Saturday, July 26, 2008

God, I Love Texas

Before you think I'm drunk, or that I've flipped out and joined the Republican Party, let me assure you neither scenario is true. It's just that I've been doing some research.

Those of you who have followed this blog closely for the past year or so probably remember a post here and there about credit card debts which happen to be delinquent and have tarnished my once stellar credit rating. Since I am embarking upon another post on the subject, I want to review a few facts so nobody thinks I'm one of the people who ran out and bought too many shoes, or a Ferrari, and now refuses to face the music.

Prior to starting my own company in 2004, my credit was impeccable. Back in the 80s I did clearly live beyond my means which wasn't hard to do considering my means at the time were a string of unsteady cashier jobs in university bookstores, or whatever. By the time I "grew up" and got a job as a data entry clerk in 1991 at an advertising agency, I was probably swimming in $30,000 credit card debt. I wasn't behind on payments, but I was certainly struggling. I'm sure my mother was helping fill in any financial gaps which is why I was able to make minimum payments.

My data entry job in advertising quickly turned into a career after a few shorts months and soon I was making a $22,000 salary instead of $18,000, and not long after that, it climbed by another few thousand. It seemed to take forever but I eventually paid off that credit card debt.

For the sake of brevity, I'm leaving out a few details -- like the time I had nearly paid everything off and then fell off the wagon and started spending again. But with a higher salary it was easier to pay it off quicker.

I still cursed myself by buying things I didn't necessarily need. And even though I got the credit card spending under control, that didn't stop me from buying a BMW 330i in 2001, nor did it stop me from trading it in for a 2003 model because I didn't like the sound system in the 2001 model!

What's important here is that I accepted my problem, my taste for quality goods and services, and I paid my debts. They were my personal obligation.

Things were great in 2004 when I started my own agency after being approached by a client who wanted to do business with me. It was a busy year and I was happy I had finally done the ultimate. I utilized my experiences in the ad biz and went out solo. By 2005 I had paid off the car loan and my only credit card bills were being paid in full each month.

Unfortunately, this great big-spending client was starting to spend less and less. I had essentially taught them what they needed to know (or so they thought) for them to begin easing the purchase of television advertising time into their own business, thus cutting me out of the picture.

They were not my only client, but they were the only one that made the venture remotely profitable. And I use the term profitable very loosely. It paid a meager salary for myself and txrad which combined was probably not much above the average household income in Austin.

This other client was a chronic late payer. I was having to purchase the media for him, and wait sometimes 6 weeks or longer to be paid for it. This goes against the mantra in this business which is CASH IN ADVANCE. Anyone who deviates from that policy will sooner or later face a calamity. But he wasn't the actual client; he was just a middleman between me and the client who was advertising the product. And his arrangement with the client was 30-day net terms, not CIA. And that's all he could offer me, and because I was desperate to keep any business, I went along with it, all the while hoping another big piece of business would come through the door. There were a lot of decent leads over the course of a year but none of them came to fruition.

I was also engaging in some highly risky behavior involving what is known in the business as a "pay per inquiry." It was important to have a variety of media inventory on hand for the current client(s) but they were not obligated to approve it. And often, they might approve it and then disapprove it just a few days before it was scheduled to go on air. In that scenario, I have two choices: let it air and not be paid by the client, or tell the station I can't air it and therefore will not be paying for it. Neither option is very good if you plan to keep a viable agency up and running. The stations could get pissed off if this becomes a trend and they won't agree to work with you in the future. Because they have to resell the time, close-in, usually at a loss because it's what's known as a "firesale."

I didn't want to turn this post into an advertising seminar so let me just say I was between a rock and a hard place very often. My way out was to keep the time period and offer it to another agency as a "pay per inquiry." They agree to pay me a fixed amount for each lead generated and I have to hope like hell it's enough to cover what I paid for the time period. Sometimes they would pay out quite well. It's too bad I wasn't keeping closer tabs on this because the majority of the time they weren't paying shit.

Now you may be wondering how I was funding all of this, paying our salaries (which I had now cut about 30%) coupled with a client's increasingly delinquent payment schedule. My agency was a class C corporation. I specifically formed it as a corporation to protect my personal interests against any number of nasty things that might happen when you are in a business situation with other clients. Again, sooner or later, somebody gets sued for something. It happens all the time in this business.

My solution to funding my business was to apply for company credit cards, and you can imagine I was getting a lot of offers in the mail. $20,000 credit limits were being dangled in my face by various banks and I took them up on the offer, often applying for the cards online. One of my big mistakes was assuming that the corporation was solely responsible for those debts since the corporation is a legal separate entity from konagod. A big hint to those still reading: read the fine print. And who reads fine print, especially when doing something online? I needed money and fast.

This went on for many months and by 2006 I had not only cash advanced every dime I could get from the "company" credit cards, I had begun getting large cash advances on my own credit cards (and one of txrad's) to loan the company. Once in awhile, we'd have a good spurt of luck, the client would send a check for $5,000, maybe another $5,000 the following week, and I was able to make some minimum payments on the cards and still fund the company. During the last quarter of 2006 I think I could see the writing on the wall and I began having the company pay back as much as it could afford on the loans I had made on my personal credit cards, but there simply wasn't enough coming in.

From November through December of 2006 not a penny came through the doors of our agency. And I had stopped paying our salary as of mid-November. The client told me his partner had disappeared and cleaned out their joint business bank account. This did not bode well for us. I was in denial through the holidays and into New Year's Day. But I distinctly remember waking up on the morning of January 2, 2007 and saying to myself, "this company is done and we are fucked."

I had not been able to make payments on the corporate credit cards, and any amount I had been able to pay was probably at the expense of another. And here I was holding about $40,000 in debt on my personal cards which I had to stop paying because we had no income.

The next two weeks were spent trying to piece things together and wondering what to do next. By the middle of the month, I had received a tip from a friend who worked at a large ad agency in town that they were looking for someone to work on an account, basically doing what I had been doing on my own, except I wouldn't need to worry about the accounting nightmares, I wouldn't be paying the bills, and they would pay my salary! So off I went to interview.

As you might suspect, this is the job I had from January 29 until I was laid off on December 21, placing advertising for that large telecommunications giant which I shall not name. It paid well and I thought I could at least make payments on my personal credit cards which had piled up so much debt from my loans to my agency.

It was a "temporary" position, not a permanent job, so I had no benefits, vacation accrual, or any of the regular perks. Just a great hourly wage. I didn't know if it would last 3 months or 3 years but I was thankful to have it.

I made minimum payments on those credit cards for 2 or 3 months until I got a call one day from a representative of a bank which had issued one of the corporate cards. She wanted to know when I was going to pay it and I informed her the company had basically had to shut down and I wasn't sure when or if it would be up and running again. I told her it could end up in bankruptcy if I could not collect the past-due funds from the deadbeat client.

Then she dropped a bomb on me. She said, "you are personally responsible for this debt" as indicated in the cardholder agreement....fine print...blah blah blah....

I was going into a daze. Here I was thinking my personal debt was "only" around $40,000 when in fact, if what she was saying was true, it was far worse. And this time I would not be able to pay my way out of it. I contacted another financial expert ex-colleague who confirmed that was probably the situation with each of the "company" credit cards.

So here I was, a guy who had always paid his debts in order to maintain a trophy credit rating, facing the obvious. I wasn't sure what I was going to do but in the meantime I decided to stop paying the minimum payments on those personal card balances. I figured if I'm liable for all of them, I have to look at it as one massive debt that I cannot pay right now. No sense in trying. I made this decision last August. We are approaching the one year anniversary of our delinquency.

Something else happened last August to cement that decision. That's when I learned the telecommunications giant put the media account up for review, meaning it was probably going to depart by the end of 2007. Money that would have gone to the credit cards began going into my savings account. And honestly, I do not feel guilty for doing this. I have to look after konagod and txrad first.

Shit hit the fan at the end of the year. txrad (who had also become employed at the same agency with full benefits in March of 2007) was laid off in November. I was laid off in December. I was hoping this was all just a big misunderstanding and the client would come back with their tail between their legs and we'd get hired back again.

I had saved up enough money in those 5 months to not be concerned about the immediate future. We could coast for awhile until we found the right jobs, and we were collecting unemployment. I began hearing rumors in February that I might get hired back to work on a different media campaign if it came to fruition as expected in March. But this kept getting delayed. March became April, April became May, and then maybe it would happen in June or July. Or not at all.

It gave me enough hope for the future that I felt comfortable spending our nest egg on home improvements: the new roof, windows, and painting. Because if the job didn't materialize, we'd probably need to sell the house and move. And yes, I could have split that money up and paid each of the credit cards a fraction of what I owed them. However, a new roof was essential and honestly the windows were maybe a year away from essential, and who knows if I would qualify for credit to borrow the money to pay for that project. Logic dictated I spend the cash and get it done.

Meanwhile a different position opened up at the agency in May -- the one I took and started on May 12. The pay was far less than I have usually made when in the employment of others. It barely covered the most basic monthly expenses we have. And txrad is still unemployed. Needless to say, this is why I felt I had no choice but to take the job I accepted and started on Monday of this week. It covers all our overhead (which is a HUGE relief) but very little more.

Could I afford now to start paying $500 a month on the credit debt? Probably.

But here are a few reasons why I'm not (yet anyway). It would take 25 years to pay off the debt at that rate. I'd be paying it off when I'm 73. And something about that idea makes me extremely angry. Angry enough to write a blog post this fucking long.

This is all tied in with a corporation and a lot of bad stupid decisions by a corporate executive and a bad decision by konagod to loan the corporation money. This is far different from me personally going out and racking up a $10,000 credit card debt on a much-needed vacation and a few trips to the Crate & Barrel.

Besides, why should I pay through the nose for bad corporate decisions when I see corporate executives at many Fortune 500 companies basically getting by with bloody murder and often getting dismissed with a nice severance package. They get in their 750il and cruise on home to their mansion in Westchester County.

So, I may have digressed a bit from the title of this post. Why is it exactly that I suddenly love Texas?

One of my biggest concerns is that one of these banks is going to sue me and garnish my wages. And instead of having a job that covers my overhead, I'm back in the same leaky boat I've been in for the past 3 years. I suppose I can cast aside that worry.

The Texas Constitution prohibits garnishment of wages for payment of debts. Certain property in Texas is also exempt from collection in an effort to satisfy debt. Our house cannot be taken, my car cannot be taken as long as I only have one, my IRA account cannot be seized. I'm sure there's not much else of value around here that could be seized. No diamond necklaces, no speed boats or yachts that I can see, they can't seize the four shirts I bought today from Goodwill for $21.61 nor can they seize my cats. And as long as I don't have more than 120 chickens, they can't touch those either.

And this does not make me a bad person. If I had an extra $170,000 sitting around here in a shoebox perhaps, I'd more than gladly pay those debts, and take the tax-deduction for my personal losses on the loans to my company. It'd be worth it to get these annoying fucks to stop calling my cellphone 18 times a day. Which, by the way, I could put a stop to when I'm so inclined.

And they have started calling the phone I had put in just barely a week ago for business. That IS going to stop.

I could put a stop to them mailing me letters as well. But I don't care about that. And really I don't care if they keep pinging my cellphone. I don't want them to feel like I'm completely unreachable because that's when they might decide to speed up the legal action.

In the meantime, I also learned today that Texas has a 4 year statute of limitations on legal action related to such debt. After four years of delinquency, they can't sue you. I have three left.

Unfortunately, you can bet your ass those banks are aware of Texas law. Whether they want to incur the cost to sue me remains to be seen. They are more than welcome to have these 4 four-drawer filing cabinets filled with old agency paperwork.

If they are wise, they'll just wait until (and if) I have the means to pay them. The last three years have been tough. The next three might be tougher for all of us, and them.

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