Legal Question in Business Law in California

The short answer is "no," unless it is a sale of a corporation and the debt is in the name of the corporation only, but it is more complicated than that. First off, transferring a business is like a divorce in that you can agree between you who will be responsible for any debts, but that agreement is not binding on the creditor. The creditor can still look to the person who originally incurred the debt, regardless of what the original debtor agrees with someone else about who will pay it. Second, it depends on the form of the business and the nature of the sale, as well as the nature of the credit card agreement. If its a sale of the shares of a close corporation and the credit card is a no-recourse card in the name of the corporation, the answer is totally different from the answer if the business is a sole proprietorship, the credit card is in the owner's name, and the sale is structured as a sale of assets, rather than sale of a going concern. Third, if the former owner sells the business and is personally liable for the credit card debt, and after the sale he cannot pay the debt, the creditor may be able to undo the sale as a fraudulent conveyance or may be able to pursue the assets of the business by other legal theories, including forcing the seller into bankruptcy and trying to void the sale that way. The bottom line is that there are just too many variables involved to give a general answer.

I can think of six or eight very different possible answers, each of which would be correct under certain circumstances, but not in others.

The missing facts that would allow giving a single (and correct) answer include:

(1) What you mean by "passing down." Are we talking about passing a business down to heirs, or selling it?

(2) Is the business a corporation, LLC, partnership, or sole proprietorship?

(3) If it is a corporation, is this a sale of stock or sale of assets?

(4) Does the Bulk Sales Act apply? (Commercial Code sections 6101 et seq.)

(5) Whose name is on the credit cards, and who is contractually responsible to the issuing bank (not always the same!).

The bottom line is that the bank will be looking for someone to pay, and if they aren't paid, the bank will be looking at its contract with the cardholder.