Negotiating Debt Settlements When Your Business Closes Down
When a business shuts down, it generally has a big pile of debts, to landlords, suppliers, utilities, service providers and possibly a bank or private lender.Negotiating debt settlements with these various creditors may prove to be effective.
Once you notify these creditors of your upcoming closure [which may limit your liability], you will want to ensure that you have a plan to either pay these debts in full, settle them for less than full payment, or consider filing for bankruptcy.
It may be tempting to ignore your creditors with the hope that they may ignore you, however this route may make your financial crisis worse as it will probably result in you spending the next couple of years bombarded by collection agencies, repo people, lawyers and lawsuits.
Negotiating Deals On Your Business Debt
In the event that you cannot pay all your creditors in full, the next question is: How little will they settle for? Well, it all depends on the type of creditor, the legal details of the debt, and the attitude of the creditor. For instance, if your company is a corporation of LLC without any personally guaranteed debts, the lender will know that it has no option of collecting from you personally, thus it will be more willing to accept a small portion of what your business owes as a full payment.
However, the creditor has much more leverage if you have personally guaranteed repayment on a loan, or if a relative or friend co-signed on the loan.
Regardless of the legal status of your debts, if you are able to pay 30% to 70% in cash, it is worth trying to settle these debts. Several creditors who are aware that it will be difficult for them to collect the debt from you once you are out of business, may agree to settle your debt for 50,60 or 70 cents on the dollar or even less if you hire a lawyer to negotiate for you.
Note that it will not assist you much to settle one or two small debts for a reasonable amount while not being able to settle the larger debts. Thus it makes much more sense to inform your creditors that you offers are contingent upon all of your creditors agreeing to settle their debts.
In the circumstances where you are unable to pay all or most of your debts, and negotiating debt settlements is not a viable option, you may want to consider bankruptcy. Bankruptcy permits you to wipe out debts you have no hope of paying, and if your business owes a lot of debts it cannot pay, bankruptcy may offer the fresh start that you require. If you prefer to avoid filing bankruptcy, depending on the type of debt you owe, there are several options available to you. Our experienced debt relief lawyers at ZocLaw.com have helped many businesses wind down their operations by creating effective debt relief strategies. We can assist with:
Prioritize your debts
In a situation where you have pledged an asset that you own personally as collateral, and you want to keep it, it is wise that you pay this debt first.
Thereafter, you should pay:
- Any wages and benefits owed to employees, and
- Loans for which you are personally liable (especially court judgments)
If there is money remaining, you can pay suppliers, credit card companies, lease deficiencies, and bills for random business expenses.