I’ve been struggling with what to do about my old business accounts that are (or were at one point at least) in collections.
Looking back, I wish I had filed for bankruptcy on the business side when I did my personal bankruptcy. The business was insolvent, but my pride didn’t want to “give up” on both fronts. So I kept the business going paper-wise, even though it ceased to exist in any functional manner.
I’ve been paying down my IRS accounts one by one this month. Basically, the IRS (for payroll taxes at least) treats each quarter as a separate file to them. I had 2 quarters from 2006 to resolve ($3800 total), which I’ve not paid off. 2007 is a little more complicated because I completely screwed up my taxes that year. My accountant is cleaning this up as we speak, and I will file amended returns for 2007 later next week. That should reduce the 2007 4 quarters balance down to around $10,000-$12,000, which is the correct amount vs. the $25K that I currently show owing for 2007.
I’m not going to pursue settling most of my old business debts that are in collections. Why? Well, for starters, the business no longer exists. And secondly, I haven’t heard a peep on those accounts (nearly all of them) in over a year. Not a single phone call. Not a single letter. I did settle a small account last month for $2,400, but beyond that, nothing.
And so, for my own sanity, I’m going to remove these accounts from my debts owed for the time being. I know they still exist, and I will at some point to resolve them, but for the time being I’m not going to focus on them.
I know this isn’t the moral high ground. I know that my business signed those papers (my personal liability was removed on them as I listed them all in my personal bankruptcy), and that I should repay the money. I know this. It’s not lost on me. These aren’t just going away.
I need to focus on repaying my mother first and foremost.
Current Debts
- Mom – $130,274
- IRS – $15,000 (aprox.)
- Student Loans – $34,015
- Toyota Financial – $8,295
Total: $187,584
{ 7 comments… read them below or add one }
DK – one thing is confusing – you mention above that your business has ceased to exist in all but paper, yet you have often referenced your employee. Did you set up a separate business for what you have your employee working on now?
While I agree with your focus on paying the IRS, your mother, your student loans and your car first, I would respectfully propose that you reconsider dropping the other debts from what you are tracking. Even if you put is all in one category called other, you should track it, using the most recent amount you can. There is too much temptation in not tracking it to have it out of sight, out of mind, and slowly and gradually you will change your mindset about whether you owe this money. You are a principled person. You know you owe the money so don’t hide it from yourself or others or your reality. I know this is MUCH easier for me to write than for you to do, but being principled and ethical is not always easy. Please think about how you approach this.
As always, you have readers rooting for you. As someone much older who just started a business, your persistence and discipline regarding getting up and working from home every morning are an inspiration to me. Thank you.
Hang in there. Keep chippin’ away at the stone. You got the right idea. Take care of your Mom first.
good luck! ive been reading your blog for a while and i agree that u should take care of your mom first since that’s such a major cause of stress in your life.
when i read your blog title, i sang ‘cleaning out my balance sheet’ to the tune of eminem’s ‘cleaning out my closet.’
hahaha sorry i got a good laugh at myself. i dont know if you listen to eminem.
Your food budget is very expensive for one person, IMO. I feed two people on $200/month, sometimes less (includes toiletries too). I’m hoping to cut that down even more with my urban garden. I’ve been really busy with my recession garden . What do you think the average consumer spends on groceries and toiletries per month? I’m wondering now…
I’m with IMHO and Spirit Weath – you should continue to track your debts, regardless of the creditor’s contacting you or not…. you say the business ceases to exist… is the business you had different from the one you are doing now?? In addition, your food budget is high…. I can feed myself for less than $125 p/mo.
For me, I only have fast food once or twice a month (I budget $10) and it has been SO LONG, I can’t remember the last time I had a fancy coffee at a Starbucks… oh.. come to think of it, I can… it has been over 9 months… and prior to that, it was 8 months.
It is great you are chipping away at the debts…. one thing you should do is work with your mom and set a goal (agreement) for on how much you will have repaid by the end of the year. I think, given you monthly business revenue, it would be easy for you to do the following for your mom:
* contribute the maximum ($5000) to her IRA (Roth preferably)
* between $10,000 and $15,000 to a savings account
I don’t think it would be unreasonable for you to have a goal of paying your mom $15,000 to $20,000 by year’s end. If your mother is self-employed or if she has a small side business that has anytype of revenue, I would encourage that anything you provide in repayment go to a SEP self-employment retirement plan rather than a traditional savings – this way her earnings can grwo tax free until she retires and starts taking distributions.
Following this year, your goal should be (at minimum) $30,000 per year until she’s repaid in full. According to my figure, you’d have this paid off in just under four years….
I know that you had previously stated that you try to pay your mom back the annual gift tax exemption amount each year (~13,000 this year I believe) so that no gift tax would be incurred. But I was wondering even if you paid more would you actually get in trouble with the IRS? Seeing how you owe your mom that money it seems like they wouldn’t penalize you for returning it.