Business owners facing bankruptcy are often firmly convinced that only their business is liable for the “business” credit card in their wallet. It sometimes takes more energy to persuade them that they are individually liable for that card than it does to convince them that life continues after bankruptcy.
In fact, even when the business is conducted by a corporation or LLC, the business entity is often not legally liable at all for charges on the card. The card may be embossed with the name of the entity, but the only signatures on the credit application is that of the owner in his personal capacity.
This is particularly important now, when for years there has been very little conventional business lending. Small businesses have been financed on credit cards for which the entrepreneur is personally liable. The consequences of a business failure almost always require the bankruptcy of the owner.
Occasionally, you find an account for which the entity is also liable. I finally figured out how to determine if the corporation was liable without retrieving the credit application which is no longer available in the usual case. I instruct the client or an employee to call up the card issuer, tell them that they are the new bookkeeper or the new CFO of the company and ask a question about the account. If the corporation is liable on the account, the card company should be willing to talk to employees of the entity; if the account is purely personal to the business owner, it should require the express consent of the account holder to disclose that information.
What does this mean to bankruptcy lawyers? It means that you have to probe, often repeatedly and persistently, to find debts associated, in the mind of the client, with the client’s business ventures and make sure those creditors are listed in the bankruptcy. If the case is a Chapter 13 and the business operation will continue, you need to be sure the client has a plan for business operations in a post petition world without plastic.
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