wife’s credit reports to see if the American Express business credit card, or either Wells Fargo accounts are showing. If any are, your being at least 30 days late on a payment would likely show by now. That means your credit report and credit score have already gone down. And because you will often need to be 4 and 5 months late in order settle for the most savings (which you need in order to fund settlements with available cash), your credit report would take a continued hit. Will it be a bankruptcy size hit? Probably not, especially if you can settle all of the accounts prior to them being charged off as a loss by the lenders. And certainly not as long of a credit impact as bankruptcy. But I can make an argument for why that may not matter to you depending on your future credit goals.
Having said all of that, you may find these business cards and line of credit are not showing on your personal credit reports. That is actually pretty common. But something strange can happen on the way to the credit reporting agencies because you personally guaranteed the debts.
The accounts in your business name may never appear on your credit reports, even with the personal guarantee. Missing several payments, followed by settling at some of the earliest opportunities, may prevent the accounts to show up in your personal reports. But I have seen many instances where business accounts suddenly begin to appear on personal credit reports once the accounts go without payment long enough to trigger the banks charging off accounts, followed by dumping them into their normal late stage collection pipelines.
Should that matter to you? It depends. I typically recommend people set aside any credit score and credit reporting concerns when comparing debt settlement with chapter 7 bankruptcy (chapter 13 would be a different story). But with your having 30k liquid, the bankruptcy trustee would want to take that money and disperse it to creditors anyway. In affect, the trustee would be settling up with your creditors the same as you could, but now you have the bankruptcy stain to boot.
There are other legitimate concerns and comparisons than credit reporting when considering personal bankruptcy with settling your business debts. Your states exemptions for other personal possessions, home equity, and more. I would recommend you consult with a bankruptcy attorney prior to committing to settling your business loans. If they recommend chapter 13, or chapter 7 raises issues that you need to avoid, settlement will work. Are there other personal credit cards with balances?
You can answer the questions I posed in the comment section below, and ask additional ones. Anyone reading with similar concerns about settling business lines of credit, or credit cards, can post in the comments below for feedback.
If you would like to talk with me, and work through strategies to resolve your business loans and lines of credit, you can schedule a call using the get help tab and the top of the page, or the box below.
About Michael BoveeMichael started CRN in 2004 with a mission to provide people in need with detailed debt and credit help and education. Michael has participated as an expert panelist in federal consumer protection rule making, collaborated on state law changes governing debt consolidation, has worked as an expert witness in court matters related to the debt relief industry. He is available to speak with you about your financial struggle and helps people resolve their debt problems daily.
Thank you for sharing the informative article.
Hi Michael,
I have a business credit card that has been charged off for a couple of years. I don’t remember if I personally guaranteed it. I cannot find any paper work stating that I did. I read through some of the questions on this page where you suggest to call the creditor to find out whether someone (like me) is personally on the hook for the debt in question. I have two questions: (1) Is the creditor obligated to give a truthful answer? (2) I did find some notes where I called my creditor twice before charge off to see what settlement could be possible. On both calls, I have noted that they asked for the last 4 of my SSN, not my business Employer Id Number (EIN) or Tax Id Number (TID) to pull up the account information. Therefore, is it a sure thing that I am on the hook for the debt personally? Thank you!
Who is the creditor?
Who is the last place you heard from trying to collect on this account?
It is more likely you gave a personal guarantee, as most of us do in these situations. It is more likely when your social is tied to the account.
The creditor is US Bank. I received letters from ARS National Services Inc. in November & December 2021 saying that the account was placed with them. I have not called US Bank to confirm if the account is still with ARS. This debt is not showing on my credit reports so far. I was not sure how to proceed.
If settling the debt is still your goal, how prepared are you to pay a settlement of between thirty five and fifty percent of the balance?
I would like to settle this. I have to check with someone, but the 35 percent might be within reach fairly quickly.
If your goal is to settle, and you know you can secure the funds, it is just a matter of contacting ARS National to negotiate.
If you want help we have it available.
Thanks Michael! Just one more question. I was going through the letters that I received from all of the previous contingency debt collectors on this account. All of the letters are addressed to the business name only and to the business PO Box, not my home address. ARS sent two initial letters: one addressed to “the business name” and the other addressed to ” ‘my name’ Re: business name” – both to the business PO Box. Is there any significance to the addressing to business name versus me, with regards to a personal guarantee on this account?
There could be something to this, but my experience suggests the way these have been mailed is normal with a business credit card or loan.
Thank you again for your time & help!!
Not sure if I can ask here, I have an Amex business card, with the business name, and my name, does not show on my personal credit report. The balance is 30k I cannot keep up on the minimums, I am however current on payments. How would you go about a settlement without the risk of being sued?
I see that you submitted a consult request. I sent you the link to pick the day and time you want me to call you. I can cover what your American Express debt settlement strategy should look like on that call.
I’m having to close my insurance business. I personally bank with US Bank and my LLC business and platinum card is with US Bank. The credit card was structured that the business is liable for the debt first than me personally. I’ve taken a job now that pays much less and can barely afford my mortgage. I’ve closed the business and dissolved the LLC. I have $5.100 balance on the card which has a $7,000 limit. I only made $162 with the business. Next card payment is due May 10th and I’m not behind yet but can hardly afford current bills. Called bank but they couldn’t help me, was transferred to their debt collection but they couldn’t help either because I wasn’t behind yet. How do I approach to negotiate a lower settlement? Let it become late then call back their debt collection dept? If so how do I approach, what do I need to do or say and who should I talk to?
Your business account with US bank can be settled for less much like a personal account can be.
You need to be several months late before you can get a decent settlement outcome.
How long will it take you to have about 40% of the balance owed?
Well written and to the point. I appreciate the detail in this article!
Hello,
We have a small business (C-Corp) that is soon to be closing. We have reached the point where our revenue is now less than our expenses. We may be able to sell our customer base for somewhere in the 100k-125k range. We also have inventory in the 10k-15k range. Outside of that, we really have no other business assets and minimal cash in the business account. We also have next to nothing personally as we have not been paid by the business in almost a year and have used up all of our savings trying to keep the business going.
As far as debt in the business, we have a US Bank Credit Card at 40K and a US Bank LOC at 100K. Both are unsecured but personally guaranteed. We also have a loan with Key Bank at 33K that is secured with inventory, equipment, receivables, etc. We also have 75k with our main vendor and about 25K with other misc vendors. All told, we have approx. 275K in business debt.
My question is, if we do end up receiving anything in the sale of our business, is there any chance that we could settle with these companies for 35%-40% of what we owe? Would really like to do that instead of bankruptcy.
Thank you for you help.
Your goal is reachable, but will depend on what you get for your customer base. Also, timing can be an important factor. Call in for a consult this week and I will get more details and sketch a map for you based on those creditors and the timing of events. You can reach me at 800-939-8357 ext 2, or reply to the email you get these comment notifications from (those all come to me) and I will schedule something in response.
Hi,
We have sold our business at a loss. After the sale proceed distribution, we are left with about $22K in Wells Fargo Business Line and Credit Card loans.
As LLC members, we have personally guaranteed these loans. Since the business has no more income, what are our options in settling these debt without affecting too much of our personal credit?
Do we have to let it go into default before Wells Fargo with talk to us about settlement? Or would we have to file business or personal bankruptcy?
Thank you for your help.
You can settle your business loan and credit cards with Wells Fargo. I typically target anywhere from 40 to 60 percent. You do have to fall behind with payments several months.
You can fill in the talk to Michael form in the right column if you want to go over the situation with me on the phone.
I need help with business credit card debt
You can schedule a phone call with me here: https://calendly.com/debtbytes/15min
We will talk through workable strategies for your situation and goals on that call.
a question, my business did bad last year and i have over 40k in cc debit i cannot pay, i have not been served any lawsuits as it has been about a year since i last paid on them, i am self employed and have llc out of wyoming and ein for each, but on the bank accounts it shows the company name, llc and my name, but the ein, is for the llc is associated with the account. if they get a judgement, can they levy those accounts, thahks
Business bank account levies, from judgments against you personally, are not likely. Your bank needs to match the name and tax payer ID. That cannot happen with your EIN.
Always a good idea to run questions like this by an experienced debt collection defense attorney in your state.
Years ago, when we were in business, we used a personal credit card for slower times, the Corporation was dissolved, We did not go bankrupt. The credit company has now levied my personal bank account.
We have an opportunity to climb back, using borrowed funds. A checking account will be required. My bank explained, a new account may also be levied due to our SS#. Can we form a LLC and begin a account that will not get attached? If no, do have any suggestions.
Thank you for your time, E.L.
E. L.
Fill out the talk to Michael form in the right column Ed. I will see that and email you to set up a phone consult. You may not need the bank account before you settle if you are ready to fund a deal now.
Hi Michael,
I’ve read through quite a few of the comments below and think you may be a good contact for me to reach out to. I own an LLC (85% me, 15% my husband). It’s an s-corp that had high income (about $800k/yr) but has been declining in the last couple of years. We have maxed out a $90k credit line (with CHASE) and also have an additional credit card with Chase for about $7k (I am on the hook for personal guarantee on both). We’ve managed to get Amex taken care of over the last couple of months but really have nothing left to take care of the Chase cards.
We were web-based retail and our inventory’s true value remaining is only about $20k (that assumes we can actually sell it… we have been liquidating over the last year to cover business bills and other expenses).
We purchased a home summer 2015 and keeping it is our primary goal (we are in OR). We do have equity in the home, however our incomes will not support a HELOC right now. My husband has started a new business and we need to protect our credit (as best we can) for this business. I have started a new job, but with my income it will take FOREVER to pay off the Credit Line. To make matters worse, the credit line is on an auto draft from the business checking account– that Chase don’t seem to care if it has any money, they pay the credit line and send my account below $0.
So in summary, we owe about $97k to Chase, I don’t want to mess up our credit- for future plans, I want to keep our house. We do not have money to pay a settlement to Chase and likely couldn’t pay the 35-40% to Chase by the 7=8months after default either. I don’t want to keep throwing good money after bad, but really don’t know what to do other than keep paying the monthly payments. (and I’m not sure how much longer I can do that with a straight w2 job.)
Call in for a consult and I will cover how you can do a long term settlement with Chase, or at least help you determine if it is feasible. You can reach me at 800-939-8357, ext 2.
Hi Michael Bovee,
My question has to do with a Voluntary REPO, I Co Signed for my ex husband back in 2008 & in 5/2011 he could no longer make the payments for the car I decided to return the Escalade because I didn’t drive or have a license and I definitely couldn’t afford the payments,now the Repo has been on my credit for 5 years & it has recently affected me and I am considering settling the account but I don’t know if thats a good idea or even worth it… Can you give me some guidance or advice???
Call me tomorrow for a consult at 800-939-8357 ext 2, or fill in the Talk to Michael form in the right column of this page and submit that so I can email you back and set up a time to talk that works for you.
Depending on what your goals are, it may be a great time to settle, or it may be better to just let it roll off your credit in a couple more years.
Hi Michael,
I have Chase credit card debt totaling $57,000, 80% of which are business charges on my business card, all cards are not yet delinquent and have 10.49% APRs. The S-Corp is no longer in operation. I have one checking account, which is through Chase. I also have about $100,000 in prior business taxes, vendors that I owe, and installment debts. I’ve been stuck after just paying off the smallest balanced card. Layoffs and pay cuts at work have started so I wanted to reach out to you before I get myself in a bind.
Due to my income, I wouldn’t be able to file for bankruptcy. Given that all my revolving debts are current, that I have installment debts, and I have the potential to be laid off or take a pay cut, what advice can you offer as far as options that I have? If I take a pay cut, I won’t be able to make any more payments to Chase.
To cut all ties with Chase, I opened a new checking account at a local credit union. After reading all the advice you have on CRN, it seems like timing is crucial to not lose an opportunity. I read your post on being prepared to answer questions when negotiating a settlement. I had a couple questions that would put my mind at ease and be better prepared.
Will Chase be able to see my new checking account and the balance?
Would they be able to see my reported income? I do not have family to borrow from so my only source of funding a settlement will saving a portion of my income.
If I go the settlement route, should I close the credit cards or leave them open?
After non-payment for 90 days, it sounds like Chase will try to collect by settlement first, then contract with a third party to settle with me, then sell my debt to a collection agency, then the potential to be taken to court. Which is the best time to settle without losing my opportunity to settle at all?
Chase will not be able to see your new checking account, as those are typically not a trade line item on our credit reports. Chase will not really be looking at you this close.
Creditors and collectors can get a good sense of what you make depending on what your previous and current employers are. Here again, this may not be all that important when negotiating Chase debt, as it can be when settling with other creditors.
If you stop paying your accounts they will be closed shortly. Whether closed by consumer, or closed by creditor, it will still be as big a negative on your credit reports, as you have to be late paying long enough to get an affordable settlement. There is little to be proactive about in this regard.
Based on today’s trends with Chase, the best outcome will be settling with the first or second agency that gets the account. You would want to avoid the account getting sold if at all possible. This will mean having resources in place to help you fund a settlement at between 7 and 10 months of being late.
These are trends that apply with Chase accounts. Banks have different percentages and timing in order to optimize results.
Michael,
How would I know when the second agency would be taking over the account from the first, is there any type of warning? I would assume that here is where a fine line between the best time to settle vs losing a favorable opportunity to settle. For Chase, are there golden times to try and call for a more favorable settlement?
If my plans changed and I wanted to buy a house in the near future (within in the next 12 months). I see two possible scenarios: purchase a house before my credit score is affected or wait for my credit score to improve after the hit.
If I went with the first scenario, am I overlooking any potential hurdles (besides the actual financial obligations) or how I may be affected?
If i went with the second scenario, how long would I need to work at repairing my credit score before qualifying for a FHA and/or a conventional mortgage loan?
Thanks for the great advice! I like to know what to expect and when to expect it to better prepare myself so you have been a great help!
Timing is key, but with the debt collectors these days, and not with Chase. It used to be the case that you could get the best outcome settling directly with Chase, but that isn’t so now.
The most favorable settlement and timing can be collection agency specific. Post the name of the agency you end up hearing from and lets go from there.
One obvious impact to buying now or buying later will be the amount of loan you can afford. Your DTI is better without the large balance owing (so after settlement). While your Debt to Income may be better without the large balance owed, having a collection showing may impact the interest on the loan. Not so much with FHA, but it can with conventional financing.
One account settled on your credit, among many positive ongoing trade lines, will prove you have a very elastic credit score. It bounces back quickly.
Hey Michael,
So I met with a mortgage broker at my credit union and was pre-qualified for a loan. They don’t do FHA loans but do 0% down as long as we have some money saved up.
A couple questions came to mind that I wanted to bounce off of you:
1. I checked my credit report and didn’t see any of my business debt on there. While that makes sense, would anything show up if I stopped payments on my business credit cards?
2. The broker said that they won’t pull my credit again before preapproval expires. That being said, would missing credit card payments of anything business related now affect my chances of buying a home as long as I buy before the preapproval expires?
I appreciate your reply in advance. Thank you!
Missing payments on business accounts can show up in the first month on your personal credit (when you are on the hook personally), but I more often see them appear on your credit after 3 to 4 months of missed payments.
My husband signed a personal guarantee for amex and visa cards about 15 years ago, for the business which is an s corp. I also have a card, Business name then my name on it. I became the 100 percent stock holder for the last 5 years. I never signed a personal agreement I did not know that he had until now. The past few years has been very difficult and cash flow was limited. I needed to use the credit cards. I continue to make the minimum payments plus a couple of hundred dollars more each month. I never missed a payment yet. The debt combined on 5 cards is 90,000 dollars. We sold the business in an asset sale, and are now retireing and will not be making an income. The sale proceeds thus far has paid for our vendor bills tax and 401 k lliabilities. there will be no more money available to pay the 90,000. We also have an underwater mortgage on an Investment property. Without income we will not be able to keep paying the 2000 dollar mortgage .Even with full rental, the out of pocket expense will still be 800 dollars per mos. We have tried to sell it for what we owe, but no bites. I never signed a credit cd personal guarantee when I took over the business. We jointly own real estate and we want to protect our assets. we own my daughters house on paper but she & her husband have invested all of the money, their equity is 140,000 dollars. Our home is protected with homestead, but not theirs. .We are afraid of judgement leins on her home. We also have excellent credit and don’t want to lose it in retirement. How can we overcome this dilemma . Should my husband balance transfer the debt to 0 interest cards . I am not sure how many transfers or for how much $ will be offered. to him. I am reluctant to do the same . I do not want this debt to become comingled personally, because we are afraid we will lose the deed of entirety protection , that we think can protect the properties. There are just so many questions and it appears, not many good solutions. We would appreciate any advise. .
You are in a tough spot for sure. I do not recommend taking out other loans or balance transfers when you cannot pay those pack either.
Call me for a consult, or fill out this request. I will be able to dig as deep as I need to in order to offer some actionable feedback over the phone.