If your company is closing, you likely owe money to suppliers, service providers, your landlord, and others. After notifying the creditors that you will be closing, you will want to figure out how to either settle the bills for less than the full payment or pay for them in full.
If this is not a possibility, then the lawyers at Scura Bankruptcy Law Firm suggest that filing for bankruptcy is another way of getting out of debt. It can be tempting to ignore the debts and hope that the creditors do not do anything about them, but that is not the best option. It might result in a lawsuit. Instead, there are some better debt resolution plans to follow.
1. Getting a Deal on Business Debt
If you can’t pay in full, try to settle. The amount a creditor will settle for depends on the legal details, type of creditor, and their attitude. For instance, if you are an LLC, the creditor can’t collect from you. But if you have a sole proprietorship, then the creditor might have some more leverage.
If you can pay between 30 to 70 percent of the total debt, try to settle it. Once you are out of business, it will be hard for the creditor to collect anything. Tell the creditors that your offer depends on every creditor agreeing to settle the debt.
2. Prioritizing Your Debt
If you have an asset as collateral that you want to keep, then you should pay that debt off first. Then, you should prioritize any benefits and wages to your employees and loans that you are personally liable for. If you have more money left after that, you can pay credit card companies, suppliers, and bills for other expenses, like travel or advertising.
3. Negotiating with Equipment Leasers
Return any leased items, such as office equipment or vehicles. If the lease term is not up, you might have to pay a penalty, so try to negotiate a good deal. For instance, you might offer to make a few months’ additional payments so you can be released from other obligations.
4. Negotiating with Creditors
Before giving anything to a secured creditor, negotiate with them, so you do not owe the difference between what you have on the contract and what you paid the creditor. If you can’t get a release and owe money, then that deficiency is like unsecured debt since the collateral was returned.
Unsecured creditors will often hound you for money after you go out of business. It is often best to tell them you are making a fair settlement and will contact them. If there are a few creditors, you can explain the terms over the phone. Tell them you can only offer a partial payment, and if they accept it, make sure that each one signs a release to show that this amount was satisfied. Otherwise, you might get sued for the remaining amount.
You can also offer a settlement in writing. Mention what the amount will be and that each creditor is getting the same percentage. Everyone will need to sign a release before you make the payments. You might need to get a lawyer if some will not cooperate.
Remember that debt forgiveness might be considered taxable income since you no longer have to pay this money. The IRS considers it as being the same thing as getting that amount of money as income.
5. Future Claims
If you have settled with your creditors and have any assets left, set aside a bit of money for potential claims in the future. Even after closing your business, another creditor might approach you. Try to estimate any unpaid bills and think about any possible lawsuits against your company.
If you had a corporation or an LLC, keep that money for two to five years, depending on the statute of limitations of your state. That is important because if your company gives its assets to the owners after dissolving, the business owners can be personally sued. If you had a sole proprietorship, you might want to keep the funds for three to 10 years, depending on the statute of limitations.
If you think you will have large claims from your creditors, do not be afraid to get help. If you think that claims might surface after closing your company, see a bankruptcy or business lawyer. Remember, you do not have to do this by yourself.