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If you’re behind on payments or thinking about opening a new line of credit you are probably concerned if a credit card company can sue you or not. The short answer is yes. It is important as a small business owner to understand how credit card debt works and what happens if you default.
Can You Be Sued for Overdue Business Credit Card Balances?
Legal Structure
Depending on how your business is structured and how your line of credit was established you may be or not be personally responsible for the debts of your business. For example, if you as a person cosigned for your businesses credit card you could be held liable for any debts.
Secured vs Unsecured Debt
- Secured debt is a line of credit established to a business owner where there is an agreement of collateral in an instance of non payment. Think of a mortgage, which is secured by the physical property purchased.
- Unsecured debt is a line of credit which is not secured by any asset which could be collected in a default scenario. These types of debts may carry higher interest rates for owners.
Terms and Conditions
Your terms and conditions will determine at what cadence and what minimum needs to be paid by the owner towards the line of credit. In an instance where the owner does not follow these conditions, the terms of your line of credit which you as the owner agreed to would drive the resolution for the nonpayment.
Liability Exceptions
Most credit cards carry an exception for unauthorized use, meaning if you did not authorize a charge on your credit card then you as the owner would not be liable for repayment. However this, for the most part, is the extent of any such exception.
Other Considerations
Depending on the amount of credit you receive, your credit history, whether you cosign, and whether the debt is secured or not will give you the specific terms and conditions of your line of credit. Be sure to review these terms carefully and ensure that you understand what you are signing up for.
When Might a Credit Card Company Choose to Sue?
Simply, failure to pay your debts that were agreed to by the terms and conditions may lead a credit card company to take you as a business owner to a civil court to settle your debts.
What Debt Collection Methods Might a Credit Card Company Use Before Suing?
Suing can be time consuming and exhausting. A credit card company may elect to first attempt collection if they recognize a customer who is not paying their balance. The collections efforts may be led by the credit card company, or outsourced to a trusted third party whose job it is to contact the customer and recover the debt owed.
How Does a Business Debt Collection Lawsuit Work?
Frequently Asked Questions(FAQ)
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