One step many owners miss in the closing process is notifying creditors. This must-do step is important because it helps you ensure you receive—and have time to validate—every claim a creditor makes before completing the closure of your business and distributing the assets that remain.
Who will I need to notify?
Plan to notify every entity to which your business could have outstanding debt obligations. These entities often include lenders, leasing companies, landlords, utility companies, providers of services, and other suppliers.
How do I provide this notification?
You should always provide written notification of your planned closure to your business’s creditors. Call each creditor and ask for the physical mailing address or email address you can use to submit your notification.
Your written notification should include four pieces of information:
- Your decision to dissolve your business
- A request for the creditor to submit their final claims to the mailing address you provide
- The deadline for claim submission
- A statement that claims arriving after the deadline will not be paid
Are there guidelines for setting a deadline for claim submission?
Yes. Many states have laws that dictate the timeframes you'll need to follow to both submit the notification and allow creditors to submit claims.
Some states will ask that you resolve claims and inform your creditors of your intent to close before filing articles of dissolution. Other states require you to file for dissolution before letting creditors know that you’re closing.
Because the requirements vary by state, it’s important that you speak with someone from the Secretary of State’s office in every state in which you operate before proceeding. Use the following chart to locate the appropriate state. Then, call the phone number that’s provided to speak with a representative or click on a state name to link to the Secretary of State’s website:
The states where your business operates could have laws that grant creditors a precise number of days to submit claims for repayment. Many allow creditors between 90 and 180 days after the date they receive notice of your closure to submit a claim. Notices that arrive after that date can be barred.
But here's something you should know: Creditors that have not received notice may be able to make claims much further into the future. In some instances, claims can be made up to five years after they’re incurred and suits to recover those funds can be filed up to ten years after they're incurred. To help you avoid these risks, your state may require you to place a notice in your local newspaper about your business’s dissolution which, like other notifications, should include guidelines on how to submit claims, the deadline by which claims must be received, and an advisement that claims submitted after the deadline will be barred.
Representatives from Secretary of State offices should be able to advise you on the timelines you must follow and whether there are requirements for posting public notices in your state. You can also ask an attorney about your state’s requirements.
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What will happen after I submit notification?
Once they learn about your business closure, your creditors should issue you a final bill, which you'll need to pay before distributing the assets that remain in your business. Some creditors may be willing to set up a repayment plan that helps you spread the obligation over a period of time. Others might allow you to negotiate the final repayment amount.
You should speak with each creditor on an individual basis to make these arrangements. Ensure that you receive a written confirmation of any changes to the final amount or repayment deadlines they agree to.
Our guide, How to Settle with Creditors Before Closing Your Business, can help you with this step of the process.
Lenders may respond to your notification differently. Some lenders deduct remaining loan balances from your business account instead of waiting for other forms of repayment. You should speak with your banker to learn the process they’ll follow to terminate your business loans.
What if I can’t repay the debts?
Before declaring you can't meet your debt obligations, be sure to assess the value of your outstanding accounts receivable and the marketable assets you have on hand. It's possible that you could raise enough cash through these two options to cover the debts you owe.
As mentioned, some creditors may allow you to negotiate your final bills or establish a repayment plan that ensures they recover all or part of the amount they’re owed. Both options should be explored rather than avoiding repayment.
If neither of these avenues helps you come up with the cash you need to repay your debts, speak with a bankruptcy attorney to work through other options.
|If you have personally guaranteed any loans or obligations or if your business operates as a partnership or sole proprietorship, you could be personally responsible for repaying any debt that remains. In these circumstances, creditors may have legal rights to your personal assets. Speak with a bankruptcy attorney to learn about your options.|
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There are many more steps you’ll need to take to close your business, including notifying your customers, winding down work, selling your business’s assets, and filing your final tax returns. We can help with every step of the process. Log into your owner’s portal for a step-by-step guide, articles, and advice.