How to deal with business credit card debt from startup partnership fallout

Your Business Credit with Elaine Pofeldt

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. Her book, “The Million-Dollar, One-Person Business,” was released in 2018. She writes "Your Business Credit," a weekly column about small business and credit, for CreditCards.com.

Ask Elaine a question, or see if your question has already been answered in the Your Business Credit answer archive.

I took on business credit card debt for a startup, and now my partners kicked me out and refuse to pay. What can I do?

Your first step should be to hire a lawyer and explore your legal options.

Depending on the type of business credit cards you opened for the startup, you might be personally responsible for the debt.

If that is the case, you may have to make minimum payments on the cards until the matter is resolved.

Expert Q&A

Check out all the answers from our credit card experts.

Dear Your Business Credit,

I was asked to join two other guys in a startup. Neither had money or credit. I had both.

I was asked to take out a loan of $42,000 on four credit cards. I was explicit in the damage caused to my family if they didn’t pay. The cards came and funds liquidated via Squarespace to the company account.

I gave them a loan agreement to sign. On Monday, I went in to get the agreement, and was voted out of the company that day for made-up reasons. I hired lawyers to force an agreement. They still have not paid.

I am 170 days late on all four cards. They are on the loan document as part of the company. They were company cards. This is fraud, correct?

I worked hard to provide security for my family. It’s wiped out. I can be denied employment and college loans. What can I do? – Brian

Dear Brian,

I’m really glad you have found a lawyer. I hope it is someone familiar with credit and bankruptcy, as someone who practices in this area of the law should be able to help you find a solution tailored to your situation.

This does sound fishy, but as to whether it’s fraud, that is a legal matter that would be difficult to address without knowing more about what happened. 

See related: Who is responsible for business card debt?

Dealing with a startup partnership fallout

There are a lot of unknowns in this situation. It’s not clear who the two guys were or if you knew them at all before borrowing the money. 

I was also not clear from your letter what you meant about the funds coming and being liquidated via Squarespace to a company account. I know of Squarespace as a website building platform, so I can’t picture how funds would travel through it.

It’s also unclear what happened when the funds landed in the company account. Is the money still there? If not, is it accessible to you? Did someone take the money out of the account or spend it?

Tip

Tip: Credit card financing, despite its popularity among startup founders, does carry some risks. Read "Should you fund your startup business with a credit card?" to learn everything you need to know about startups and credit cards, including benefits, drawbacks and other financing options.

Dealing with company debt on business credit cards

Just because these two guys were on the loan document as part of the company, it does not necessarily mean they are legally responsible for the debt.

Given that it sounds like you can’t make them, I would ask your lawyer to help you reach out to the credit card companies and negotiate with them.

If you don’t have the money to continue paying your lawyer, reach out to the local branch of Legal Aid for advice.

You’re talking about a significant amount of money, and it will be worth it to do what you need to do to get good legal advice.

Your letter is a good reminder of why I never recommend that one person who has good credit take on debt for a business where another partner is not putting any skin in the game, financially speaking.

There is a lot of risk involved in situations like this. Good luck and let me know how things turn out.


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Updated: 10-17-2018