If you co-signed, relative's business card debt is now yours


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 allowed a family member to use my personal credit to open a business credit card for their business in order to build its creditworthiness. They have since racked up a lot of debt and refused to pay the bill. Is there anything I can do to protect myself from being liable for their irresponsibility? Thanks. – Jonathan

Answer Dear Jonathan,
Unfortunately, this is a case of no good deed going unpunished.

Your family member may have the moral responsibility to pay the bill, but in the eyes of your creditors, I am sorry to tell you that you probably must pay the charges if you signed a contract saying you would.

It may have happened in several ways. You could have taken out the card yourself as primary cardholder and made your family member an authorized user. In that case, unless you have a written contract saying he or she agrees to pay charges made on the card, it would be hard to sue an authorized user successfully in court to recover the money.

If both of you signed as joint applicants, then it's a joint account, with both of you having equal access to and control over the account.

If you co-signed for the card, that means you have shared responsibility for the debt with your family member. You typically won't have a physical card or be able to make charges, but you do have some authority over the account.

If you agreed to be a guarantor, your role is simlar to that of a co-signer, but there’s a slight difference: The bank won’t come after you until it has exhausted all other means to collect.

Finally, some small-business cards offer “joint and several liability,” in which the signer shares responsibility with the business, but this does not absolve the signer of responsibility for the debts. When there is joint and several liability, the issuer also has the option to go after the signer personally.

Whichever way it happened, if the family member is refusing to pay the tab, you’re likely to find the credit card company pursuing you, and you have to figure out the best way to get that debt paid. Failing to do so will trash your credit. 

Without knowing the details of your family situation, it is hard to tell whether your family member could be persuaded to pay the debts. That would be your best bet. Perhaps there is a family member you both respect who could approach the business owner to offer some gentle persuasion. The business owner may be willing to work out a payment plan with you if you are forced to pay the debt. It is hard to understand why he or she would outright refuse.

However, let’s say the family member does not care about doing the right thing. Then it’s time to count this as a very costly lesson and to start doing damage control.

Notify the credit card issuer of the situation and take any steps necessary to shut down charging privileges on the card immediately. You will not be able to shut down the account, since it has a balance, but at least you can stanch the bleeding. Then notify your family member that the credit access that went with the card has been shut down.

If he or she was paying for recurring charges on the card, those services will be interrupted. Let your family member know this, so he or she can pay the providers some other way.

If the overdue debts haven’t yet trashed your credit, you should look into getting a new balance transfer card with 0 percent interest. That will at least buy you some time to pay off the debt without racking up interest charges. The best terms are available only to those with good or excellent credit.

Then, pay the debt and shut down the business account.

Unfortunately, your situation is very common. Cases like yours are the reason that lending your personal credit to a family member or friend for use in a small business is very dangerous. Someone who can’t prove the creditworthiness of a business or get credit based on his or her own track record just isn’t a good bet, as far as borrowers go. Sacrificing your own personal finances to help such a family member inevitably backfires and potentially ruins both your finances and your relationship.

If you want to help a family member who is starting or growing a business, give a gift of cash. Can’t afford it? Then you should not be lending them your credit, either given that you may well have to pay for their charges if they prove irresponsible. Donate your time or provide other sorts of services if you truly want to help. It’ll be better for both of you in the long run.

See related: Co-signed card leaves mom's credit in ruins, Use caution when adding a friend as an authorized user, Business cards usually require a personal guarantee

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Published: May 2, 2016

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Updated: 10-23-2016

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