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Background:

I started a business (LLC) with a partner about 3 years ago. We took out a business Line of Credit. Because the business didn't have credit of its own, we both cosigned. 1.5 years ago we decide to part ways. It wasn't exactly a "friendly" split. For the blessing of getting out, I was willing to pay half the debt, leave him with 100% of the assets.

He never handled loan, maxed out the LOC, filed for personal Chapter 7 bankruptcy. Now I'm getting calls from the bank asking that I pay it since I'm still a guarantor. The company is still in business, though not really making any money.

Understanding that any questions asked or advice sought can get sticky re: legal options, I'll try to limit my questions.

Question:

1) What does it mean that the cosigned loan does not show up on my credit report? Can I read anything into that re: responsibility?

2) I've seen the chapter 7 filing and this loan was not listed as a debt to be relieved. As such, is he or the company still responsible for the loan? (not that he's much worried about defaulting on it or his credit at this point)

I'll likely end up paying it off to save my credit, as the total loan amount is only 10k... not really worth getting a lawyer over. Thoughts are appreciated!

  • I don't have any answers, but don't pay anything without something in writing protecting you going forward. – MrChrister May 24 '11 at 21:36
  • @MrChrister - I have the legal documentation which demonstrates I am not part of the company and that he is 100% owner. There's even a clause in the transfer paper stating that all outstanding debt is his. The bank doesn't care. They want their money. He would either need to pay it off or refinance to get it out of my name - the former he lacks money, the latter he lacks credit. – DonaldSowell May 24 '11 at 22:40
  • I meant going forward, and with the bank not your ex partner. Something that states whatever actions you do fulfill all your obligations now and forever. – MrChrister May 24 '11 at 22:49
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I expect that the loan documents show both you and your ex-partner as "jointly and severally liable" for the debt, and thus you're both responsible for it. It doesn't really matter what other paperwork you have that says otherwise or what other promises might have been made. Certainly, the other agreements give you legal ground to go after your ex-partner for the money, but they give you no leverage with the bank.

If you end up paying this debt off to save your credit, you need to make sure that the account is closed. Make sure you have paperwork showing it as closed, and showing that it was paid in full, and then keep that paperwork forever.

Re #1: I think it will eventually show up on your credit report. You could ask the bank for proof that you owe the money, if you like, but that will probably just delay the inevitable.

Re #2: His bankruptcy filing really has no bearing on you and your obligation to repay the loan. If he didn't list this debt, then he is still liable for it as well (and you can still go after him under your other agreements). But either way, you're still on the debt.

  • Thanks for your answer. I assumed I was still liable, and understandably so. re: 1 - I just thought it was odd that this wasn't showing up on my credit. re: 2 - knowing he's still liable is useful. There are indeed "other agreements" I can leverage. – DonaldSowell May 25 '11 at 18:01
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Re (1), I don't think it makes any difference. What does make a difference is the presence of your signature on the loan documents, unfortunately. And even if your ex-business partner didn't include the LoC in his bankruptcy, if he or his company don't have any money the bank is still going to come after you.

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