Is the primary cardholder for nonprofit personally liable?
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 200kfreelancer.com, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for CreditCards.com.
Ask Elaine a question
or read her prior answers in the 'Your Business Credit' archive
Dear Your Business Credit,
I am the
primary cardholder for a nonprofit charitable organization in Atlanta. If
that organization does not pay the credit card bill, what legal course of
action should I take? I am required to pay the bill, being the primary cardholder per the bank that issued this credit card. The card is used by that
organization. -- Sham
clear whether you're writing because the nonprofit has failed to pay your
credit card bill or if you're worried about the possibility, but in either
case, it's easy to understand why you'd be worried. Your credit score could be
Michael Jeffrey Gunderson, a Chicago bankruptcy attorney, if you are
responsible for the bill, as you assume. He said that if your cardholder
agreement lists you as responsible, then you are in fact liable. Agreements
vary, so read the fine print. "It depends on the original agreement and what it
says," Gunderson says.
possible that you have a card agreement that includes joint and several liability, where you share responsibility for the debt with your
organization. But even so, that doesn't get you off the hook for paying the
bill on time. For more information, see Will I inherit my partner's debt if I go into business with him?.
If you are
personally paying the bill and the charity is not reimbursing you, you may
have a legal claim, but it depends on what you two worked out in advance. If you
negotiated a verbal agreement that the organization would pay the bill, that
promise may be hard to prove. For such an agreement to be enforceable, he says,
"it would probably need to be contractual." With a written agreement, you may
have more luck. A brief call to a lawyer in your state to find out what your
options are would be worthwhile -- especially if you are owed a lot of money.
If you are
worried about a hypothetical situation in which a nonprofit with shaky finances
might not pay you back, I'd think twice about making credit card purchases on
its behalf. There may be other ways you can contribute besides financing the
organization's procurement. Perhaps you can help raise donations to cover the
cost of the purchases you are making on your card. If you are using the card because
it's convenient, consider asking the organization to use checks drawn on its
bank account instead.
alternative is to get an attorney to draft a written agreement between you and
the charity that stipulates that you will be reimbursed for your expenses. That
might lower your risk, but it doesn't eliminate it. If the organization runs
out of funds, it will be hard to get paid back in the end.
It can be
tempting to borrow to help those in need or support a worthy cause, but it's
important to think about the long-term repercussions. Credit bureaus will hold
late payments against you, whether you made the purchases for a charity or
spent them on a new gadget at the Apple store.
See related: Church treasurer seeks credit card for purchases, Keeping business credit off of your personal record, 6 questions to ask about your company credit card
Meet CreditCards.com's reader Q&A experts
Vexed by a personal finance problem?
CreditCards.com's Q&A experts answer questions from readers every weekday. Ask a question, or click on any expert to see their previous answers.
Published: September 30, 2013
Three most recent Your Business Credit stories:
- Don't travel? Opt for other business rewards – If you don't travel much for business or pleasure, there's no point in getting a small-business credit card that specializes in travel rewards. Instead, look for a cash-back card or one that earns rewards you can use ...
- Will an ITIN help me get a business card without a personal guarantee? – Avoiding use of a Social Security number when applying for a small-business credit card is difficult. A few people may be able to use an individual taxpayer identification number, but most Americans can't get one ...
- Can I pass on charge-back fees to my customers? – When a customer disputes a charge directly with the card issuer, the merchant gets hit with a charge-back fee. Technically, you may be able to pass that on to the customer but it's probably not good business practice ...