Expert: Christine Janklow - 2/3/2009

Question
Hi Christine,
My husband and father-in-law once owned their own business. They had a business credit card (under their business name), and they also applied for a checking account with the same bank under their business name.  Their business eventually went "belly-up" and in June 2005 they decided to dissolve the corporation.  Now, a collection agency is coming after both my husband and father-in-law for the debt on their business c/c. A woman contacted my husband at our home, and sent the debt collection "notice" via FAX (which seems a bit shady, to us).  We sent the agency a debt verification letter a few weeks ago requesting that they mail us proof that they are authorized to collect on the debt. To date, we have not yet received a response from the agency.  In the meantime, my husband and I have several questions to ask of you:  [1] What exactly does the term "personal guarantee" mean? My husband and father-in-law both signed their social security #'s on the c/c application - so, does this mean they are considered the "personal guarantee" for their business credit card?  [2] If the agency is indeed authorized to collect the c/c debt, and if my husband and father-in-law are indeed the personal guarantee, does the agency have the legal right to collect the debt from both my husband AND father-in-law? In other words, if my husband decides to pay them, can they still collect money from his dad? [3] In regards to their business' checking account - which was overdrawn by the time they had dissolved their corporation - can a collection agency ever come after my husband and/or father-in-law for those overdrawn funds?  If so, how or why?  I believe the dissolution of their coporation should prevent them from being personally liable to owe any money towards an overdrawn checking account.  If you would please respond/advise us to the above (3) questions/concerns we have, it would certainly clear up a lot of confusion and worries along the way.  Thank you so much Christine.  We look forward to hearing from you.

Answer
Dear Gennifer:
Thank you for your question. I do regret that your husbands business did not fare well enough to address your concerns. The manner in which this agency attempted to collect this debt is questionable, although not specified as disallowed, may not be construed as a private communication. Please see the attached link regarding communications by collectors according to the Fair Debt Collections Practices Act.

http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre27.pdf

You should also check into if the statute for ability to collect on this debt is nearing or has expired. In most states this is between 4-6 years from the last payment date made. So if last payment was in 2005, you might be receiving calls from someone making a last ditch effort. Any payment (even partial) will start the statue for ability to collect all over again. For the Statute in your State, visit: http://www.fair-debt-collection.com/SOL-by-State.html

[1] What exactly does the term "personal guarantee" mean? My husband and father-in-law both signed their social security #'s on the c/c application - so, does this mean they are considered the "personal guarantee" for their business credit card?
A. It means that your family offered themselves as guarantor to repay the debt regardless of the ability of your corporation to pay. They will be responsible for that repayment until the debt is satisfied in one manner or another or the statute of limitations runs out.

 [2] If the agency is indeed authorized to collect the c/c debt, and if my husband and father-in-law are indeed the personal guarantee, does the agency have the legal right to collect the debt from both my husband AND father-in-law? In other words, if my husband decides to pay them, can they still collect money from his dad?
A. If one or the other elects to pay, they can only be paid for the balance of what is owed and not beyond, make sure they both agree on the resolution, and only one contact or pay if that is your decision. If the debt is paid, please get all receipts, checks and other correspondence documented to insure proof of delivery and payment.

[3] In regards to their business' checking account - which was overdrawn by the time they had dissolved their corporation - can a collection agency ever come after my husband and/or father-in-law for those overdrawn funds?  If so, how or why?  
A. If a payment was made to this agency, but the check was not honored, they can collect on bank fees charged to them for an NSF return or other related charges, and in some cased even charge interest. They can not however collect on behalf of your bank, unless authorized to do so as a separate collections account. However, you may still owe your bank in the form of bank charges due to the deficiency in your account at the time the check was drawn.

I hope you find this helpful, and if so, please take a moment to provide a positive rating and favorable comment so others may benefit as well.

Respectfully,

Christine Janklow