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Ask HN: My startup failed. $9k in debt and need to pay most of it in 12 days.
180 points by debtscrewed on Sept 24, 2010 | hide | past | favorite | 157 comments
HN,

A startup that I am part of failed. Prereq: USA, C-Corp in Delaware. We have $6k in server fees to Rackspace and $3k in debt with our lawyer. We also have a huge amount of credit card fraud that went through our credit card processing account/merchant account (like $8k), which is going to be an ongoing issue for the next year+ and may end up in me and my SSN being blacklisted from Visa and Mastercard.

I used to be able to cover this kind of failure, but over the past few months, I've sunk tons of my money into this company and completely depleted my checking and savings accounts.

The account goes into collections in the first week of October (which means my credit will be destroyed). I will be leaving the startup after I sort everything out.

I need a way to make this $6k in about 12 days. My savings is shot. I have some consulting (WordPress, PHP, Rails) money coming in, but it's only $1k and might not even be on time. My co-founder owns a majority of the company but he's traveling so he's a bit unavailable.

This seems to be the "low" of that rollercoaster we call serial entrepreneurship. Thank you for your help, Hacker News.

EDIT: I'd just like to say that I'm using a throwaway because I'm pretty well known on HN, which makes this pretty interesting. I usually read these kinds of Ask HN posts and think "ouch"—funny to be on the other side.

EDIT: I'll respond soon, HN is giving me the "You're submitting too fast. Please slow down. Thanks." thing. I'm reading all your comments—they are not going unnoticed. And thank you.




I don't get it. You're a Delaware C-Corp. You don't owe anything, do you?

Don't take out a loan. Don't restructure your debts. Don't negotiate with your creditors. Don't sell your car. Don't take a loan from your parents. Don't incur anything more than nominal legal bills.

Collect your contracts and take them immediately to your personal attorney and have them reviewed before you attach your own personal credit to your business'. Doing so is almost certainly unnecessary. You are probably just fine.

You are a businessperson, but you're not thinking like one, and you are going to get screwed. When your company's creditors worked out contracts with your business, they understood that they were assuming the risk that the company might go out of business and be unable to pay. That risk was priced into your contract terms.

If people you've done business with are now telling you that you should stake your personal finances on the debts of your company, then, absent some poorly thought out up-front agreement you had with those vendors to the contrary, you're being taken advantage of. Perhaps we'd benefit from hearing more about who those people are.

As for the merchant account: well, the people saying you could be blacklisted sure sound credible, and maybe you should listen to them. But please also note that there are people on this thread saying you should sell your car or take out a loan to satisfy someone else's debts, and take all the advice you get here with a big grain of salt. It shouldn't cost more than a couple hundred dollars to have an attorney explain to you (not your company, not your cofounder) that you are almost certainly not liable for thousands of dollars of company debts.


Second all of that. It has since come out the person writing this is a minority shareholder of a C-Corp so his liabilities are much smaller than what it seemed to be like initially. It would be nice to know if he was/is a signing officer.


[deleted]


I think you are probably just dead wrong here. I'm prepared to find out otherwise when 'grellas comes in here and stomps on all our crazy speculatifyin', but I'm willing to stake some personal HN reputation on this assertion: what you are saying is crazy-talk.

What's at issue in this situation isn't the size of the stake in the company you own, but rather the fact that (say) Rackspace agreed to do business with your company and not you. For you to be on the hook for Rackspace/Company debts, Rackspace will have to convince a court that both you and Rackspace had an understanding that you were the one making a hosting agreement. Against that will be the fact that they invoiced your company, accepted payments for your company, signed a contract with your company, and that the service they provided was used solely for your company.

Since companies go out of business all the time, my guess is that this never happens. Why would Rackspace waste time going after company debts when 99% of the time they'll never see a dime, and, on occasion, may risk legal action themselves by bringing frivolous lawsuits?

There are situations where you can slip up and obligate yourself to your company's creditors; if you Google, you'll find out for instance that in Iowa you want to be very careful about how your company's checks are layed out and signed. But it is not the case that "if you just slapped something together on Bizfilings.com you're probably not protected". Generally, for contacts: limited liability corporation is a limited liability corporation.


[deleted]


Yes, in other words, if Rackspace decides to sue you for running a company that was a fraud, then having a company doesn't shield you from fraud liability.

This makes perfect sense. Incorporation isn't the secret trick for conduct risk-free confidence jobs on people. You can't incorporate, sell Springfield the sham monorail, and skip town scot-free. Obviously, if your company is a criminal enterprise, all bets are off. On the other hand, the laws that provide alter ego liability aren't the secret key to unlocking corporate liability shields.

Since (a) the poster's company almost certainly wasn't a fraud, and (b) most companies that fail also aren't likely to be frauds, and (c) it is prohibitively expensive to attempt to prove in court that a company was a fraud, and (d) most of the officers of small startup companies aren't going to be in a position to pay at the end of a court battle, none of this matters.

Also: note how little of this has anything to do with how many shares the guy owns.

We are seriously geeking out here over something that isn't relevant to this guy's problem. Companies go out of business all the time; the company owners do not as a matter of course lose their houses!


[deleted]


I think that with 'under-capitalized' they had something else in mind than what you're reading in to it, and the fact that they probably are just two guys in a bedroom is what helps rather than hinders in this case, it is absolutely pointless to go after parties like that during collection, that's throwing good money after bad.

You're talking about spending 25 grand to recover three.


[deleted]


> I'm not the guy suggesting he take out a personal loan to cover this.

I know, that's even weirder.

> I'm just saying that if his creditors want to pursue him personally for the debt they do have the law on their side.

Sorry, but I really don't buy that. In theory, maybe, in practice, knowing what I know about this situation so far, no way.

edit: man I hate it when people delete their presence from a thread like that, Paul please stop that from being possible.


I agree with removing the ability to delete. Perhaps a "Redacted" button where the poster "taps out," karma hits are stopped, but the thread remains for those following the discussion. Maybe even having the thread optionally showing, like "dead" comments, would be ok. But I'm coming late to this conversation (late measured in minutes, not days), and there's no following it.


Second that this thing is unreadable now. I can't figure out what is going on other than some other people on HN know more about this situation than is in this thread.


There's an article on Google that lays out a bunch of tests that courts will use to determine that your corporation is a sham (for instance, if you mix your finances with the company's finances, perhaps by having the company pay your rent or buy your groceries). If you don't have a bona fide company, but rather a fraudulent scheme designed to shield you from personal liability, then the creditors of the company can pursue the shareholders of the company; this is an instance of "piercing the veil" called "alter ego liability".

It's also not relevant to your Internet startup owing Rackspace hosting charges.


Your comments on this submission have been excellent. Thank you.

Without starting everything up again, I'll just mention that the ability to pierce the veil depends some on which state you are set up in (pharma investors nearly insist on Deleware, FWIW).


It's very handy to delete comments to unwind flame wars. I've done it with people a bunch of times here. (If you disagree and it's important to you, let's take it to email rather than kick off a digression here).


Some merchant accounts make you sign a personal guarantee even if you are incorporated (or at least they try to, it's all negotiable of course).


Yea, all the fine print is a big "fuck you, you owe us" unless you're big enough to negotiate.


A thousand times this.

The whole point of incorporating is to provide protection to persons in this exact situation.


Having a C-Corp, Delaware or no, does not remove personal responsibility. Let's say I form a C-corp and accept client's money. The company then just happens to spend all that money on me and not deliver any product or service. I believe that is still called fraud and the individual is still liable.

That may be a harsh example.

Business is still about people. Regardless of whether an individual's credit it tied to the company - and in this case I believe it is - these decisions affect his future ability to conduct business. These decisions affect his relationships with other people.

Telling everyone to take a hike may be a short-term solution. However, I believe finding a win-win solution among all parties is a long-term win.


So many things in this thread that make no sense to me. The guy is a minority share holder and acting in good faith, this is a completely different situation than a sole proprietorship with outright fraud.

These things are not related.

Thomas' advice may sound harsh but it is absolutely the most realistic approach here, he has to think about #1 for a bit and divorce himself from identifying corporate debt with private debt. He technically doesn't owe anybody anything as far as I can see and by assuming responsibility might actually make matters worse (because he is now at least acting as a signing officer of the company).


It's not harsh! Your company paid a premium to ensure that you wouldn't be losing your house over hosting charges.


No, it isn't harsh at all, but I think that to people that have never been on or over the edge that it may sound harsh.

I had a stake in a Canadian gas station, the lady that ran it had signed up for some stupid carpet cleaning machine that they were paying through the nose for. She was complaining about how much it had cost and how many years they would still be under contract, it would have cost about 50 times what the p.o.s. was worth.

So I asked for permission to negotiate a solution, received it and called the company. I presented them with two options, $100 to buy out the contract (and keep the machine) or a very protracted collection procedure with 0 chance of success and a very large amount of bad publicity. The one phone call was all it took.

Business is not always being nice, and in this case the OP is being way too nice and is not looking out for his own interests as much as he should. The fact that his co-founder left him to rot is particularly galling.

Oh, and I think you meant 'wouldn't', not 'would'.


Corporate liability does not shield you from fraud, negligence, or other torts.

It most certainly does shield you from personal liability for debts the company incurred in good faith (meaning: virtually all the company's debts).

People on this thread are giving what seems to me to be some spectacularly bad advice. Do not throw your own personal finances down the toilet after your company's.


When a C Corp starts out it has no credit rating. You have to back it with your credit until the corporation can stand on it's own. Some of these debts will fall back to those who guaranteed them.

The corporation could file for bankruptcy and possibly the bankruptcy court could sort it all out, which sounds like the best thing for those involved.


That is correct. However does that make it a good idea to do so?


Yes.


I'm not sure what law books you are reading, but when a person commits fraud it is one thing, when a company defaults it is entirely another.

First, one is a criminal offence, and the other is most certainly not.

The act of incorporating is exactly the act of replacing personal responsibility with that of the corporation. He isn't even a majority owner.


That depends, if the board approves the compensation package and it does not run afoul of the letter of contract law, you are free to compensate yourself how you feel assuming that you are a for profit corporation. Generally contract law rules out over that situation though as generally contracts spell out you give me x and I provide you with y. Not delivering on the contract in a grossly negligent way could be fraud, but you would be surprised at the liberties one can take under the protection of limited liability, I have seen the worst of the worst operate within the confines of limited liability while just shying south of the fraud threshold. It is an art many sociopaths master.


it will /probably/ get you out of your rackspace debt. My experience with credit card processors is that you have to co-sign personally, even if you have a corp. So yeah, he can probably walk away from the rackspace problem, but he's almost certainly still on the hook for the credit card mess.


The answer is to restructure the debt, every single one of those companies deals with failures and no-pays on a daily basis.

a) Most lawyers, especially extending credit terms in the startup field, will carry over that debt with interest for years. Call and state your case, make it clear it's no-pay right now either way, but you want to fulfill your obligation in the further - say start making payments in 12 months.

b) RackSpace - you owe personally or through corporation? If personal, call them and have the same conversation - speak with a manager and ask for payment terms outside of normal, otherwise you have to default. If corporate consider folding and walking away, corporate protection is there for a reason and even though it's not a stand-up thing to do, Rackspace's world is littered with bankrupt startups.

c) Visa & MC may be your big problem, getting blacklisted from merchant accounts isn't the end of the world but certainly something to avoid. Also nearly impossible to reach a human that can make decisions on terms. For a startup they should have a 20% merchant reserve on your account anyways, how far does that take you?

Bottom line, think 6 - 12 month terms instead of 12 day terms.

No reason at all you can't get there with the right amount of sucking it up and pleading your case.


Thank you.

a) Yes, and I'm dealing with a startup lawyer, at a very well-known Silicon Valley law firm (this is when we had money). He's been very very patient with our lack of being able to pay the retainer.

b) Through the corporation. It's registered under the Inc and has the EIN associated with it. However, it also has my SSN associated as the primary contact.

c) Well, I have a feeling that most of our credit card transactions are fraudulent, being in the space we are in. (For example, someone charged $12k on a card and tried to cash out to PayPal.)

I'll call up Rackspace and give it a shot. Thank you.


Good luck - transparency is the name of the game.

Regarding (b) if your SSN is associated that's one thing - it's still the corporations debt and you can walk.

If you gauranteed it via your SSN that's another story, and it will reflect on your credit.


The last startup I was involved in, the guy who was running it talked to the lawyers and got them to waive a good chunk of the retainer fees when it sank


That's what I would expect here as well. Lawers are - if anything - pretty realistic about plucking feathers from frogs, and they'll be happy enough to see something rather than nothing at all. After all, they might be your preferred contact the next time you strike out and perhaps succeed.


That's good to hear. I'd like to pay this lawyer in full for his services (retainer minus un-used retainer balance). I don't like screwing people over, even if they're expecting it to be a percentage of their clients that do that. I don't want to be in that percentage.


Let me correct a misconception here, you are not screwing people over, customers having payment issues is a risk of doing business, they all decided just how much debt they let you get in to.

If you had set out to create this situation on purpose that would be screwing people over, now all that there is left to do is to shut down as orderly as you can and to have everybody absorb an appropriate part of the loss.


To take that further. Don't be that percentage by not acting like them. Don't hide or promise things you can't deliver. You go to them. Lay it out and work something out.

Everyone takes risks doing people. Inability to pay is one. Bad people is another. The first is usually rarer and more manageable. The second is not so bad. You can avoid being in the second category.

*Mixergy interviewed a bankrupcy lawyer a while ago. Maybe there's something useful for you in it. One useful thing I remembered: Discounted debt is usually taxable. Be careful you are not caught off guard. http://mixergy.com/russell-demott-interview/


That's admirable, but if you can't pay, you can't pay. It's not worth selling organs over.


Well, I have a feeling that most of our credit card transactions are fraudulent, being in the space we are in.

What space are you in? Phone cramming or reg path reoccurring billing or something like that?


Alternatively, get a consumer loan from a bank and pay off your creditors. Pay the bank back over time.


I don't think it's a good idea to start to take on personal debt for a limited company, that might open a huge can of worms.

Best to not mix private and business when a company is already going down the tubes.


Except that your personal credit is linked to your business credit. Just because they can't come after you for the money doesn't mean that you'll be able to get a business loan, lease, etc in the future.


He's a minority shareholder.


if his name is on the paperwork, it doesn't matter.


You are basically saying that there is no reason to incorporate, and that simply isn't true.

Your name can be on the paperwork, your company can be in debt, it can even go bankrupt, as long as you did not do something called 'mismanagment' or 'fraud' you should be good. Being a minority shareholder implies that even if you had wanted you could not have stopped it from going the way it did, unless you happen to be a signing officer of the company able to act on his own, but that does not detract from the above.

Puncturing the corporate veil to go after the private assets or credit status of an officer of the company is a very high threshold to meet, in the case of 'peanuts' debts like the one we are talking about here nobody in their right mind is even going to try.

On top of that, he would have to be an officer of the company that has put up a personal guarantee for any of the debt to rub off, if you do that you're silly and I assume that since there is a corporate lawyer involved here and that the company is a Delaware corporation that he's well protected from that angle.


I'm not suggesting that at all. There are many good reasons to incorporate, including the ability to walk away from catastrophic debt. But there are personal consequences to doing so that the corporation can't do anything about.

A real life example: I am involved in the management of a commercial real estate property. We turned down a prospective tenant because the owners' previous business had declared bankruptcy. How did we know about it? A simple credit report.

If you're not seriously involved in the entity, then none of this matters, obviously.

Side note: it's generally the norm for someone to personally guarantee a merchant account for a new business - I wouldn't call that silly.


> We turned down a prospective tenant because the owners' previous business had declared bankruptcy. How did we know about it? A simple credit report.

In the case of a sole proprietorship I can see how that link would be made, but otherwise it is highly unlikely that a shareholder/officer would be affected in this way.


Any new company must boot-strap their credit (and credibility) in some way. Generally this is done by an officer or owner tying their credit with the company's credit. I own majority in a C-Corp and when applying for a merchant account I was asked to backup the company with my credit and SSN as well as sign for the company with its EIN.


Ok, so you voluntarily agreed to do that, and in that case it makes sense.

But you were under no obligation to do that, and you being the majority shareholder is also a key element here.

The OP is not a majority shareholder, as far as I can see has no obligation to go in to this now and it would be a very bad move indeed to get his name on any paperwork where he privately assumes the debt of the corporation just 'because his name is already on the paperwork'.

It would make it easier, not harder to tie this to him in the future.


I think this "minority/majority shareholder" business is probably a misleading red herring. The point is that the company's creditors agreed to do business with a corporation, which is a separate legal entity from the officers of the corporation. Full stop.

If you personally guaranteed any of the company's debts --- and don't ever do that --- the story is obviously different. But if Rackspace invoices your company, you could own 99.9999% of its shares and most probably not owe a dime.

There are situations --- they vary from state to state --- that "pierce the corporate veil". Fraud is one of them, so is negligence, and so (in some crazy states) is payroll. What they tend to have in common is a tort: something an agent of the company explicitly did wrong to cause damages to another party. Signing a contract and not being able to live up to it is almost by definition not the same thing as a tort, which is why law students have separate classes in "torts" and "contract law".


>If you personally guaranteed any of the company's debts --- and don't ever do that --- the story is obviously different.

My experience has been that if you are a small, new corp, nobody will give the corp any credit without a personal co-sign.

I don't think it's silly to personally co-sign stuff. I mean, it's not something to be done lightly, sure, but if you need a lease, you need a lease. sometimes you need to take the risk


True, but if you're a sole proprietor that makes it a lot easier to go after you.

A majority (but not sole) shareholder has a less hard time and a minority shareholder has nothing to worry about at all.


The difference between "sole proprietor" and "sole shareholder of a corporation" is large; these are two totally different business structures.


Yes - assuming any of this debt is a terrible idea. But taking out a personal loan, investing it in the company in some sensible manner, and having the company pay off its debts could be a very smart thing to do considering the small amount of money in this case.

The take away is that a liability shield is not the same as a credit shield. Your credit will follow you, even if your debts do not. Some people care about this. Some don't.

For $17k, I'd surely think about my credit before walking away.


Let me get this straight, because I'm getting confused here, there is '0' proof for or against him being on the hook for his credit, but just for the sake of the argument let's assume that it is his personal credit that is linked to the merchant account (that would be spectacularly stupid, but ok).

You are suggesting that he take out a private loan even though he's already committed his savings to this venture to the tune of $17K in order to protect his credit rating?

Worst case he won't be able to borrow money for a while, and he might not be able to get a mortgage or other financing.

Would you borrow money in order to be able to borrow money later? It makes very little sense to me, to pay back $17K privately (so that's after taxes) means that you'd have to be earning roughly double that just to get rid of this debt, at a regular salary and expenses that comes down to at least two years before you can get rid of that debt, not counting the interest.

How does that make any sense at all, is your credit rating worth 20K and two years of your life to you?


Because I have more HN karma than I need anyhow...

First, no. I'm not suggesting that he do that. I'm suggesting that it's an option on the table.

Different strokes for different folks. My primary income requires that I be able to secure large amounts of non-recourse debt, for example. A guy might have a wife who expects to be able to buy a house in the near future. Some may not care that the lawyer they hired worked 10-12 hours without getting paid. Others will. For some people $17k may take two years to pay back. Others, not so much. Some people just want to make good on their commitments if at all possible.

Not everyone takes the by-the-numbers view of debt (legitimate though it may be). Those who don't will consider you a deadbeat for walking. What's the cost of that? The answer is different for everyone, and counseling someone to consider the aftermath is just plain sensible.

And a serious question: Where can you get a merchant account for a new business that does not require a personal guarantee? I'd love to know.


This is argument is so silly. Stipulate that everything you say is true. The possible outcomes are: the guy goes hugely into debt, or the guy can't open a merchant account on his own. You know what's worse than not being able to open a merchant account? Personal bankruptcy.


http://www.prosper.com/ for those that dont know, it's basically peer to peer lending. investors decide how much risk they want to take on, and prosper auto allocates it among people requesting loans. you'll probably get better rate from prosper than a bank.


Prosper is good, but I think the application and bidding process will be pushing the 12 day mark.


That is a good idea, but my credit sucks so it might not be the best option to go with. Though it would help my credit tremendously, huh?


You do not need to try it. It will not help your credit to take on more debt. It is a very bad idea to take out a personal loan to pay back a company debt. Why everyone on this thread isn't yelling this at you in all-caps is a mystery to me.


You have the tone of trying to keep the house from collapsing until the parents get home.


Go to a local credit union instead of a big bank. You can probably also use your car or other assets as loan collateral. I'm sorry to hear you're going through this. The best of luck to you.


You need to try it or you'll never know for sure...


An odd thought – you may be doing yourself a disservice by posting this through your throwaway account.

If you are as well known as you say, your reputation might open some doors for you. Some people who like you but assume you're busy doing your thing may be excited to do some work with you that would solve your problem.

Moreover, relationships matter. So if you're a menschy guy, someone whose brother works at Rackspace, for example, might take this through a back channel on your behalf.

Pride is tough. Looking back on the last time I fell on tough times, my biggest mistake was not being more transparent about my situation to people who liked me. I felt weird and silly to be not successful, to have failed, but I ended up making things harder on myself.


I would hope that anyone who wants to help in this way would contact the person behind the throwaway account. If your excuse was "they used a throwaway account and therefore I won't help", I'd imagine you weren't going to help regardless.


I think the "excuse" if you could call it that is people have no idea who this is and have no way of contacting them.

Besides that, people choose who to work with based on reputation. I'm saying if this person has banked credibility with people over an extended period, he could probably pick up a few gigs from fellow HNers.

At this point, no one knows anything about this person, and so they have no idea what skills or other unique value to ask for or trade cash for.

Besides, you're much more likely to go out on a limb for someone you know is a good guy.


That would be doable if the throwaway account had an email address associated with it, but it doesn't.

edit: it does now.


First point of advice would be to take a deep breath and slow way, way down. Everyone is pressuring you because they know you don't have cash and they want to get paid first before everyone else out of a dwindling set of assets. Slow the process down. Time - although it may not seem like it now - is on your side. Don't sell your car, don't take on a consumer loan. Slow down.

Your debt, while big to you, is minimal to the people you are working with, so they should be open to working through the issue with you.

a) Your lawyer, if it's a big firm, probably has a $2-3mm+ book, and a non-collection of $3k isn't going to effect them one bit. S/he has an incentive to work with you to come to an agreement on payment (if any) to maintain the relationship. Treat them with respect and you will get it in return. Deal with this bill last because it will be the easiest to manage.

b) $6k rackspace bill. Escalate the issue through the accounts payable department by explaining the situation and telling them they aren't going to get paid in full. If the first person on the phone doesn't get it, escalate to the next level, then the next level, etc. The gatekeeper's job is to put pressure on you to pay and create anxiety, which they seem to have done.

Once you get someone willing to work with you, fight to reduce the balance and then extend the payables as much as possible. For the value of the balance, figure out what rackspace could get by selling your receivable to a collections agency and offer slightly more - if they get $.18 per dollar owed, agree to pay $.19. Then, stretch the time period as much as possible.

c) Merchant account. This is where I would focus. This is your greatest exposure. Even if you didn't sign a personal guarantee, this could follow you professionally. Get on the phone with the merchant account holder and start dealing. Get the balance down to their cost first (that shouldn't be hard), and then see if you can grind it down farther. They have a loss reserve for this exact reason. Be open and transparent and pay the least amount possible while avoiding getting on the blacklist.

Bankruptcy (I'm not an attorney, so take this with the necessary grain of salt) is the last resort. It's long and painful for everyone involved - including you - and none of your creditors want to go there. Your creditors have an interest in working out your debts with you without going to court.


We often hear too much about the successes of startups that we get caught up on the glamor of it all. It's stories like these that bring us back to reality. I'm truly sorry for your loss.

I'm sure that you've thought of this, but is there any by-product that you can sell out of the company? Any IP liquidation?

Take care.


Thank you very much. What's more is that I'm quite well known on Hacker News—not as much as patio11 to have an article written about him, but enough that a good amount of people I meet that read Hacker News say that they know me.

Which makes it more stinging and 500% more embarrassing. But that makes it all the more interesting, huh?

It's interesting. I licensed my technology as an SP to be used with this company, so all of the IP is mostly, well, mine. I have thought about it, but haven't reached a decision.


Don't be embarrassed. It happens; especially in this kind of economy. Unless the failure was due to gross negligence on your part, no one who matters will hold it against you.


Do you remember how the founders of TipJoy and, more recently, NewsTilt were viciously shredded by an angry mob, right here on HN? No? Because failure is nothing to feel bad about unless it becomes a predictable occurrence.

When you've got your breath back and blood pressure is approaching normal, consider opening up about it. While you may not be able to talk about all of it for legal reasons (eg it seems like your partner was rather dubious), sharing what you have learned from the experience, what red flags you saw but why they didn't seem worth stopping for etc. is valuable to many people. I'm easily embarrassed myself, so I know it's difficult; but don't fall into the trap of anticipating only the negative possibilities, and cutting yourself off from the sympathy and support of people who like you.

Now, I don't mean 'Tell HN: OK it was me ohgodImsorry'; you don't need to humiliate yourself! Take a long bath/walk on the beach/whatever, and let go of the situation for a few hours. You poured your own money into it in an attempt to keep things under control, and it was just just bigger than you were. What happens next is in the hands of others, and you can influence but not control it. Then write your creditors, mostly the same letter, and tell them what you told us - you owe this much to these different people, you have lost a bunch of your own money, [EDIT: I misinterpreted the stuff about your co-founder, as if the person had bailed on you.], and you're sorry. Express your willingness to pay it back ASAP, but stress that you wish to do it on a pro rata basis. Of course every creditor would like to be paid first ahead of the others, but making the same information available to all indicates you have nothing to hide and is more reassuring than a non-credible promise to put someone first. If you can afford it, a small check to each, even $25 or something, speaks volumes.You might want to write to the IRS and the city or county that issues your business license too - if you're not sure what to tell them, call and ask what your obligations are. You may be surprised how helpful they can be. you can call them today and get the letters out before you go to bed (go buy some stamps if you need an excuse to get up and walk around). Then, sleep the sleep of the just. Get up tomorrow, eat a healthy breakfast, and start composing your 'How I lost a kajillion dollars and what I learned as my business followed it off a cliff' post , on your existing blog, Posterous, wherever. Throw in a couple of ironically entertaining pictures. It's not a funeral notice because you're not dead - you are now a man or woman of experience, and that experience has a value. Get that up over the weekend, realize people still like you, and on Monday you get back to work.

Your job for the next week is to contact the creditors again, ensure they all have the same information, and politely but firmly stick with the pro-rata approach. Whether they agree or no, ask for their decision in writing so you can send copies to the other creditors. By the way, since it sounds like you're not in debt on your personal accounts, consider dropping by your own bank and asking a manager for advice - since they won't actually be trying to collect from you, they may be more forthcoming about how they evaluate situations like that, and heaven knows they've had plenty of experience lately. Allocate 50% of your time to debt service, and the other 50% to making some new money. That can include chasing consulting/programming work, but your existing business still has value. Call business magazines like Inc. people like Andrew Warner etc., and say you have an interesting story - use your war story post and the feedback you received on it as your raw material. Hell, call Techcrunch, because they can't milk that SuperAngel scandal forever so you might as well work the publicity angle and give them an interview. 'Life after death' is a perennial story and even success junkies need one every so often. How about your startup's business model? Your actual business may have failed, but that doesn't mean the idea itself is without merit. Can you sell the IP, or the brand, or the analytics, or the customer list, or the suspicious transactions list? Some of these may be worth money, some not, but all that information has value in some form. Just pretend you inherited it from Uncle Debtscrewed and find that value. Can you make some value out of the domain? Can you write a book?

Yes. You can do all of that, and more. Because although we all laugh when a clown steps on a banana peel and falls flat on his face, what we applaud is that he gets up again afterwards. So you don't have time to brood; you launch next Monday.


> Do you remember how the founders of [...] NewsTilt were viciously shredded by an angry mob, right here on HN? No?

Well, actually this happened. It was tempered by lots of people being nice, offering condolences, giving good insights, a few job offers, and even some people looking to start up companies together, but lets not pretend the mob didn't come out with their tar and feathers.

That said, I fully agree with the sentiment. Failure is perfectly acceptable, a natural occurrence in a risk-taking industry.


> Allocate 50% of your time to debt service

That may not even be needed.


Dont worry about embarrassment, be upfront about any mistakes and move on.


Well, hit me up if you decide to sell anything. My email is in my profile.


I have to agree. There's almost always _something_ of value the business has, even if you're not sure what that is. (Even your list of customers, however small that might be, has some value.)

I understand why you're reluctant to name the business, but you may want to reconsider since you're probably too close to the situation to clearly identify all of the possible assets.


As far as Rackspace goes, contact Rob (@kr8tr) and see if you can work out a payment plan. He has a real passion for great customer service. Plus, he's a cool dude.


Seconded, thirded, fourthed, and fifthed. Rob is awesome. You can send him a DM on Twitter or just call him. He puts his phone number on his website.


If you did everything right, all your debt should be under the company's name, not yourself personally.

Therefore, you're fine. The company can't pay. That's called bankruptcy. Creditors are pros too, they should be used to it.


I work with Rackspace and would like to discuss your situation. Please contact me by email - robert.taylor@rackspace.com or by phone - +1.210.548.5616.

Robert J Taylor

Sr Sys Engineer / Mgr, Realtime Customer Intervention

Rackspace Hosting

robert.taylor@rackspace.com

TF: 800.961.4454 x 501-5505

O: 210.312.5505

M: 210.548.5616


I always love to see this sort of thing on HN!

I was going to say "this sort of thing makes me want to move my servers to Rackspace", but they're already there ;)


This speaks really, really good of Rackspace.


This sort of thing gives me hope


I had a client who racked up an $18,000 bill with RackSpace, a debt which needed to be restructured. I think it took a year to negotiate, but eventually Rackspace let them go with just a $3,000 payment. So talk to Rackspace. Explain the situation. You might be able to talk them down.


This woman had a long-term account with RackSpace, so RackSpace was willing to show some flexibility.

To clarify, this was a lot more than a single dedicated server. As I recall, the setup was more like a 6 servers, one was a dedicated database, then there were 4 web servers, plus one server that was dedicated just to SFTP, and then there was a firewall and a load balancer. I think the monthly bill was around $3,000 or $4,000. The $18,000 figure included a large amount of custom programming done by Rackspace. As I recall, at that time, Rackspace charged $150 an hour for custom programming, so it was easy to run up a big bill with them, if you weren't careful.

The woman had relied on Rackspace for a lot of custom programming, and then she got the bill, that she realized that her business had reached the point where it made sense to hire her own team of programmers. Like a lot of people who are expanding their business online, she had started out thinking that she only need to make a few small tweaks to her site, and she might as well leave that to Rackspace, since the people there knew what they were doing. But a few small tweaks evolved into much more. So at that point she hired her own team of programmers. Which is how I got involved.


Wow, that is fantastic. What kind of long-term effects happened? I'm guessing he would never be getting account with Rackspace in the future.


How can someone rack up an $18,000 bill? Was that just over a single month? I'm not a client of Rackspace, but I thought they billed out monthly, so if you don't pay your bill I thought they would shutdown your service. What happens, do they leave your service running and just let your bill compound?


Rackspace is a little different than most hosts. They want you to sign a paper contract, and will give you better prices if you commit for at least 12 months.

So its possible the OP had a good bit of time left on a contract, which he's now on the hook for. It would also make sense for Rackspace to take a smaller payment in such a case, as they wouldn't have rendered the services yet anyway.


> How can someone rack up an $18,000 bill?

I'm not sure I understand what you are asking here. I'm sure Rackspace has many clients who run up charges well over $100,000 every month. RackSpace handles some very large clients. Recall that YouTube started out on RackSpace, and was on RackSpace at least till the end of 2006 (I forget the exact date YouTube left RackSpace). RackSpace actually invented a special low rate (regarding bandwidth), just for YouTube, but, instead of paying monthly, YouTube had to pay daily, in exchange for that ultra low rate.

I'd guess that RackSpace clients probably follow something of a power curve, with the top 1% of their clients using something like 30% or 40% or 50% of all the bandwidth that RackSpace sells. And of course, that top 1% would have very large monthly bills.


Mid-month bandwidth overages.

I had to deal with a Rackspace account and bandwidth overage one week into a new billing cycle.

IIRC, it was something like $2.50 per gigabyte after the first 1.5TB.

The more you pay per month, the higher the limit, and lower the per gigabyte overage fee.

Somewhat akin to a US cellular telephone company (without bandwidth rollover bytes).


$18k for a dedicated server? Sheesh, I sell them for $1k/year.


I buy my 'green' servers for 900 euro or so, and the colocation costs are 25 euro per month. I place big (media)files on the Amazon S3/Cloudfront. $1k/year for a dedicated server sounds a bit expensive to me.


Ok, if you formed an LLC and didn't sign personal guarantees with rackspace or your lawyer then I don't see how you are personally on the hook for this.


It's a C-Corp. (Edited: made an error and said S-Corp earlier) I'm not 100% familiar with bankruptcy, but I'm assuming it'd damage my name as well as my co-founder's, as well as going into stuff I don't want to get into (court, etc.)

Rather have a way to pay back this $6k.


I don't understand. You're in USA? It is supposed that you can fail in USA. That's capitalism!. Why do you want to pay those debts? Your company is bankrupt and it has to be declared bankrupt then go into liquidation in order creditors recover their money. Those are the rules of this game.


If it's an S-Corp then you are protected personally - you don't necessarily need to file bankruptcy but I also wouldn't pour anymore of your money into it if it is jeopardizing your personal finances. Talk to the vendors, explain the situation and then talk to your co-founder and come up with a plan to pay it off through the company (consulting, selling assets, etc)


You are protected under a C-Corp, unless they can pierce the corporate veil in court (unlikely if you didn't do anything you weren't supposed to do) you can walk away and the only assets any of the creditors can go after are those of the company. All of your personal assets are free and clear.


> My co-founder owns a majority of the company

Minority shareholder, so he's protected anyway, no way this could be laid at his private door, unless there is outright fraud on his account.


I certainly hope so, but how was he able to get his SSN to the verge of being blacklisted?


Any time a merchant account is closed for cause, such as having too high a chargeback rate, the underwriting bank has a contractual obligation to place the merchant in the TMF (Terminated Merchant File) and MATCH list. Both the company AND the names/SSNs of the principals of the company are listed. This is intended to protect other banks -- so that a company with a history of payment fraud or other problems can't simply go bank to bank as each account is closed.

This is what would be scaring me more than any of the debts. Almost no bank will open a new merchant account for him if he's on TMF/MATCH, and that includes if he's just one of several owners of a future company -- merchant account applications ask for a list of all principals for just this reason. He'll find his way out of the debt problem, whether it's through bankruptcy or repayment, but being listed on TMF/MATCH can prevent him from starting a new business that accepts credit cards for the rest of his life.


> so that a company with a history of payment fraud or other problems can't simply go bank to bank as each account is closed

but he's not a company. and if he starts another one he can list somebody (or pretty much anybody) else as principal if I understand correctly:

http://answers.yahoo.com/question/index?qid=20070909074529AA...


Doesn't that require he rely on the true owner of the business (the person whose name is on it) not cutting him out of it, completely legally? He can't start his own business, he can't be a partner in a business, he can't be an owner in a business... because then he'd be a principle and the company's merchant account application would be denied.


He probably can't... but his spouse, grandma or whomever can.


From Visa/Mastercard through the merchant account. My SSN is listed as the account owner.


Have you called who ever is taking your account to collections and tried to negotiate more time or a payment plan?

Explain that sending it to collections is bad for you and them. If you don't have the money, then you don't have the money. But if also have to deal with a collection agency then you'll have more stress to deal with. Also the collection agency gets a cut of your (current non-existent) money owed.

If you can explain that is in both parties interest to keep it out of collections and extend the deadline or work out a payment plan, you may be more likely to get out of this situation without damaging effects on your credit.


Thank you for your suggestion. The only reason I wouldn't do that is because Rackspace was very adamant about even the extension of the deadline (they would only agree to a 5-day extension). But it doesn't hurt to ask, though it may create a strained relationship between us.


It's their job to try and collect as much as they can. Even if your contact is friendly and sympathetic, if they think you can pay on better terms than you offer they will hammer you. On the flip side it is your job to be honest about your situation and get them to accept terms that you can actually meet. Other people have given better and more specific advice but the bottom line is they will take what they can get. No hard feelings. Business is business.


I worked as a collector at one point. You have incentives to get money collected. A collector will say everything they can to get you to pay (sometimes skirting the collection laws).

They know that you have a limited amount of money and the chance you actually paying decreases as time goes by.


It is in rackspace's own interest that you pay off, by sending the bill to the debt collectors they're going to end up with less than if you strike a deal with them, especially if the debt collection process forces you in to bankruptcy.

In whose name is the rackspace account? Corporate? Private? Are you incorporated?

Basically what you have to do is to come to an agreement where you contractually agree to pay them an X amount per month + some interest on the outstanding balance.

Make it clear to them that if they go the debt collection route that they will likely get nothing at all but that if they will come to an agreement with you that they have your word (for what that's worth) to make up for the hole.

How did it get this far?

I'm sorry to hear about the credit card fraud, every time someone here says they'll do their own processing I keep hammering on that, so I'll use the occasion to do it once again: Please do not do your own processing, use an IPSP that has very thorough fraud controls and scrubbing in place or you are very likely to get burned.

As for your lawyers fees, it sounds to me like he'll have to give you a discount.

Your co-founder being 'unreachable' is not very nice, in for the good times together, in for the bad times together, let's hope he turns up and will shoulder his part of the problem.

Kudos for not going incommunicado like your co-founder.


Any recommendations for credit card processors for the rest of us out here?


Sure:

https://epoch.com/

http://www.ccbill.com/

http://www.vxsbill.com/ (disclaimer, run by friends of mine)

Stay away as far as you can from IBill and e-passporte, jettis has also been going through a rough period.

I hear good things about 'chargify', but I have no idea how well their anti-fraud measures are.

My only problem with processing charges is consumer fraud, the people that actually bought the service that consume it for months and that then suddenly reverse 6 months worth of charges. This happens infrequently enough that it is not a problem. It is also impossible to protect against in an SAAS or subscription situation.

Actual fraud that makes it through is a fat '0'.


Chargify isn't an actual credit card processor, they pass through to your gateway/merchant account. Their value is in simplifying the subscription management and recurring billing.


I've heard good things about braintree. If you're an ecommerce site, I think shopify will handle it for you.


I use FastSpring but it doesn't come cheap. I am on 6% :-(


That's cheap! :)


That's only cheap if you have an incredibly risky account, i.e., lots of chargebacks (think porno). For retail you can get under 2%. For ecom transactions (which is riskier because there is not a card present) look for something in the range of 3%. YMMV since there are so many variables and many merchant account providers play an intentional shell game with rates and fees.


Yes, it is. I'll try to talk with them.

Corporate. Incorporated in Delaware. Thank goodness.

I'll try to see if they're good with the payment. I'm just not... like that, though. I'm not one of those guys that can call up Rackspace and be like, hey, if you go into collections, you won't get shit, so we're doing it my way. You know?

Lots of time passed before I came to my senses.

Thank you for your help, Jacques. You know me, and I'm thankful that you're imparting your advice.


Now's the time to start. But yeah, you don't say "we're doing it my way." It probably sounds more like, I'm broke, I want to pay you back, what can we do to help me make it happen?


> I'm not one of those guys that can call up Rackspace and be like, hey, if you go into collections, you won't get shit, so we're doing it my way.

Trouble is the time you learn the most, this is also a part of doing business, over the years I've had a few occasions to have to bring 'bad news' (in some cases very bad), you will have to bite the bullet on that one.

> Lots of time passed before I came to my senses.

Hope is sometimes a dangerous thing.

> You know me

Drop me a line, maybe I can do something a bit more concrete.


$6k in server fees?? Was it over a couple of months? I'm curious to know the space your startup is in for that kind of server fees.


It's no big deal. If you don't have the money you don't have the money... I had a similar situation at my first startup where I was on the hook for $36,000... not $9k. And everything worked out fine. You will have to restructure the debt and it will probably nick your credit but that's not the end of the world.

I will comment though that people are often confused about forming companies to prevent personal liability. If you are the only person on the books for the company, you're still on the hook for everything, whether you've got an LLC, C-Corp, S-Corp, etc.


1. even if a company does business as an LLC or C corp, etc. if there wasn't much in assets when it was started (like cash), your corporate entity probably doesn't holdup;

2. most likely, you signed a contract with Rackspace personally right?

3. as for the merchant/credit card account - most require a personal guarantee anyway

So, first of all - I am sure your lawyer will defer or write off a bunch of that bill - happens all the time, especially if you have already paid a number of previous bills.

Rackspace is probably doing what most creditors do - acting as aggressively as possible. If they turn it over to collection, they are already looking at a huge writeoff (collection agencies get a nice percentage of whatever they collect and usually also have authority to write down the debt substantially in offers in compromise). So when push comes to shove, if you offer them a payment plan, I bet they will go for it or at least counter offer. Offer them $1,000 now, and $500 a month for 10 months say - that's full payment of the account. If you feel lucky, offer $3K, $1K now and $500 a month for 4 months.

The credit card account is going to be sticky - because unlike rackspace who made a profit margin on the $6K you owe, the credit card company has probably already refunded the $$ to cardholders that it "paid" to you - the fact that you describe it as "huge" doesn't help - I would assume it may be the majority of all payments advanced to you by the merchant provider. Again, you can probably propose a payment plan which has a good likelihood of being accepted.

Good luck.


Could you elaborate on point 1?


If a corporate entity is created and funded with very little in the way of assets it can be disregarded in a legal proceeding. This is called "piercing the corporate veil".

There are other factors a judge or jury will weigh as well, but assets are among the most important.

This is pretty common sense if you think about it - although most people (especially those who read the "incorporate for $99 and protect yourself from creditors) don't realize it.. just because you sign some papers and create a legal entity the law isn't going to allow you to stiff people and evade legal obligations.


I am aware of the corporate veil and the piercing thereof, but I'm not really convinced that assets are among the most important things a jury would like at. And surely it varies among industries (so a real estate investment firm would require more in assets than an internet startup in order to be considered "proper").


Actually, having assets appropriate to the business type is one of the key factors in determining whether the corporate entity will be respected and you are correct that it differs for a RE company and an internet startup.

There are plenty of citations to case law to support this but I am too lazy to go find them to post in this reply.


  My co-founder owns a majority of the company 
  but he's traveling so he's a bit unavailable.
Well, he/she better get on the next plane back and help sort this out. Seriously. If things are this bad they need to do their part.

They need to be making phone calls regardless of where they are.

No offense, but it sounds like if the company was on a downward spiral it was a bad time to take a vacation.


The whole point of an LLC is to have limited liability. If you haven't been involved in any fraud or misrepresentation, nobody can go after your assets except in some very specific cases.

You need to speak with your lawyer, or do a little research.


Can you go into detail, perhaps outside of HN, as to how you got to this stage? It could be a valuable lesson for others.


1) Try to buy time. Debt collectors will work with you. 2) Restructure as aresant said. 3) Set up payment plans with the people. Even if you owe $10,000, telling them you're broke and sending $50/month until you find more money usually will get them off your back. It shows you're serious about paying and is a good faith sort of thing. 4) If all else fails, remember, it could be worse. Having bad credit sucks, but isn't the end of the world. Protect it if you can, but your life isn't over if your credit gets screwed. Trust me on this one.


It's not about credit.

Any time a merchant account is closed for cause, such as having too high a chargeback rate, the underwriting bank has a contractual obligation to place the merchant in the TMF (Terminated Merchant File) and MATCH list. Both the company AND the names/SSNs of the principals of the company are listed. This is intended to protect other banks -- so that a company with a history of payment fraud or other problems can't simply go bank to bank as each account is closed.

Being on TMF/MATCH can prevent you from opening a merchant account for future business the rest of your life. Very few banks, almost none in the US, will open a merchant account if any of the owners of the company are listed.


Ahh, I see, I didn't know about that. Thanks for the info! :)


The other comments here will help you much more in the immediate timeframe, but here's my suggestion for after this is all over:

Write. Nothing will give you catharsis and perspective on this unpleasant experience like writing. Consider sharing your experience with the community; your lessons learned may end up saving someone else from a similar situation, and while learning from a failure is great, teaching from a failure is even better.


The first thing to do IMO is review ALL the legal documentation that you have. This means:

1. What is your role in the company. Are you just another employee or does your contract 'tie' you in some way with the company's assets and liabilities.

2. Is there anything in the contracts that you signed (if applicable) that relates directly to you personally? If yes concentrate on that one and nothing else.

3. Just because you poured money in the business, it does not necessarily mean that you are responsible for its liabilities. Review the documentation with a lawyer as to what your exposure is towards this situation.

From the looks of it, the merchant account is your 'weakest link'. Follow the advice of others here by talking to the merchant and sorting something out. Chances are that the future is not as bleak as it seems now. There are always choices.

Remember: Ask and you shall receive. Asking the relevant parties for extensions, better terms of payments etc. is not bad. The worst thing that can happen is for them to refuse.

Good luck and stay strong. There is always light at the end of the tunnel!


If you formed your entity correctly (I assume this is where your $3k debt to your lawyer came in), you likely can declare bankruptcy for your company and take no personal liability.

You might want to find family and friends who can loan you the money without interest.

Can you sell the domain?

Just curious, how did you get so much debt from your lawyer.

Hope it works out and best of luck.


Reading this rings very true to home for myself and I completely understand your situation having gone through and similarly going through the same.

I used to live and breathe my start-up, be passionate about the startup scene and thought my project was on the fast track. Debts mounted up and deciding who to pay first / last is somewhat stressful. I personally focused on paying the areas that would potentially come back to haunt me in my career first, I then restructured and negotiated settlement amounts. The surprising aspect for me was that negotiation is entirely possible, the small amount that firms expect to receive from insolvency is significantly lower than a settlement plan with yourself.

I won't go over my specifics as this is about you, but if you ever want to chat or just some advice in how to deal with this on a personal / mental level let me know.


Is this a limited company? Seems pretty fucked.

I don't know what the usual legal proceedings are to declare bankruptcy, but this is why they have bankruptcy laws and limited company.

Speak to a bankruptcy lawyer. Presumably all of this is your company's debt, not your own personally, and you have not committed fraud or done anything illegal, so hopefully you're in the clear personally. It may even work out that your cofounder is the one who ends up with a black eye on his credit record if he's the majority shareholder and ends up being the person named in the bankruptcy.

You haven't specified what country you're in. I'm guessing US. From the little I know, bankruptcy protections are pretty great over there. In the UK, if you take a company that you're a director of bankrupt, you aren't allowed to be director of another company for 5 years.


It is a limited company, and it's registered under a Delaware C-Corp.

I'm not familiar with the details of bankruptcy either. Will this damage my name and the name of the company?

Well, I'll probably be the guy named in bankruptcy, since my cofounder is in the UK.

Yes, I am in the US. Ouch, that sucks, see directly above.


You should edit your post if you can to mention that its a C-Corp. From what I know the C-Corp should be protecting you from personal liability, but I'm sure other commenters here have more expertise


Just for reference: The C-Corp does provide a pretty heavy liability shield. However, alot of these contracts where likely personally guaranteed. It's nearly impossible to open a merchant account for a young company without personal guarantees from the principles. The lawyer likely required personal guarantees on the retainer as well.

It's part of doing business really. Creditors really don't like corporate protection (for obvious reasons) so it's pretty easy to get yourself into a situation that they're seeing... although the high number of charge-backs is something of a head scratcher.


Work something out with Rackspace. They will be happy to not report you to the credit bureaus. That leaves about $3k to pay to the lawyer. And maybe you can work something out with him too so he doesn't report you to a collection agency, which is probably a hassle for him anyway.


First, take a deep breath.

Second, approach the situation honestly. Honesty does not mean you need to approach everyone on your knees. Most of your creditors likely do not know what situation you are in right now. Many people actually enjoy finding creative win-win solutions. You never know unless you ask.

Third, good luck. Looking back at the low parts in my life, they all worked out one way or another. Without challenge and without hardship, I would not appreciate what is good in life. Learn what you can and always remember to smile :)


ironically, you're in the dominant position for negotiation. the creditors will try to lean on you (and possibly quite hard), but they're just trying to walk away with as much cash as possible. start throwing the 'bankruptcy' word around, that should cool off most creditors for the time being. communicate your situation to them and don't make any commitments until the dust has settled. don't pay anyone until you consult a few lawyers. if that takes longer than 12 days, so be it.

remember, if you do pursue bankruptcy (which may not be a bad option for a failed business), the judge will ultimately decide who gets paid what amount. no one creditor can walk away with a disproportionate share of the assets (subject to debt rankings). this removes all leverage for subordinated debt.

your first call needs to be your current lawyer. explain your situation and ask for a referral to a bankruptcy lawyer. your next calls should be to your network for more legal referrals. as these lawyers for a 30 min consultation off the clock. if they want your business, they'll give it to you.

most importantly, don't let '12 days' pressure you. your creditors can wait. they may get loud, but they can wait.


Is there any way you can turn your experience with evil people defrauding your credit card merchant account into something that you can build a startup on or consult with? Or was it just a minor avoidable error that balooned out of control and that other people aren't likely to have trouble with?

How did the fraud occur? Who did it, where were they, and what did they do technically to steal from you?


Indeed, I'd be interested in hearing more about the fraud as well; however, I'd imagine that this may be an embarassing part of the story for the OP. There is mention of a large number of chargebacks, which to me indicates that a large portion of his legitimate clients believed that a service was not rendered or product not delivered.


Does the startup have any assets/IP that are saleable? I agree with SHOwnsYou.. I'd try to buy some time.


negotiate with all of those companies to lower the total, then get one of those 0% apr for 9-12 months.

Use the checks they give you, to pay down your debt.

This way you'll be down to 4-5K and you won't pay any interest on it for a year...which should give you plenty of time to get back on your feet


Never use your own money! Borrow and lose other people's money. It's the American Way! wink

(Note: I am an American, and thus reserve the right to poke myself in the eye.)

(While this was meant to be funny, it's really meant to be "ha-ha serious" not "ha-ha funny". Start-ups are by-nature risky endeavors. Putting your own financial well-being on the line in this fashion is as foolish as tight-rope walking without a net. If you've got a C-corp your personal assets should be somewhat protected. Make sure to do your homework on this...)

Oh, and last of all: Don't Panic. You can always flee to Europe or elsewhere. ;)


I think this is exactly what Lending Club is for. You'll pay 9-12% interest/year, but you'll get a loan based on credit score, personal reasons and your ability to tell a story on why/how you'll pay it back: http://bit.ly/lending-club


Even shorter:

http://lendingclub.com


Talk to your parents, perhaps?

(downvoting, eh?) Talk to them about a loan.


Sell your car?


time to start a new category.. "Help me, HN"


1. Own up to you who you are. If you treat this like a dirty secret, you're going to spend the rest of your (online) life hoping that nobody finds out "the real you" and what your life/work is "really" like. People who fail collosally, and have the guts to share that, are usually held in great esteem. People who hide their failures til they're found out by someone else, on the other hand, don't get such respect.

Trust me on this one - I've fucked up at least as big as you have.

2. Use your network, name, and rep to get a couple freelance contracts. Explain that you're willing to work really hard, so long as you can find a couple people to pay you up front because of these extenuating circumstances.

People LOVE to watch somebody kick the ass of difficulties. You will find 2 people on HN to pay you $3k for freelance work. Heck, I would, if I knew who you were.

I think it's honorable that you're not looking at just abandoning the debt because you can, but, as a last resort, if you're legally protected behind your incorporation paperwork, do it. There's no reason for this to wreck your life.

(And really, seriously consider my advice. Own it. You'll feel better and nobody will think less of you.)


Note something about collections: Collections agencies are not a party to a debt and thus they have NO LEAGAL RIGHTS, and further they do NOT have the right to "destroy" your credit, or even to affect your credit. You owe money to the original party, and you only have to deal with the original party. You need to protect your credit by sending a "Cease and desist" to any and every collection agency that writes you about any debt. Send this by registered mail, return reciept as they are notorious about committing perjury and claiming they never received such letters. When you have proof, you will have them on the legal hook if they report the debt to a credit reporting agency or participate in any collection activities, including claling you, after recieving the C&D. You can find forms for these online... Here, I'll attach one below.

The original creditor maintains all rights, and they can sue you, or they can contact you, or attempt to work out an arrangment. By turning it over to a collection agency they have indicated that they don't think they can collect and are writing it off, which is fine as this is one of their options. But don't let your credit be hurt. Send the C&D to the collection agency, and they are prevented from reporting the debt on your credit report. Often this is also effective in gettign the original creidtor to actually talk to you so that you can work out payment terms.... and since they already wrote off the debt they should be willing to accept good payment terms (like 10 years, no interest, monthly payments starting in 6 months after you send them a $200 initial good faith payment... that's what I'd propose.)

Collection Agencies pretend like they have the authority and will pretend like they can sue you, they often pretend like they are law offices.... but remember their job is basically to intimidate you or trick you into paying, anything to get you to send a payment. But under the law, you have no contract with them, you never agreed to deal with them, and they have no legal rights. The original creditor can sue you, but if they were going to do that, they wouldn't have turned it over to a collection agency in the first place (Which keeps a large chunk of what they collect.)

So, don't let your credit be damaged-- be on the ball with the C&D and you can not only keep collections from harassing you, but force any creditor who really wants their money to work with you on terms.

[Your Name] [Your Mailing Address] [Your City/State/Zip]

Certified Mail, Return Receipt Requested # [Insert the Certified Mail Receipt Number here]

[Insert Date of Mailing]

[Insert name of collection agent, if available] [Insert name of collection agency] [Insert address of collection agency] [Insert City/State/Zip of collection agency]

REF: Account # [Insert either the original account number or the collection agency's account reference number here]

Dear [Insert name of debt collector calling--if available--here]:

1. You are hereby notified under provisions of Public Laws 104-208, also known as the Fair Debt Collection Practices Act, that your services are no longer desired.

2. You and your organization must CEASE & DESIST all attempts to collect the above debt. Failure to comply with this law will result in my immediately filing a complaint with the Federal Trade Commission and the [Insert your home state here] Attorney General's office. I will pursue all criminal and civil claims against you and your company.

3. Let this letter also serve as your warning that I may utilize telephone recording devices in order to document any telephone conversations that we may have in the future.

4. Furthermore, if any negative information is placed on my credit bureau reports by your agency after receipt of this notice, this will cause me to file suit against you and your organization, both personally and corporately, to seek any and all legal remedies available to me by law.

5. Since it is my policy neither to recognize nor deal with collection agencies, I will settle this account with the original creditor.

Give this matter the attention it deserves!

[Sign your name here]

[Insert your name here]


Perhaps the government can bail you out. Just call your friends inside the Treasury Department, etc. Cake. ;)


This is why you should be using Google AppEngine and free providers, so you don't get on the hook like this.


Unless you are specifically looking to avoid responsibility for this debt and are planning to let your startup sink, I don't understand why you wouldn't pay for your debt with a credit card.


If you are getting the message: "You're submitting too fast", and you need to reply soon, just access HN through web proxy,create an acc, and submit! :)




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