Do I Personally Have to Pay the Credit Cards and Loans for My Business?

Man with Documents

Question: I need the best bankruptcy lawyer because my business is losing money and I was told that I’ve personally guaranteed the debt, so now I have to pay it back. Since the business isn’t making money and I may have obligated myself for the loans, I need to do something fast to get out of debt. My goal is to get a job, save up some money and open another company, this time without my business partner, who makes bad decisions.

I started a business

I started a business with a friend I’d known since we graduated from Milton High School and the University of Georgia; we even joined the same fraternity. I didn’t realize that he wasn’t very smart and that he had a drinking and drug problem because he never told me he went to rehab. So because of that the business didn’t work out and we’re going to have to close up shop. But I don’t want a ton of debt weighing me down and preventing me from doing things like buying a car and a new house since I just got married again.

I didn’t think I’d be liable for the debt

I thought the debt was just in the name of the company, but now I’ve learned that I am personally liable for those debts. I had a meeting with my partner at a diner in Marietta and he said that he thinks we have to pay it back, or we’ll get sued. When I found out I was pretty angry, because I thought he told me that I wasn’t liable for any of the company’s debts.

I need to know if I am liable for the business debt and if I am how I can get rid of those debts. I’ve never filed bankruptcy before but I’m willing to do whatever it takes.

J.G. in Woodstock, GA

Answer: When the vast majority of people get a loan for a business, the bank or finance company demands that they personally guarantee that loan. That way if the business fails or it simply stops making the required payments, the bank or finance company can try to collect the debt from the business owner personally. The way they would do that is by bringing a lawsuit against the owner personally for unpaid funds.

The same rationale also applies to company credit cards. Although the credit card itself may list the business on its front, the credit card company will almost certainly make sure that the owner is personally obligated for any charges that are made. The credit card company does that to help ensure repayment.

Of course, there are exceptions. Sometimes a bank or credit card issuer will not seek to hold an individual liable for debts in the businesses name. We have seen small businesses get loans and credit cards that do not involve the owner’s personal credit, but these are exceptions.

Many times a business owner who has guaranteed his business’ debt will be able to file a chapter 7 or a chapter 13 to eliminate that personal debt. To determine which type of bankruptcy the business owner qualifies for, we perform a financial assessment. The assessment allows us to look closely at the owner’s true financial position, including all assets and liabilities.

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