Business Expenses on Personal Cards = Bankruptcy Disaster?

[CreditScoreBlueprint]

I've been running my own business as a sole proprietor for about 4 years now. I put all of my business expenses on my personal credit cards. My credit history is flawless - my score is around 800 or so now. So, I don't have any plans to ever declare bankruptcy... but I'm purchasing a $175,000 house in the next few months and I want to make sure I won't ever be at risk of losing it.

In Chapter 7 bankruptcy, as long as you're up-to-date on mortgage payments and insurance, you keep your home. BUT, I'm wondering if banks could come back and say woah, wait a minute.... he's been putting business expenses on his personal credit cards and therefore he's not eligible to keep his home, or to even declare bankruptcy at all.

Anyone know the laws on this?

[ryanbush]

I am not an expert by any means, but even if you got a credit card in your business name you would still be liable personally for the charges,  Almost all business credit card are guaranteed by all officers/owners of the business.  The only thing I can think of that would be if you had a corporate card but that would require you to have a corporate credit report, not necessairly feisable for a small business.

It would still be a good idea to get a business credit card (AMEX and Chase Ink) come to mind as you can still share the rewards pointes between personal and business accounts, so both your personal and business spend would count towards the same rewards account instread of having two.  Banks frown upon using personal cards for business expense, no drawback to getting a Business account and it might actually help when applying for your mortgage as business account dont coun't towards your personal utilization, and therefore have no affect on your personal credit score.

[sccredit]

As a Sole Prop there isn't much anyone can say about it.  Even if you were a Corp or LLC it's your prerogative. 

[ryanbush]

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@sccredit wrote:

As a Sole Prop there isn't much anyone can say about it.  Even if you were a Corp or LLC it's your prerogative. 

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They could still come after you personal assets if you declared bankruptcy as he would have to personally guarantee any loan he is getting, even in a Business name.

Banks are stupid, they aren't going to let people run up debt and default with no recourse.

[webhopper]

Hi!  Welcome to MyFico Forums!

A general rule of thumb is that its not a good idea to put business expenses on personal credit cards.  You can, however, open business credit cards in the businesses name using a personal gaurantee. 

I would highly recommend that you check out the Business Credit forum.

If you are co-mingling personal and business funds, you're leaving yourself open to liabilities.  Its better to set up the business structure to provide some protection and indemnification for you, as an individual, in case the business has a mishap.  First step is to seperate everything out, expense-wise, and start paying yourself a salary.

That's just my $0.02 worth...  Hope you find some value in my comments...

[sccredit]

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@ryanbush wrote:

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@sccredit wrote:

As a Sole Prop there isn't much anyone can say about it.  Even if you were a Corp or LLC it's your prerogative. 

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They could still come after you personal assets if you declared bankruptcy as he would have to personally guarantee any loan he is getting, even in a Business name.

Banks are stupid, they aren't going to let people run up debt and default with no recourse.

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He's asking about credit cards in particular, in which banks would be UNSECURED creditors.  As long as he was below the equity exemptions the credit card lenders would have no recourse in a Bankruptcy proceeding..