The Great Recession’s Impact on a Computer Consultant

I’m writing this anonymously because I’m just looking for real advice even though I know some people will find some of my decisions to be very poor. Responses like, “you deserve what you’ve wrought” are not going to help me today. I need real advice and I know from networking with people that I am not the only self-employed person in this position. There are probably thousands of us. Hard-working people who were placed in an impossible position in 2009 and we made decisions that have left us at odds with debt-collectors, specifically the IRS and whatever state we’re incorporated in. I will detail 2009 since that’s the foundation of this story. Then I will leap forward quickly to offer a current picture.

In January of 2009 my credit score was 740, my mortgage payments were on time, my divorce with my then wife was proceeding without too much trouble, and I had just accepted the Chief Technical Officer position (as an independent consultant) of a seemingly stable well-financed start-up company in Chicago.

I knew the stock market was in chaos. I knew the financial system was a hairline from complete disaster. But at the same time I wasn’t feeling it in the consulting market. I was still getting daily calls for my services as an application architect, senior developer, and development manager. The hourly rates people were offering were still fairly high. I just didn’t see the disaster heading full-steam towards my consulting practice, my personal financial welfare, and the financial welfare of my family. And my health.

The First Mistake
After negotiating for the CTO position, I was offered two choices. I could accept on hourly rate through an investor’s staffing firm or an hourly rate $24/hr higher directly from the start-up company. I’m not sure what other people would have done, but I saw dollar-signs and agreed to work directly through the company for the higher rate. In hindsight, had I taken the staffing firm rate, I would have saved my house, my finances, and would not be telling this story. In my defense, they claimed they had $2 million in reserves and had evidence of a lavish pre-launch party in L.A. with some movie stars.

The First Sign Things Were Not What They Seemed
One of the first tasks I was given was to negotiate the transfer of the code-base from the original consulting firm to me. I was given contact information and began talks with the president of that firm. It was clear he was a very unhappy person in regards to the start-up. He was owed roughly $80,000 and wasn’t going to relinquish the software until he was paid. Eventually they paid him and he released the software, but in those communications he directly warned me that the investors of my new employer were not honest. I should have taken heed, but he also sounded petty and defensive about losing the work. I couldn’t tell what was true. Was the start-up a bad business or was he a bad consultant.

The Second Sign Things Were Not What They Seemed
The second task was to open an office and hire developers. I found a place in a suburb about half way between Chicago and my house. Then I started ordering laptops and a large server from Dell. Then I hired four developers, three through another staffing firm and one direct to the start-up. In the process of procuring the hardware, there was a delay. They needed payment up-front. I called the CEO and said we need a credit card for the equipment. He said he didn’t have a corporate card for the business, but would get a check sent to Dell. This should have been a clear warning that the funding was not as liquid as I had been led to believe. The check eventually arrived and cleared, but it took nearly 5 weeks to get equipment that should have arrived within days.

A Very Brief Time of Happiness
Once we got the equipment the work took over and I was about as happy as I have ever been. I was in charge of the development of what could potentially be a noteworthy startup, had cool team members, and a hefty income. At the middle of the month the two of us working directly got paychecks. At the end of the month, we got paychecks.

The Third Sign…
Once we got the server in, we needed help setting up networking and a VPN to Rackspace where the cloud servers were located. I had a connection that could do the work, but the CEO said, “I am not authorized to hire anyone for that work at this time.”

“What?”, I asked. He repeated this several times. I said, “That’s fine, I need this done, so I’m just going to get my guy in and have the work done.”

I had the work done, not knowing the bill would never be paid.

The Beginning of the End
The middle of the following month I was expecting payment. I call the CEO and he says there’s a mix-up with accounting and the funds are delayed. This continued for two weeks and I began to panic. I was getting advice from the staffing firm account rep, who was playing both sides (if I quit, the start-up is probably dead, he doesn’t get paid). I was getting calls from the founder, pleading with me to keep working, that funds would come soon. I started getting the details of the list of potential investors. I asked what happened to the $2 million and was told the primary investor was only putting money in when it was matched by other investors. My sense was this was some kind of investor Ponzi scheme, but had no insight into anything.

Eventually I decided to “stick it out” for a month or two. I talked to an adviser who agreed to loan me $20,000 if I had a signed contract from the founder and a $2,000 kicker when funding was back in place. Needless to say, funding never arrived and I’m pretty sure this is when my blood-pressure started to rise.

After another month, this was April, I was getting on management’s nerves. I wasn’t going to resign and my contract had a 30-day buy out. They finally sent me a termination letter. But I worked from home the last month. I probably should have taken all of the hardware and put it in my basement, but my attorney advised against it. I probably could have done what the previous firm had done and blackmailed for payment, but there were too many variables and I wasn’t comfortable with that decision.

In the end, I was owed $89,000, the other direct consultant was owed $30,000, and the staffing firm I hired was owed about $200,000. Not to mention that the office rent had never been paid and that bill was another $8,000. My networking guy never got his $3,000 either. To be fair, all of the primary investors lost a lot more money, but they went in much more aware of the situation than I did. I made mistakes, but I feel like they took advantage of me, the staffing firm, and the other two contractors.

It Goes From Bad to Nightmare
Even when I initially wasn’t getting paid I started looking for other work. Had I found something, I would have just jumped and called it a day. But as you may recall, this was spring of 2009 and the financial fallout was in full swing. There were no jobs anywhere. I couldn’t get hired at Best Buy much less on a consulting contract.

I was out of work through November. The house was in foreclosure. My divorce had gone from amicable to a full-blown battle. We even had the family car repossessed for a few days in December, which was only saved by the fact that I finally found a contract job.

Don’t Assume You’re Healthy
Once my contract work improved, I was able to catch up on the basics, but the house was seemingly too far gone. We tried to work with the bank (BoA) to recover it, but they clearly thought it was better off being foreclosed and sold to someone else. I jumped through all of the hoops to recover the house, but it was all just a running-out-the-clock scheme to finish the foreclosure. The government eventually found BoA at fault for this practice and the balance from the sale of the house and our mortgage balance was written off, so we didn’t owe that money at least.

About a year later, this is mid 2010, I was in the ER for a headache. They do the usual vitals…and everyone freaks out. My blood pressure was 180/120. The stress had gotten to me and my doctor didn’t get this under control for nearly 18 months. I could barely work. I managed to make it through a contract, then a FT position, but I wasn’t functioning well and got fired from both. It’s hard to describe, but imagine feeling exhausted all the time, not thinking clearly, and people treating you as if you’re stupid (something I’d never experienced in my life). That’s what unchecked high blood pressure can do to you.

Add to all of this, I moved out and was separated from my kids. Something I often describe as the most painful thing that has ever happened to me in my life. There’s this weird assumption in the world that when a father moves out, he’s somehow “free” of being a parent and a good father. I found the process to be devastating. I fell into a fairly deep, post-divorce, post-move-away-from-kids, depression. I gained weight, my friends could only barely tolerate me, and I just stopped taking care of my finances.

Impossible Choices
Eventually I realized I had not been paying my taxes (I was always self-employed 1099) and the debt made me even more depressed. I was able to get a payment plan and get compliant, but it didn’t last. I had two choices as I see it. I could rent a one-bedroom shack for as little as possible, forgo any luxuries like TV, cable, cellphone, eating out, and any overnight visitation with my kids, or I could “manage” my finances to maintain a normal lifestyle.

I have no regrets. I chose to maintain a normal lifestyle. I paid taxes slowly, accumulated more tax debt, and just made sure my kids visitation was as normal as possible. The “gamble” is that I am back to making a high hourly rate and eventually I can “get ahead” of this debt. The problem is that the IRS may not wait any longer and if they make a move, I could be in a shack with no car and no visitation with my kids.

Fast-Forward to Today
It’s 2017 and I have about $200,000 in back tax debt with the IRS and the state. Obviously the state and the IRS have placed liens on my credit report. It’s interesting to note that given my income, I could get a loan to cover my debts, but only if the liens were removed. But those liens won’t be removed unless they’re paid.

If I had even a 5-year to 7-year loan at a reasonable interest rate (6%-8%), I would be completely recovered in a few years. But I’m viewed as a risk. I have no other debts. I have two small credit cards that are always paid on time. I have two car loans, always paid on time. I have never missed rent, child support, or any other financial obligations. My credit score is 630 and would easily jump to 700+ once this is resolved. This is not about “reloading” either. I’m too old for that kind of thinking and I really don’t have any needs outside of taking care of my kids and basic living expenses.

The Ask
I’m a pretty smart guy. I have a start-up business I work on in my spare time. I’m a fairly senior architect at a global consulting form. I make very good money. I’m healthy. I’m actually relatively happy these days and I get along with my ex (as much as one can). I have a girlfriend.

I just don’t know the best path forward financially. I’m looking for real advice. Real solutions. No judgement (really, I’ve saddled myself with plenty). Just advice.