It all depends upon how your business is set up. If is is a sole proprietorship – and many first-time businesses are – then you will be liable for that credit card debt, even if it is on a business credit card if your obtained that credit card using your own social security number. If you have set your business up as a Limited Liability Corporation, or LLC, then you’re only obligated up to the amount of your investment in the company, with a few exceptions.
So what do you do if you’ve personally guaranteed your corporate credit card? You’ll need a comprehensive plan to pay it off. If you’re strong enough to start a business, then you’re strong enough to negotiate with your credit card company. Cut up the cards so that you can’t dig a deeper hole, then call the card issuer. They would much rather lose a little money in fees and interest than have you default altogether, particularly if your debt load is high.
Calmly explain the situation and as for more favorable terms: smaller minimum payments, lower interest rates, or waiver of late fees and/or other fees. They are very likely to work with you on this, much more so than if you simply skipped out on your obligations and came back for help later, when the situation would have become far worse.
The situation is different if your business is incorporated. Corporations were set up to limit liability of the owner of a business. If your failing business was incorporated, then you are only liable up to the amount you invested in the company, and you are protected against personal liability for non-tort (lawsuit) debts. So if your corporation takes on too much debt and goes under, you are liable only up to what you invested in the first place.
There are, however, two situations you should evaluate to see if you are liable. If you signed a personal guarantee to your creditors, then you could be on the hook for that debt. Additionally, any assets you have declared as belonging to the business may be taken by creditors.
When it comes to the failure of a business, it is extremely difficult to come away from it financially unscathed, even if you did incorporate the business. But if you own a corporation, the personal liability is less: if your corporation fails creditors can’t go after your house or your bank account unless you’ve been fraudulent or negligent. In the US, laws vary by state, so consider these general guidelines rather than legal advice.
