Business debt caused by partner's con? You're still on the hook


Your Business Credit
Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for

Ask Elaine a question or read her prior answers in the 'Your Business Credit' archive.

Question Dear Your Business Credit,
I own a business in La Jolla, California. I started it in 2004 with a business partner, who is a relative of mine. This family member of mine conned us out of a lot of money. By 2008, we no longer were partners. I still own the business.

Unfortunately, we incurred a lot of debt because of this. I needed to clean up my credit, so I contacted one of the debt collection agencies that had the largest outstanding balance owed to make a deal with them to try to pay it off. Little did I know that the $31,000 owed has now become $75,000. They claim they want 20 percent of that down and were willing to work out a deal with me.

I told them that I would need some time to try to come up with the 20 percent down. In turn, they sent the sheriff's department to my business and emptied my till. I am afraid they are going to put a lien against my business account next.

One other factor is, I have an attorney fighting my ex-partner, who caused all this debt on me, when he was supposed to be the investor. If I prove that we are fighting my ex-partner through attorneys, does this help my situation at all? I would appreciate any advice you can give me. Thank you. -- Adam

Answer Dear Adam,
This truly is a terrible situation, and my heart goes out to you after what you've been through. It must be extremely upsetting to know you were conned by a relative you trusted -- and now must clean up the mess he caused.

Unfortunately, it does not look like proving that you are fighting your ex-partner in court will help you. You didn't say what type of debt you have but since you are writing to me at, I'm going to assume it is credit card debt.

I asked Leslie Tayne, an attorney in Melville, New York, if proving you are fighting your ex-partner in court will help you. She told me in an email, "It doesn't matter to the credit card companies. If the debt is in your name, you owe it and have to pay. The only thing that you can do with proving the ex-partner owes the money is to try to go after that person in another lawsuit to recover the money you had to pay the creditor."

Under the circumstances, my advice to you is to quickly find an attorney in your state with expertise in debt and bankruptcy so you can come up with a strategy for dealing with this. Negotiating on your own with a debt collection agency that wants to play hardball clearly isn't working. You need a seasoned expert on your side. Granted, you already have legal costs to bear from fighting your ex-partner, so this may be hard to afford. Still, in your case, working with an attorney who knows what he or she is doing can potentially save you thousands of dollars.

Based on the fact that you are valiantly trying to pay off these debts, I gather that you are trying to avoid filing for bankruptcy protection for your business. However, it may be worth asking an attorney about this option if you can't realistically pay the debt or negotiate a livable payment plan. Even if you ultimately decide not to file, having your attorney tell the debt collectors you are considering it may cause them to think twice about holding your feet to the fire. They stand to lose a lot if you get protection from your creditors.    

See related: 'Joint and several liability' clause shares business debt risk, Jail or no? Penalties for using partner's credit card, Big debt from business failure? Try talking to creditors

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Published: July 20, 2015

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