
Ask HN: I Used My Credit Cards to Fund My Failed Startup and Now They're Suing - ThrowawayTheDay
About four or five years ago I applied for several credit cards to augment my freelance income, so that I could drastically cut back on the hours I spent working for others and focus mostly on my project. We're not talking huge amounts here - three cards with around 5k each.<p>Anyway, fast forward a couple of years and the freelance market collapsed in my region and my startup failed.<p>I recently received notice that a process server is trying to track me down to serve me. I'm assuming the other debt collection companies will too at some point.<p>Is it too late to contact the debt collection companies and try to work something out? I can probably swing a 1k down payment and the rest over monthly payments for a year to a year and a half.<p>There's also the additional issue that I may have <i>exaggerated</i> my freelance income somewhat on the applications. I'm not sure how worried I should be about that at this point.
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awwx
daveramsey.com is a good source of information. See for example
[http://www.daveramsey.com/radio/highlights/?urlVars=2010/7/1...](http://www.daveramsey.com/radio/highlights/?urlVars=2010/7/15/Dont-
Find-Yourself-In-A-Zoo)

A few particular points -

Don't use a debt consolidation company, they're a rip off.

Get a copy of your credit report so you know who has your debt and for how
much.

Deal with your debts one at a time -- smallest to largest.

When you have some money, call the first debt collection company (the one with
the smallest debt). Negotiate a settlement in full. Don't pay them anything
until they agree _in writing_ that your payment settles the debt _in full_.
(Email counts for in writing). Do not send them a personal or business check
that has your checking account number on it and don't give them electronic
access to your checking account -- they will clean it out. Send them a
cashiers check for the settlement amount instead.

Repeat for each debt.

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dbecker
Credit card debt is typically sold to debt buyers for about $0.06 on the
dollar, and the buyer/collector is usually very happy to collect a fraction of
the debt if it means they earn a profit on your account.

It is common for them to get some information from you to figure out how much
you can pay. In any case, give them a call. It is very likely that they will
be happy to collect the $1000 down payment and set you up to pay the rest (or
some fraction of the rest) in installments.

My understanding is that you are better off working this out directly with
them than going to court.

Background: I am not a lawyer. However, I worked on issues related to the debt
collection industry as part of the FTC's consumer protection bureau.

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pm24601
Some considerations:

1\. AGE OF DEBT: If the debt is over 3 years old, consider ignoring it. Bad
marks remain on your credit history for 7 years after the LAST payment. By
making any payment, even for $0.01 you reset the 7 year clock. If the debt is
over 7 years old - definitely ignore the debt collectors.

2\. IMPACT: Is if the bad debt is impacting your life: are you having a hard
time renting, or doing anything critical? From your post it sounds like you
only "noticed" the debt when you started getting calls.

3\. LAWS: The process servers are in many cases doing the minimum necessary.
Their ideal case is that you do not show up to court and then they get a
default judgment against you. Simply by showing up to court to object, you
raise the cost of them pursuing your case.

4\. DO THEY OWN THE DEBT? Just because some company says they own your debt
does not mean that they really do. For example, do they have clear
documentation about how much you owe, including interest calculations, and
complete documentation about your account. The banks have gotten very, very
sloppy about following the law when it comes to documenting payments, interest
calculations, and transferring of debt.

A starter website to look at is : <http://4closurefraud.org/>

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Mz
I am in much deeper doodoo than you are. I wrote at length a couple of days
ago but couldn't manage to post it and now I cannot find it. I haven't
experienced any of the malicious sounding tactics that other posts here
describe. If you can pay it, do so. Be polite. Be honest. Make a good faith
effort. It is a business like any other. They just want the money they are
lawfully due and they deal every day with people being assholes to them and
lying, hiding assets, etc. Don't be an asshole about it and they will probably
not be assholes back.

At least that has been my firsthand experience doing this. Feel free to
believe in the boogiemen posited by these folks who are probably generally
well off and have never been through something like this.

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patio11
_Is it too late to contact the debt collection companies and try to work
something out?_

No. If they're debt collection companies and the debts are 4 to 5 years old,
your $5k debt cost them less than $200 to acquire. I would say something like
"Look, I'm unemployed and looking at several different companies who all want
more money than I have. I'm making this same offer to three credit card
companies this week: $1k paid immediately in return for full satisfaction of
this debt. I will understand if you feel the need to reject that offer and sue
me, but I have no assets. This represents the best deal you're going to get."

Do this negotiation entirely on paper, delivered in the postal mail, with
return receipt requested. Don't talk to anyone on the phone for longer than it
takes to say "What is your postal address?" Your first letter to each company
should include language similar to "It is inconvenient for me to receive debt
collection communications via telephone or any other means but postal mail.
This letter constitutes written notice under the Fair Debt Collection
Practices Act that you are not to contact me about this matter via any method
other than the postal mail."

Our overarching strategy here is avoiding having folks sue you (n.b. the
process server is in play because someone is _already_ suing you, and merely
ducking him will not make that impossible -- they'll just put a notice in the
newspaper and the judge will certify "service accomplished by public notice"),
because you'll probably not go to court in time to contest and if you do
contest you'll likely lose (you do, after all, owe this money). You will then
have a default judgment entered against you, for the entire sum you borrowed
plus interest plus collection costs and legal fees. This will likely be more
than double the amount you _think_ you owe. The debt collection agency will
then begin contacting every bank/etc in the area to see if you have an account
and then seize the contents to satisfy the judgement. If they don't recover
100%, they will petition -- and receive -- a court order to garnish your wages
for the next several years until that amount is satisfied.

This process will be stressful and costly for you. It is highly in your
advantage to avoid it. Ignoring it will NOT make it go away.

 _I can probably swing a 1k down payment and the rest over monthly payments
for a year to a year and a half._

I would suggest that you be Very Darn Sure (TM) that you can actually handle
this this time, because if you get to month 7 on one of those agreements and
then miss a payment _by even a day_ , you're in a situation which will be in
every possible way worse than the situation you are in today. You should
strongly prefer paying part of your debt today in full satisfaction versus a
payment plan. They will suggest payment plans, because that gets them some
money and because probabalisticly _you like virtually all other debtors will
default on that payment plan_ , after which point collection costs will
inflate the debt to a number at least as large as the number they are claiming
now.

 _There's also the additional issue that I may have exaggerated my freelance
income somewhat on the applications._

I am not a lawyer, but to the extent that you trust me: you have nothing to
worry about with regards to this.

~~~
malandrew
How long after your last payment to the credit card company does it take until
they pursue a lawsuit? Do most (all?) wait 4-5 years before they file a
lawsuit? Is there a table that shows roughly what percent is paid for debt by
collectors over time? For example, you say they probably paid less than $200
to acquire debt 4-5 years old. What about debt that is 2-3 years old or 3-4
years old?

~~~
johnrgrace
The credit card company pretty much never sues (I worked for capital one) but
they will sell the debit to collecors who will.

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orionblastar
Well if your credit is ruined, you have seven years before it is taken off
your credit history.

If you don't contact the debt company the debt you owe will be written off and
the IRS will send you a 1099 form of the debt as income. So you will have
$5000 added to your 1040 and taxed on it.

If you do contact the debt company and make arrangements to pay you will be
contacted by other debt companies as well. So that 1K down payment and $X
month, the other debt companies will want a settlement as well.

What you might want to do is contact a debt settlement company that can
consolidate your debts into one monthly payment. Your credit rating is already
ruined by owing debt and being sued. Contact a debt lawyer or debt
consolidation company to reduce or consolidate the debt and make payments if
you want to go that route.

Owing debt and taxes is all too common in the software consultant area.
Sometimes software consultants are stiffed by contracting companies, clients,
brokers, etc and still have to pay taxes on income they earned but were not
paid for. If they ask about your income changing, just tell them it was higher
when you had more work and it adjusts to the market. Most credit card or debt
companies don't care what you earn, as long as you make payments. They will
eventually see your tax form and then make adjustments to your credit based on
that. Debt collection companies, by the way, get your contact info from the
IRS from what you put on your 1040 form. So whatever contact phone or contact
postal address you list, they will contact you with that. Some people skip
debt collection agencies by putting a PO box listed as an apartment or a phone
number that is always busy or rings and rings and never is answered as their
contact phone to keep debt collectors away. But you didn't hear that from me.
:)

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ThrowawayTheDay
Thanks so much everybody. This has been _incredibly_ helpful to me.

~~~
jason_slack
Congrats on taking the risk and using your personal credit cards to start
doing what you wanted to do. Not a lot will do this and accept the stress it
brings.

There is a lot of good advice in this thread.

You will be fine.

Keep pursuing your dream.

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anigbrowl
You should certainly contact your creditors, preferably in writing. I have no
idea where you are or what the laws in your state are, but the FTC has a bunch
of good advice and resources:
<http://www.consumer.ftc.gov/articles/0150-coping-debt>

Good luck.

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sskates
Not sure if you're still reading this thread, but in case you are, there's a
YC startup that aims to help people get out of debt:
<https://www.readyforzero.com/>. You may find it useful.

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saluki
If you have funds available save up and try to settle with them when they
contact you. You might be able to pay 1/3 or 1/2 of what you owe. I would
offer 1/3 and have 1/2 saved up. Keep in mind that you'll most likely have to
pay income taxes on the portion you don't pay back. They would also file a
claim against you in small claims court trying to get a judgement against you
for the amount you owe. So when you do get served contact them and try to work
out a settlement or payment arrangement. And make sure to attend any court
dates. I don't expect they are worried about your estimated income at the time
the cards were issued.

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codeonfire
You should take that $1k and consult a lawyer. I always find it funny that the
Hacker News view is that startup failure is a learning experience that has no
consequences.

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johnrgrace
Debit Collection companies sue people all the time, and almost always they
have nothing to support the debit if they get into court. A spreadsheet with a
line and a balance is all they have so winning a collections lawsuit is almost
impossible for them to do, IF you show up in court. Almost everyone doesn't
show up in court.

