How to Handle Debt Settlement Negotiations When You’re Going out of Business

Posted by trudy
August 5, 2017

NOTE: This post has been self-published by the author. Anyone can write on Youth Ki Awaaz.

Most closing businesses have sizeable debts to pay off, to their suppliers, landlords, service providers, lenders, banks and so on. You’re going to have to notify each of your creditors of your closure so that your liability is limited. From there on, you’re expected to come up with a plan to pay these bills in their entirety, arrange for settling the debts for an amount lesser than the full payment, or, in extreme cases, file for bankruptcy.

How to Negotiate Deals on your Business Debts

If you aren’t able to pay in full, you’re going to have to start wondering how low you’ll be able to bring the net amount. This will depend on the type of creditor, your rapport with them and the legal nitty-gritty of the debt itself. If the business is a corporation or an LLC that doesn’t have any debts that are personally guaranteed, the creditor knows that they cannot get the money from you personally. It is a good idea to try and settle if you can pay anywhere between 30 and 70% of the debt. Since the creditors know they will have trouble trying to procure the full amount, they are likely to settle for something instead of nothing.

Bankruptcy is the way to go if most debts are beyond you. It will allow you to wipe your debts out, but at a cost to your creditability. Speak to the experts at Creditors Relief before taking such a big step.

Prioritize the Debts

You’re going to have to organize debts in order of priority. Keep the ones which have collateral that is of value to you right at the top. Next in the hierarchy should be benefits and wages owed to employees and loans that you are personally liable to pay off, like ones bound by court judgments.

The money left over after this can be applied towards paying suppliers, credit card companies, and random business expense bills like travel, advertising, lease deficiencies and so on.

Handling Equipment Lessors

Make arrangements so that you can return all leased equipment. If this is returned before the lease term is up, you are going to have to pay either an early return penalty or the remainder of the lease payments. You could still negotiate terms yourself or through an attorney. If the lessor gets to hear you are considering bankruptcy, he will want to take back the equipment with the least hassle so that there is no further damage.

Handling Creditors

Negotiate with secured creditors to release you from owing deficiencies. As for unsecured creditors, just keep communicating with them while figuring out what sort of settlement offer you can make. Collect all outstanding A/R and sell off equipment and inventory. This should free up some funds for settlements. If your creditors accept the deal, get them to sign individual releases for proof. This is vital for the future.


Take your time to understand your situation, because getting it right is more important than getting it done. If you have cash left after settlements, keep it aside for future claims because these tend to pop up. It is totally alright and in fact a very good idea to get an advisor or an attorney to oversee the entire process for you.

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