What is the best defense when a credit card company sues you personally for debts owned by an S corporation?

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What is the best defense when a credit card company sues you personally for debts owned by an S corporation?

I am being sued for a debt owed by my s corporation. The S corp failed 2 years ago and has no assets. I haven’t been able to file bankruptcy yet (no money). I never used the card for personal use. What should my defense be? What is my best chance to win arbitration? How does a debt lawyer usually go about trying to prove that I pierced the corporate veil? Does the credit contract which defines “you” as anyone who uses the card mean that I am liable for the debt because I swiped the card, even if it was for business?

Asked on October 23, 2011 under Bankruptcy Law, Pennsylvania

Answers:

MD, Member, California Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

S Corporations are pass through tax entities. You are taxed not at the corporate level but at the personal level. Credit cards debts if incurred by the corporation can still be charged in a court of law through suit to the individual incorporators if the court finds that piercing the corporate veil is prudent in that particular situation. If you did not use the products or services purchased for personal use, you need to show that without a doubt. So if you purchased something like a stapler (let's get it to simplicity here), where is the stapler now? If items were converted to personal use or misappropriated from the business knowing debts were owed, then this may be an uphill battle. Dispute the claim with your credit reporting agencies if this debt is appearing as your debt as either a lawsuit or collections matter on your personal credit reports. At arbitration, you need to show the limited amount of times this card was used and for what it was used and that by use you did not pierce the corporate veil. Piercing the corporate veil usually happens in white collar cases and money laundering. The debt lawyer is probably doing his or her job and attacking this from every angle to obtain the monies.


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