There are two common types of corporate credit cards that people often have:
1. Small business credit cards
2. Cards issued by an employer to pay for expenses
SMALL BUSINESS CREDIT CARDS
People who start their own business often get credit cards in their business name, and often think that if the card is in the business’s name, then only the business owes the debt, not the business owner.
This sounds reasonable.
- Banks and lenders generally refuse to issue cards to small businesses where only the corporation or LLC is liable for the loan
What happens if you are unable to pay back your small business credit card?
Lenders like to have multiple people to collect from if the business proves unable to pay back the loan.
For this reason, banks almost always make the owners of the corporation and the cardholders guarantee any charges made on the credit card.
This means that:
- You personally owe the money even if the purchase was for business purposes, or even if the business no longer exists
I have never seen someone successfully get a credit card where only the corporation, but not the cardholder or owner of the corporation was liable.
It is true that the bank must get the owner or cardholder to agree to be liable, but the bank always insists on this.
- When you sign the agreement to open the credit card account, one of the pages will say that you are personally guaranteeing every charge on the account, and that you are a cosigner
Another interesting effect of this system is that:
- If a business owner files a personal bankruptcy (not a business bankruptcy), and includes some business credit cards, then the business will still owe all of the money on those credit cards
The lender will have the right to collect that money from the business:
- Other assets
This is because the bankruptcy only discharges the debts of the person who filed it, and the business never filed.
EXPENSE CARDS ISSUED BY EMPLOYERS
Bigger companies will often issue credit cards to employees so that the employees can charge expenses to the employer.
These are common for employees that have to travel often, or those who order supplies for the company.
Just like with small business credit cards, lenders like to make sure that they have as many people as possible to collect from, so banks insist that the employee who uses the card cosign for all debts on that card.
The employer also likes this system because it means that if the employee makes unauthorized purchases, then the employer can ask the employee to pay for them.
How does this work in bankruptcy?
This type of credit card creates problems in bankruptcy because employees naturally don’t want the company’s expense card to be included in their bankruptcies.
- Bankruptcy laws state that you must list all of your creditors (Source, Cornell Law)
- “Creditors” means everyone to whom you owe money on the day that your case is filed
A good bankruptcy lawyer in Minnesota will help you file your case at a moment when there is no balance on the corporate expense card.
If there is no balance, then it means that they aren’t a creditor, and so don’t have to be included in the bankruptcy.
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