Important Debt Settlement Steps to Take When Your Business Closes Down for Good


When your startup is going out of business, you generally, have a huge debt burden. You must be having immense debts to suppliers, landlords, service providers, utilities, private lender, or even a bank. Once you are sure of closing down your business, you must notify all your creditors about your business’s current state of affairs.

You need to get prepared for your small business’s upcoming closure. You need to chalk out an effective plan for paying off these debts in full, or settling these debts for less than the owed balance or even think about heading towards filing a bankruptcy. There is another option that many business owners take and that is trying to ignore all your debts and forever hoping that even the creditors would be kind enough to ignore you.

It could be immensely enticing to forget about your current business debt but avoid that route altogether if you do not wish to be hounded by aggressive almost crazy collection agencies, lawsuits, lawyers, repo people and the like.

In this context, we must understand that ‘A recent report by S&P Global found that the debt load for U.S. corporations has reached a record $6.3 trillion. That’s higher than it was in 2007, and we all know where that ended. The U.S. has the highest absolute debt burden, with around a third (31.8%) of the total; Japan also has a chunk (18.8%) and China the next largest piece (7.9%).” further adds, “The Congressional Budget Office said the U.S. budget deficit will surpass $1 trillion by 2020. However, this is only likely to become a systemic problem if people refused to fund it.”

Negotiating Deals on Your Business Debt

If we assume that you are unable to pay off all your debts to creditors in full then several questions would be cropping up. You need to determine exactly how much you could expect your creditors to settle for. This obviously depends on the specific kind of creditor, the attitude of your creditors, and the legal aspects of your debt.

Suppose your business is actually, an LLC or a corporation that has no personally guaranteed debts, your creditor would be alarmed that it has no choice of pressurizing you and collect it from you on a personal level. In such a situation, the creditor may be more than willing to settle the debts for an agreed lump sum payment that is less than the actual outstanding debt owed by you.

In such a case, the creditor would be happy to accept just a small portion of what your business owes and treats it as full payment. However, in the case, you owe a debt personally, or in a worst-case scenario, a relative or friend co-signed for your loan, it is quite natural for your creditor to have a lot more leverage.

However, irrespective of the precise legal status of all your debts generally if you could pay around 30 percent to 70 percent cash, you should be able to settle your business debt. Your creditors would be in a hurry to settle the debts as they know very well that they would be having a tough time collecting your entire debt once your business is closed.

If you employ the services of a professional debt settlement company to negotiate with your creditors on your behalf, you may end up getting a good deal. Moreover, you must always check the debt settlement ratings to know that you have hired the right people to help you with effective debt settlement as your business is on the verge of closing down.

Prioritize Your Debts

Your top priority would be to pay off a secured debt where you have already pledged a valuable asset as collateral. You must thereafter pay:

  • Any benefits and wages owed to your employees
  • Loans that you seem to be personally liable

After these, if you are still left with some money, you could consider paying off your credit card companies, suppliers, bills for business expenses, and lease deficiencies. Let us explore how you would be dealing with each kind of creditor.

Negotiating Successfully with Equipment Lessors

You must make all the necessary arrangements to return all leased equipment and types of machinery like vehicles, copiers, and other items. You must try to strike a good deal while the business equipment is still in your hand.

You may be offered a favorable negotiation amount. Moreover, if a lessor is not cooperating with you regarding debt settlement you could seek professional assistance from a qualified lawyer who would be pointing it out clearly that you are heading toward bankruptcy. No lessor would be interested in coping with the stress associated with the bankruptcy court and the likelihood that their property would be deteriorating during this period of time.

Negotiating with All Your Secured Creditors

Before handing over any valuable asset or property to your secured creditor, you must consider negotiating with your creditor for releasing you effectively from owing any deficiency.

In the case, you fail to negotiate a successful release and suppose you still owe the creditor some money, you must know that this deficiency would be treated as an unsecured debt as the collateral has been already returned.

Negotiating Effectively with Unsecured Creditors

Once your unsecured creditors are informed about the impending closure of your business, they would start getting panicky and would be making frantic calls to you and asking you to pay off the debt you owe. You must simply inform your creditors that you would surely get back to them earliest possible as you are preparing a plan to make a fair debt settlement offer.

You must devote your time in determining accurately the amount you owe and also, the exact amount of cash still available with you to be divided among your creditors.

If you are having only a few creditors, it is best to explain all your terms clearly over the telephone personally. You must obtain a written release after debt settlement as that is crucial. Without it, there is no proof that you have settled the debt.

You must seek professional assistance from a qualified and experienced debt settlement lawyer if your creditors are being plain uncooperative regarding the settlement. Remember that debt forgiveness is liable to be taxed and treated as an income.


You must make an accurate estimate of all your unpaid bills which might come up later on and you must foresee any potential lawsuits against you or your business. It is best to keep aside about 1 percent of all your annual revenue toward unexpected and unanticipated creditors. Focus on your debt objectives and get out of debts with unfaltering determination.


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