Should I pay off Business CC Debt with Personal money?

[livefreeordieslow]

An older relative's 30-yr-old business failed last autumn when the bank called in its loans.

After the bank-organized liquidation, we still owe $200k. This is personally guaranteed and bank has first right to future money.

B/K is not an option - for emotional reasons. It would kill the old man.

The business had 8 different CC that owe $75,000 [Amex(2), Cap One(2), Discover, MBNA, USAA].

The cards were used only for business... HOWEVER 50% were true business cards while 50% were personal cards whose bills arrived to the home.

Only MBNA appears to have a personal guarantee, and we currently have a 50% settlement offer.

a) Can the Business cards come after him/us if they have no PGs?

Is there a distinction between Business vs. Personal cards -- as far as settlement/collection go?

c) Does it harm us to settle today with MBNA when the others in limbo?

Thanks - we're new to all this and overwhelmed. He's in his 70s, and it's likely the younger generation is going to be footing the bills on this one.

[IHateCAs]

Explain the "we". Are you liable on these accounts?

[willingtocope]

One big question here is how was the business organized? If it was a C Corp, LLC, or something similiar, then any of the debt that is truly in the business's name cannot hurt you personally. On the other hand, if it was an S Corp or simply a DBA, then its ALL personal debt. And, the personal gurantees really complicate matters.

You really need to talk this over with a lawyer, but, IMHO with that much debt (even if PART of it dissolves with the business), you're only real choice is personal BK. I'm guessing that the reason MBNA has offered 50% is that they know there isn't going to be enough money for all of the creditors, and they want their peice now. And, if you do settle with one, that will make the others that much more aggressive.

I sure can sympathize...we found ourselves in the same boat a few years ago. It was a C Corp, but, Business failed. Personal guarantees out the wahzoo. We folded up the business, but had to do personal BK 7 to protect ourselves from the debt.

See a lawyer...soon...

[livefreeordieslow]

The business was a C Corp.

Can I expect a distinction between Personal & Business cards?

I am presuming the business-card debt will ultimately disappear without repayment or settlement. Becausee the business failed. We've eliminated significant non-CC debt that was non-guaranteed. I assume we can do that with the Business cards as well.

Naive?

I sense that is harder to accomplish with the Personal cards. They were used exclusively for business -- but they were clearly personal

Personal BK is not an option. He/wife are adamant. We can't sway them.

We too have personal guarantees out the wazhoo. It was a classic small-business owner from the Old School who made a lot of deals with handshakes and eye contact.

Our legal help is currently focusing on other creditors (wholesalers, etc). I'm point on the CCs via LPOA. I use "we" informally -- I'm not personally on the hook...but it's a family situation.

Thanks for any tips on what I can expect.

[IHateCAs]

Generally speaking, a business account with no personal guarantee they can't come after you personally. A judge has to have good reason to grant that.

Assuming your older relatives kept everything at an arm's length, I'm opining they should be mostly okay. The MBNA card has a personal guarantee, so I'd work on that one the most.

If they want to be stubborn about a BK, then let them make their bed and lie in it.

[willingtocope]

The problem is that business cards (with a personal gurantee) and personal cards used for business do not fit under the umbrella of the FDCPA. I'm pretty sure the courts would view both as "business" for FDCPA purposes...but as "personal" for credit reporting and collection purposes.

Bottom line, I think, is that unlike the other business debts, none of this will go away when the business folds.

Can you give us a total of both personally guranteed business cards and personal cards used for business? If its more than just the MBNA card, I think you got a problem...

[livefreeordieslow]

Breakdown below. Only MBNA has PG. Business was forcibly liquidated. Banks stand first in line to receive any future money. Bank documentation provided to CC companies.

-----------

PERSONAL

-----------

Amex $13k

DISCOVER $4k

USAA $13

CAP ONE $6k (Personal Loan Card)

Subtotal: $36,000

-----------------

BUSINESS

----------------

CAP ONE $8k

Amex $11k

MBNA $8k

Subtotal $27,000

Am I reading it correctly to say IHateCAs believes the debts will largely disappear due to the business situation? But Willingtocope believes we are likely on the hook for them?

This is all very new to me - so I'm trying to understand.

Your insights are incredibly helpful. Thx

[willingtocope]

But Willingtocope believes we are likely on the hook for them?

Having gone through a similiar situation, IMHO, you're certainly on the hook personally for the cards you labeled "Personal" and at least the MBNA under "Business". As I said, Personal used for Business doesn't qualify for the "least sophisticated user" test under the FDCPA and the personal gurantee makes the MBNA a personal problem also. These will not disappear with the business.

For us at least, both our corporate AMEX and Crap 1 accounts required our personal SS# in order to qualify. Our BK attorney said that made them personally guranteed whether we knew it or not.

[IHateCAs]

Not largely as the personal debt makes up over half of the total.

Generally speaking, business debt without a personal guarantee does not carry over to the owner. Legally the business is another person and just as you are not accountable for your brother's debt, you are not accountable for your business debt either.

Now of course, maybe SMB are not protected because they did not keep everything at an arm's length. The fact they were using their personal cards for business is a negative against them. The argument is that the creditors were dealing directly with the shareholder personally, not as a representative of the business. If you didn't treat your business as a different person, neither should they.

It's always a good idea to have a good lawyer to consult with for these things. From a guy I know who does this for a living, he says at least 80% of SMB LLC types he deals with do not run their operations correctly and will not be protected by the corporate veil.

Not something I'm real knowledgable about, just passing some info along. I'd really want to have a lawyer involved with something like this.

[IHateCAs]

As I said, Personal used for Business doesn't qualify for the "least sophisticated user" test under the FDCPA and the personal gurantee makes the MBNA a personal problem also.

Actually they don't pass the "primarily for business, family or household purposes" tests.

[admin]

One big question here is how was the business organized? If it was a C Corp, LLC, or something similiar, then any of the debt that is truly in the business's name cannot hurt you personally. On the other hand, if it was an S Corp or simply a DBA, then its ALL personal debt. And, the personal gurantees really complicate matters.

One thing, is that an S-Corp DOES NOT mean that the business's debts are yours. A C corp, LLC and S corp are the same EXCEPT in the way taxes work.

If your S-corp has a net profit, than you must add this as income to your income tax. If it has a loss, you can DEDUCT this from your income on your taxes.

You are protected with the corporation shield just as strongly as a C corp or LLC.

However, unless you're a company that has significant business credit (think Southwest Airlines or IBM) - most small business wind up with personal guarantees on corporate cards and loans.