A struggling business owner called into The Ramsey Show with a financial mess so severe that Dave Ramsey told him, “You got a massive problem,” calling the situation “terrifying.”
Carlos from San Francisco opened up about his $350,000 debt pile, most of it tied to credit cards, a commercial loan, an SBA COVID loan, and years of unpaid taxes.
Things got so bad, he admitted he hadn’t filed taxes since 2017 and owed payroll taxes going back just as far. His janitorial business is still operating, but just barely.
“I kind of did what you probably did a long time ago,” Carlos told Ramsey.
“I started a business and it was booming. Made my first million in a couple of years. And then my financial life just spiraled out of control.”
Ramsey didn’t try to soften the situation. “This is a really, really scary situation. And it didn’t happen suddenly. It’s happened pretty gradually,” he said.
IRS Trouble: The Criminal Side of Not Filing
What made Carlos’s situation worse is that he hasn’t filed taxes in eight years. That decision alone could land him in serious trouble with the IRS.
“Not paying income taxes is not a criminal offense. Not filing is a criminal offense,” Ramsey warned.
“2,561 people went to jail last year. They put people in jail for not filing.”
Carlos revealed he owed back payroll taxes, known as 941 taxes, which are among the most serious forms of tax debt.
“The 941s, however, you withheld taxes on your employees, right?” Ramsey asked.
“Correct,” Carlos said.
“And then didn’t pay it. That’s a trust account, and those live forever,” Ramsey replied. “The IRS puts that in the extremely serious bucket.”
Bankruptcy Won’t Save Him
Even bankruptcy wouldn’t wipe that debt clean.
“The really, really bad news for you that apparently you’re not aware of: 941 payroll taxes are not bankruptable. And neither is the IRS,” Ramsey said.
“So all of your taxes are going to be there if you file bankruptcy.”
While Carlos still brings in about $9,700 a month from four or five remaining janitorial accounts, his expenses eat up nearly $8,000. He’s engaged, but told Dave he has no immediate plans to get married.
“You’re hurting, and you’re scared,” Ramsey told him. “You wake up in the middle of the night, and you don’t know why. I know. It’s called stress.”
Dave’s Triage Plan for Getting Out
So what should Carlos do next?
First, Ramsey told him to take immediate action: “When you get off the phone, I want you to go to ramseysolutions.com and click on tax ELPs, endorsed local providers, find the tax person in your area… and I want you to sit down with them and develop a strategy to get caught up on your filings.”
Most people in Carlos’s situation don’t need to file every year back to 2017, Ramsey noted. “Typically, when you have not filed this far back, they’ll take three years of tax returns,” he said.
Carlos’s business income isn’t enough to pay everyone back, so Ramsey laid out a triage plan: stop paying the credit cards, stop paying the SBA loan, and focus on the IRS.
“I would take all of the cash flow above living expenses and start dumping it first and foremost on the 941s and then secondly on whatever back IRS taxes you have,” he said.
And if creditors on the commercial loan or other debts come after him? That might force bankruptcy, but Ramsey emphasized it wouldn’t solve his core problem: the unpaid taxes.
Focus, Support, and a Way Forward
Ramsey also pressed Carlos to surround himself with community and support. “You’re not afraid of hard work. You’ve just made a mess,” he said.
“You need some people in your life that love you regardless of how messy you are.”
In closing, Ramsey encouraged him to focus on four things: food, utilities, shelter, and transportation.
“That’s all you need to be doing right now. Complete focus on that and complete focus on any new accounts you can add and start growing the business back again.”
“Where you are is terrifying. I’m sorry, man,” he added. “You call me back if we can be more help as you’re fighting through this. We’ll help you any way we can.”
It was a sobering moment on the show, but also one that showed hope is still possible if Carlos acts quickly and aggressively.
IMAGE CREDIT: ”Dave Ramsey” by Gage Skidmore, via Flickr. Licensed under CC BY-SA 2.0. Image adjusted for layout