Will I be held liable for my failing business’s credit card debt?

Your Business Credit columnist 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, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for CreditCards.com.

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Question Dear Your Business Credit,
My business has hit hard times, and I am no longer able to pay the debts it has incurred. My main concern is business credit card debt that piled up over the past few months while I was trying to keep the business up and running.

My business is an LLC, but when applying for the cards I was asked for my Social Security number. It did not mention personal guarantee on the application (as far as I can recall). Will I be held personally liable for the business debt? None of the business credit cards appear on my credit report. Thank you in advance for your time and help. – Juan

Answer Dear Juan,
I’m sorry to hear about the hard times your business is facing. The toughest part of being an entrepreneur is that some business ideas just don’t work out. But many people learn valuable lessons from businesses that they have had to close, and go on to start another one that is more successful later. 

Very likely you will be held responsible for the business card debt. Although you may not recall providing a personal guarantee, most business credit cards do require one or come with what is called “joint and several liability,” where the signer shares responsibility for the debt with the company. To be certain of what you signed, ask the credit card companies to provide you with a copy of the cardholder agreements. Knowing where you stand will make it easier to come up with a plan to pay the debt off. Although your business cards are not appearing on your personal credit report now, that doesn’t necessarily mean they won’t if you default on the cards, as I discussed in an earlier column (“Keeping business credit off of your personal record”).

So what are your options? Your first step is to figure out if the business can still be saved. I know you are short of cash at the moment, but it could be worthwhile to book an hour with a good financial consultant or accountant before you shut your doors. A savvy financial professional may be able to provide some good ideas for refinancing your debt or coming up with cash you can use to pay it. If you are in a business where you invoice customers, for instance, you may be able to rustle up some cash by tightening up how you handle your accounts receivable and following up actively on late payments that customers owe to you. Getting a second job is often the best way to raise cash to pay debts, so I wouldn’t rule that out, either, as a temporary measure.

If it looks like you truly must close the business, your adviser should be able to help you determine if the business or assets like your customer list or intellectual property are salable — which could help you raise some money to pay your debts. Your local Small Business Development Center may be able to give you some free advice or point you to a local professional who can offer some pro bono help if you’re not able to pay anyone right now.

If you can’t come up with any way to pay your debts, I’d strongly suggest getting advice from an attorney who specializes in small-business credit and bankruptcy to help you work out arrangements with your creditors. You’re in a tough situation, but with a good adviser on your side, the situation will be a lot more manageable. Good luck!

See related: Financing your business without relying on personal credit, Second job could help save entrepreneur's debt-ridden startup

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Updated: 12-14-2017