Problems With Business Credit Cards - Another Look

Posted by Wesley Scott on January 24, 2020 at 3:16 PM
Wesley Scott

credit-card-851506_1920Some business people experiencing financial trouble, particularly those who operate service-based businesses, would like to use personal bankruptcy as a way of getting out of the financial hole without the need to close their business.

Keeping service-based businesses open after filing a personal bankruptcy is challenging, but doable.  If a business does not carry a lot of hard assets, a chapter 7 bankruptcy might not require liquidation of the business.  There are a lot of factors that a business owner should consider in making the decision, and consulting with one of the attorneys at Kain & Scott will help.

But for this blog, let’s focus on one potential complicating issue.  Business owners who carry credit cards that are in the business’s name have, in all cases, personally guaranteed the card.  So if the business owner files a personal bankruptcy, the card that is in the business’s name will be listed as a creditor, and the owner’s liability to pay the card will be discharged when the bankruptcy is completed. 

But here’s the problem: if the business remains open, the business is still responsible to pay the credit card balance.  And if there’s a default on payment, the credit card creditor can collect - not against the business owner personally (that liability was discharged in the personal bankruptcy), but against the business.

And in cases where the account balances are high, this continued liability can create problems with the business’s cash flow.  So having a serious discussion about the business’s ability to pay its bills - including credit card balances for cards in the business’s name - is critical for the business owner looking to file a personal bankruptcy case and keep the business open in its current form.  If the business can’t afford to make the payments on a credit card, then looking at closing the business (and perhaps opening a similar business under a different name) might be a necessary, if unpleasant option. 

CONCLUSION

 When the time is right, or when you are ready, reach out to Minnesota’s HIGHEST GOOGLE reviewed bankruptcy law firm at www.kainscott.com. You will be glad you did!

 

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