How will my personal bankruptcy affect my business credit card account?

The issuer could limit your access to the card, but any business partners on the account should not be affected


If you’re an authorized user on a business credit card, your personal bankruptcy could result in limited access to the card. However, it should not affect any business partner who owns the account. But if you’re filing Chapter 7 bankruptcy, your business assets could be sold.

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Dear Your Business Credit,

I’m a member in a two-member LLC. The other member has opened and signed for a business credit card account. I am an “additional user” on this account; I gave no guarantee for the repayment of this card. I must file personal bankruptcy in the upcoming weeks. What will the effect of this bankruptcy be on the business cards? Should I cancel my card until the bankruptcy is over? –Donna

Dear Donna,

I’m not an attorney and can’t give you legal advice. However, when someone files for personal bankruptcy, it covers their personal debts but not their business debts. That means any debts on the business credit card account will not be wiped out by the bankruptcy.

Your partner guaranteed the business card, so is legally responsible for paying it — unless the card has joint and several liability, in which the business is also responsible for the debt.

Lenders sometimes consider your personal credit when issuing business credit, so it is possible the card issuer could notice the bankruptcy and limit your access to credit.

However, if this were to happen, it does not appear that your personal bankruptcy would affect your partner’s access to the card.

Check out all the answers from our credit card experts.

Ask Elaine a question.

Business impact may differ based on the type of bankruptcy

You didn’t mention whether you are filing for Chapter 7 or Chapter 13 bankruptcy, but the option you are choosing could affect the status of your business. In Chapter 7 bankruptcy, you can erase your debt, but your assets may be sold to pay creditors. A business may be considered such an asset, as I discussed in a previous column.

To file for Chapter 7 protection, you must pass a means test. The means test limits this option to people with very limited ability to pay down their debts.

Chapter 13 bankruptcy allows you to hold onto your possessions, but you must agree to pay off all or part of your debt in a court-supervised agreement over three to five years.

Given that you have a business partner, I would speak with your attorney about the business implications of your decision to file for bankruptcy, so you can have an informed discussion about this with your partner. (State laws related to bankruptcy vary, so it’s important to get advice from an attorney who knows the laws of your state.).

If you have opted for Chapter 7, you need to know if your share of the business could be at risk of getting sold. Don’t take a wait-and-see approach. Your business partner needs to know this.

See related:  Former business partner misused card as an authorized user – what can I do?

Consider other solutions before filing for bankruptcy

Bankruptcy is expensive and does not take place very quickly, so I would think hard about whether this is the best route for you. Sometimes, it’s the only option – you may have a medical bill that’s two or three times your annual income, for example.

But if the debt is just out of reach, a creative solution like getting a part-time job might enable you to make payments on your debts and avoid the hassles of bankruptcy.

What you are going through is hard, so please remember to take care of yourself. Good luck!

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