Which Debts Are You Responsible For Paying When You Close A Small Business?
The commentators on ESPN FC Extra Time sometimes play a game where, given a list of three professional soccer players, they must decide which one they would want to start, which one to bench, and which one to trade to another team. When you close a small business, you must attempt a similar form of triage with your business debts, only it is a lot less fun than designing your ideal soccer team. It is not possible to ditch your debts or unload them on someone else, and you are financially responsible for the consequences of your choices. Closing a small business can be both a relief and a whole new mountain of stress, but if you can think of it as just another business negotiation, this can make the process easier. Negotiating to settle business debts for less than their face value is not for the faint of heart, but a Washington DC small business lawyer can help you settle your debts for a fair amount.
Some Debt Obligations Are Non-Negotiable
When you close a small business, the most important obligation to pay is the wages you still owe to employees and independent contractors. Besides that, there are several other kinds of debts that you can neither settle for a lower amount nor discharge in bankruptcy. These include taxes your business owes and judgments that the court has ordered the business to pay. In other words, if your business has been named as a defendant in a lawsuit, it must pay the settlement amount that it agreed on with the plaintiff or the amount that the court ordered it to pay pursuant to a ruling. The extent to which the creditor can hold you personally liable for these obligations depends on which business structure you chose when you incorporated the business.
A Small Business Lawyer Can Help You Settle Your Business Debts for a Reasonable Amount
Except for the above, it is possible to negotiate almost all other business debts. Whether it is penalties for early termination of leases or equipment rentals or repayment of small business loans, most creditors understand that, if a business is about to close permanently, collecting some of the original debt instead of all of it is a best-case scenario. You should offer to settle for the same percentage with each creditor; most creditors will be willing to settle for less than 70 percent of the face value of the debt.
What If Creditors Surface After You Have Already Gone Out of Business?
You may have heard that, as long as your company is an LLC, creditors can never pursue you personally for payment of the company’s debts. That is only true when the company is still in business. Once you dissolve the LLC, creditors can try to collect payment from you personally. You should keep some money on the side with the expectation that you will have to use it to settle with creditors that missed out on the original negotiation process before you closed the company.
Contact Us About Closing a Small Business
A small business lawyer can help you open or close a small business and can help with any of the legal formalities in between. Contact Tobin, O’Connor & Ewing for help.