How to Settle with Creditors Before Closing Your Business

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Katie Fleming

Co-founder and COO of Owner Actions

A person sitting at a desk holds papers that indicate he needs to settle with creditors before closing his business

If you’re following our closing guide, then you’ve already reported your planned closure to your landlord, bank, suppliers, utility providers, service providers, and other creditors to your business. That important step cues your creditors to submit claims for any debts your business owes. With every claim in hand, you can start making repayments, and if necessary, prioritize your debt obligations to protect your personal liability or settle with creditors of your business.


What should I do if I don’t agree with the claims?

If you disagree with any creditor’s claims, tell them—in writing—that you reject their claim. It’s a great idea to work with an attorney who can help you follow the requirements your state lays out to complete this step.

Interested in hiring an attorney? Click the Connect button below to get started:


How should I prioritize repayment as I settle with creditors of my business?

Follow the advice of many small business attorneys and repay secured loans that are backed with collateral first.

With the cash that remains, attorneys often suggest repaying secured debts, followed by other debt obligations. If you follow this strategy, your repayment plan could have the following structure:

  1. Small business loan obligations
  2. Money owed to your landlord
  3. Lease obligations
  4. Credit card balances
  5. Supplier claims
  6. Utility balance repayments
  7. Service provider claims


What about taxes?

If you aren’t sure whether you’ll have enough cash to cover your debt obligations and your final taxes, you should work with a tax accountant to estimate the final taxes you’ll owe. Your tax obligation will likely take precedence over most other forms of debt, so it’s important that you set that amount of money aside before repaying other obligations.

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What should I do if I can’t repay my debt obligations in full?

If you’re unable to repay all of your outstanding obligations, you have a few options. Review this list with your attorney and find a choice that makes the most sense for your business:


Try to settle each claim for less than what you owe. Talk with your creditors and see if they’ll be open to debt settlement. Many creditors are willing to settle for repayments that are 75-80 percent of an outstanding bill.


Ask for a payment plan. Depending on how you structured your business, you could be on the hook for any debt repayment obligations your business can’t fulfill. If this is the case—and your creditors are unwilling to accept a debt settlement—consider setting up a monthly payment plan that’ll allow you to clear the entirety of your debt over time.


If your debt is already structured as a monthly payment obligation, take this step: Ask for an adjustment to the repayment schedule or a reduction in the interest rate that’s being charged to reduce the size of your monthly payment.

The key to succeeding with this tactic is to convince your creditors that you’ll be able to pay off the balance over time. A certified public accountant (CPA) may be able to help you prepare financial documents and projections that prove your ability to cover the obligations.


File for bankruptcy. If your creditors are unwilling to accept a debt settlement or arrange a repayment plan and you have no other options for repayment, you may want to speak with an attorney about filing for bankruptcy.
Another option is to work with a debt relief service. Curadebt is a popular service for business owners. It offers free debt relief consultations that will give you a savings estimate and clarity on your path forward.


Before choosing any of these options, make sure you’ve taken every possible step to recover your business’s accounts receivable and sell your business’s marketable assets. These two steps may help you to raise the capital you need to cover your obligations.

Learn more by reading the following articles:


How should I handle the debts I can afford to repay?

Repay your debt obligations in the order listed above or as advised by your accountant or attorney. Once your debt has been repaid, you should ask each creditor for a letter or receipt that verifies that your balance has been paid.

Keep those letters on file with other key business documents for several years following the close of your business. The letters can help you to defend against future erroneous claims from creditors.


What’s next?

There are several additional steps you’ll need to take to close your business. Log into your owner’s portal for a step-by-step guide, resources, and articles that’ll help you to terminate services, issue final paychecks, and prepare your final tax forms.

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