- A corporate officer may not have personal liability for corporate debt.
- A corporate officer may have personal liability for a corporate credit card.
My corporation failed. Do I have personal liability for a business credit card?
A collection agency working on behalf of Capital One is seeking a judgment against me in the local court here in Ohio. I incurred the debt about three years ago when my wife and I had a small restaurant. The business went bust and while we were were able to pay off most of our creditors at the time, a few credit cards went unpaid. Our business was registered as a sub s corporation that was later dissolved. This credit card was in the business name but I signed for it and it may have been under my social security number and not the corporate tax id number. The bill was 2400. After being laid off from my job last year I went back to school and will graduate in the spring with my teaching certification. I am currently unemployed and our family is barely living on my wife's restaurant job income. My unemployment may have just gone away as well. After tuition, car payment, mortgage/recently modified, utilities, etc. there is not a dime left. I don't want a judgement against me as I pursue a teaching position. I spoke with the collection agent today and they now seek $3,500 after interest. They say they won't settle for less than $2,300. I might be able to come up with a personal loan for $700 but nothing more right now. Does the fact that this was from our former business/corporation hold any weight? Would you have any suggestions? Thank you for any help you can provide as I really can't afford an attorney.
If a corporation is created in accordance with state and federal law, is operated by its officers with the proper formalities, is funded properly, and is not an alter-ego of the stockholders, then the stockholders are insulated from the corporation's liabilities. The same is true for a corporation's officers, although officers have personal liability if their actions violate the law or their fiduciary duty to the corporation.
You mentioned you are being sued personally for a debt owed on a credit card that was in your corporation's name. The key issue here is whether you have personal liability for this debt. It is possible for a corporate officer to have his or her name on a credit card account and have no personal liability for the account. Let us assume for a moment that is the case here. If your name was on the account for the sake of convenience and you did not sign a credit card contract that gave you personal liability, then the credit card issuer has no recourse against you personally. The corporation was liable, and when the corporation wound-down its operations, it would have paid whatever was available to unsecured creditors.
However, it is also possible that the credit card contract you signed included a clause that stated that if the corporation defaulted on the loan, you the signatory had personal liability. If the contract you signed gave you personal liability, then the credit card issuer has the right to use the courts to sue you for breach of contract, obtain a judgment, and use the judgment to levy your bank account, get a wage garnishment, or place a lien on your property.
Take your credit card agreement to an attorney in your state who has experience in civil litigation or consumer rights law. Ask him or her to review the contract you signed, and explain what if any liability you have for the business credit card debt.
You mentioned you cannot afford an attorney. Call your county bar association and ask for the name of the organization in your area that provides legal advice to people with low or no income. Call that organization and make an appointment. Bring all of the documents you have regarding the credit card debt, the formation of your corporation, the wind-down of the corporation, and the letters from the law firm threatening legal action against you to that meeting. The attorney or paralegal you meet with will advise you accordingly.
See the Bills.com resource Ohio Collection Laws to learn more about your potential liabilities.
I hope this information helps you Find. Learn & Save.
Dealing with debt
If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q2 2022 was $16.15 trillion. Student loan debt was $1.59 trillion and credit card debt was $0.89 trillion.
A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by Urban.org from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.
The amount of debt and debt in collections vary by state. For example, in Georgia, 34% have any kind of debt in collections and the median debt in collections is $1854. Medical debt is common and 17% have that in collections. The median medical debt in collections is $855.
To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.