For many small business owners, closing down a business can be a daunting task. This is especially true if your business has incurred a large amount of debt. For most businesses, having some portion of your debts forgiven or filing for bankruptcy are the first thoughts. Bankruptcy is a serious, expensive and time-consuming court option that can significantly affect your credit. For those who opt to liquidate their assets and negotiate their own debt settlements, however, the process can appear overwhelming. Referred to as an out-of-court work out, or work out for short, this option is often cheaper and faster.
Work Out Process Overview
The work out process is actually much easier than you realize. At least the idea of it is. You, or a hired professional working on your behalf, contacts each creditor with a request for them to release you from debt. Often, a percentage of the balance owed is offered to the creditor to help facilitate negotiations. From a creditor’s perspective, filing a lawsuit against you will take time and money. When a fraction of the balance is offered, creditors may be willing to agree or at least enter into negotiations to avoid a court process. This is the most recommended approach for business owners who may be personally liable for business debts, such as sole-proprietors, partner or those who have personally guaranteed a business loan.
For corporations and limited liability companies (LLCs), it is likely that you are not personally liable for any business debt. If this is the case, you can close your business, liquidate its assets, and continue to pay creditors until your business funds are exhausted. While you will not need to personally owe on debts associated with these businesses, you will likely be hounded for years by creditors and their representative collection agencies. In the event of a lawsuit, you will need to file a response, which will cost you legal fees.
Filing for bankruptcy should be a last resort. Not only will it cost you in court and lawyer fees, but also it will stretch out the timeline as it drags through a lengthy court process. Instead, liquidating assets and negotiating your business debt yourself provides you with more control over your debt. This is particularly important if you are personally liable for any part of your business debt, like:
- Taxes related to trust funds,
- Personally guaranteed credit lines or loans, or
- Any contracts or leases that you personally signed.
Liquidating assets and negotiating settlements can be much more work than you realize. Depending on the amount of money owed and the number of creditors banging on your door, doing it yourself can lead to more trouble than it is worth. Additionally, in some cases, once you enter into negotiations, you will be unable to file for bankruptcy later.
Your Professional Advocate
Hiring a professional, like those at Royal Legal Solutions, can save you time and money. Not only do we understand the negotiation process, we have the experience to get you the best settlement amount possible. Contact us today if you would like to know more about closing a business or debt negotiations.