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Laid off, but still liable for ex-employer's credit card debt

Never open a card in your name for your employer

By

To Her Credit
To Her Credit, Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also wrote for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs. See her website SallyHerigstad.com for more personal finance tips and free budgeting worksheets.
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Question for the CreditCards.com expert

Dear To Her Credit,
In the early 2000s, a credit card account was opened by me on behalf of the company I worked for. The company is owned by a husband-and-wife team. It was a small company, less than $5 million in sales and maybe a dozen employees.

Around 2005, the company also needed a charge card with revolving credit, so an American Express Business Management account was opened. AmEx requires a person to open an account, so the business management was tied to the original AmEx card with me as the primary cardholder.

The Business Management account wasn't used regularly and normally sat idle.

The company hit rocky times in '09, and I was laid off in January 2010. In the fall of 2010, AmEx called about a late payment on an account with a $17,000 balance. I explained I was no longer with the company and had nothing to do with them or the purchases.

They informed me I was still primary cardholder on the Business Management account. My former boss never took my name off the revolving charge account as she said she would, though I was removed from the standard account.

To remove my name, AmEx required financial statements from whoever would replace me as primary. Being up to their eyes in debt, neither owner could get approved. The wife has used every excuse and tactic when emailing me on why I am still on the account. She even gets indignant that I have no right to see the AmEx account details.

They are making minimum payments on the balance, and I have not been removed from the account.

The frightening part is that neither owner is from America (they were here on H1B work visas). Originally from New Zealand, they now live in France.

I cannot pay the $17,000 balance. They are in deep debt and the company is virtually closed and has left a trail of red ink and unhappy creditors in their path.

What should I do?. -- Miranda

Answer for the CreditCards.com expert

Dear Miranda,|
How did they talk you into opening a credit card in your name for their business use in the first place? You weren't a partner, you were an employee. An employee should never, ever sign for the debts of her employer. Would you let your boss rifle through your billfold? This is far worse. It's an egregious example of a lack of professional boundaries and misplaced trust.

You discovered they were using your card over a year ago. I hope you have sent a certified letter to American Express and stopped any further purchases on the card. That's the first step.

You should also get a letter of agreement from the owners saying they will not use the card, according to Eric Chen, associate professor of business administration at Saint Joseph College in Connecticut. "If she hasn't done so already, she should send this cease-and-desist letter immediately."

Of course, you should be able to see the American Express statements -- it's your card! You can probably log in to your account online or AmEx can send you statements. You'll need the statements to show what was purchased on the account and when.

You're not likely to get AmEx to transfer the account to their names. Credit card companies don't like to remove someone's name from an account with a balance. Can you blame them? On one side are a couple of former business owners who have "left a trail of red ink" behind them and are now out of the country. On the other side they see you, the responsible person whose credit history they banked on when they extended the credit.

You have two credit relationships at this point: The old company owners owe you $17,000, and you have a $17,000 debt to AmEx. You'll have to deal with each debt individually.

Your best relief may be as a creditor of the owners. Kentucky attorney Bryan Schaefer says that if you sue them for fraud, which could result in criminal charges, you may get a judgment against them and recoup your losses that way. On the other hand, Schaefer warns, "If the ex-employers go to jail, she will not see any money. She might just let things go on as they are in order to avoid the expense of a lawsuit," and hope they keep at least making the minimum payments. "That the owners are still making minimum payments suggests that they acknowledge incurring the debt," says Chen.

I don't see a way out of your obligation to AmEx unless you argue that the card was stolen. If you can prove the charges were made after you were laid off and thus were clearly without your authorization, there's some chance they may write it off as fraud. It may be worth a try.

Chen has seen this kind of situation before. Even if the owners keep making payments, the debt can damage your credit score. Chen says, "In a situation that I have personally observed in the past, the credit score of the individual who left the company was damaged to the point at which getting a home mortgage was impossible." 

It's easy to have regrets in a situation like this. In hindsight, you shouldn't have let them use your credit, and you should have personally closed the account the minute you were laid off. Most of us make one bad financial move sometime, usually by falsely assuming other people would hold up their end of a bargain. You've got plenty of company. I hope you are in a better employment situation now, and that this will soon be behind you.

See related: 10 ways business cards are different, Business card debt may hurt credit, even after the company is sold, Basic rules for business card usage

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Published: February 24, 2012


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