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Why Business Debt Settlement is Preferable to Bankruptcy

Filing for bankruptcy can be an overwhelming and stressful process for business owners struggling with debt. While it may seem like the only option, there are actually alternatives that are less damaging and enable you to move forward on better financial footing. Business debt settlement is one approach that is often preferable to declaring bankruptcy.

What is Business Debt Settlement?

Business debt settlement involves working with creditors to negotiate reduced payoff amounts for what you owe. Specialized debt settlement companies have extensive experience negotiating with lenders to secure win-win solutions.Rather than wiping debts out completely through bankruptcy, you work out agreements to resolve accounts for less than the full balances. Creditors are usually willing to settle for a portion of what is owed if you make reasonable lump-sum offers because it is more money than they would typically recoup in a bankruptcy.

Key Benefits Over Bankruptcy

There are several compelling reasons why business debt settlement is frequently a better path than business bankruptcy:

  • Preserves Credit Rating – Bankruptcy devastates business credit scores, which can take years to recover from. Debt settlement enables you to resolve debts without as severe of an impact.
  • Avoids Public Court Records – Bankruptcy becomes part of public record, announcing your financial troubles to anyone searching. Debt settlement is a private process that avoids damaging public records.
  • Saves Money – Paying 30 to 50 percent of debt through settlement saves substantial money compared to bankruptcy legal fees and liquidating assets.
  • Maintains Control – Bankruptcy means handing over financial decision-making to the courts. Debt settlement allows you to stay in control of the business.
  • No Fire Sale of Assets – Bankruptcy usually requires liquidating assets at unfavorable rates. Debt settlement lets you keep assets.
  • Flexible Process – Debt settlement gives the flexibility to resolve different debts at different times based on business needs. Bankruptcy is more rigid.

While debt settlement has many upsides compared to bankruptcy, it is not the best approach for every situation. Thoroughly exploring all options with financial and legal experts is wise. However, for many businesses today, settlement is preferable.

How Does Business Debt Settlement Work?

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The business debt settlement process involves several key steps:

  1. Initial Consultation and Strategic Planning

Reputable settlement firms like Delancey Street provide a free, no-obligation case assessment. This examines your unique situation—the types of business debt owed, repayment history with creditors, assets, and other factors. A tailored strategy is then crafted mapping out the best path to negotiate reductions and create a manageable repayment plan.

  1. Open Dedicated Settlement Account

A dedicated settlement account is opened to begin setting aside lump-sum payoff funds. When reasonable amounts accumulate to make satisfactory offers, negotiations with specific creditors begin. This account gives creditors confidence you have the ability to resolve balances.

  1. Documentation Gathering

Extensive financial documentation about your business is gathered, including tax returns, profit-loss statements, bank records, accounts receivable/payable, assets/liabilities, and details on all outstanding obligations. This provides the full picture of the current financial reality.

  1. Creditor Negotiations

With the gathered documentation and accumulated set-aside funds for settlements, our business debt experts open talks with creditors to negotiate discounted payoffs. Most creditors would prefer to settle an account for a portion of the debt today than risk non-payment stretching months or years.

  1. Settlement Finalization

As negotiated settlements are reached, lump-sum payments are made from the dedicated account to satisfy the reduced balances. Once accounts are resolved, you celebrate being free of long-standing debts and get focused on future business growth.Throughout the process, our lawyers provide counsel regarding legal risks or considerations regarding potential bankruptcy, lawsuits from creditors, and adhering to settlement terms. Their oversight protects you each step of the way.

What Debts Can Be Settled?

Many types of business debt can be resolved through professional settlement, including:

  • Credit Cards – Personal and business credit cards are eligible for settlement negotiations.
  • Medical Debt – Unpaid medical bills can also be addressed.
  • Business Loans – Term loans, lines of credit, SBA loans and other financing can potentially be settled.
  • Commercial Leases – Settlements on remaining lease balances may be possible.
  • Vendor Debt – Money owed to critical vendors and suppliers might be negotiated.
  • Tax Debt – While not technically debt settlement, back taxes may be eligible for IRS offers in compromise.
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In some cases, recent debts less than 6 months old may need to age before reasonable settlement offers can be made. Mortgages and car loans involve collateral, making settlement very difficult. However, for most common types of business debt, our experts can negotiate discounts.

What Does Business Debt Settlement Cost?

Reputable settlement companies are always upfront about fees and will only charge you if they successfully secure settlements and savings for your business. Industry standards allow firms to charge 15% to 25% of the debt amount reduced through settlements.For example, if they negotiate $100,000 in debt down to $50,000 owed through settlements, the fee would range from $7,500 to $12,500. The fee gets paid incrementally as savings are achieved. No savings means no fees for you.When weighing the investment, keep in mind bankruptcy legal fees often exceed 10% of assets liquidated in addition to intangible costs of damaged credit and loss of control. Given the typical 50% or more savings achieved through settlement, the fees pale in comparison to the financial relief received

.Settlement Success Rates

Seasoned settlement professionals boast high success rates securing meaningful reductions in business debt:

  • Credit Card Debt – 65 to 80% settlements
  • Medical Debt – 50 to 65% settlements
  • Business Loans – 45 to 60% settlements
  • Commercial Leases – 40 to 50% settlements
  • Tax Debt – 35 to 50% settlements

Considering creditors are not obligated to offer discounts off outstanding balances, these statistics demonstrate why so many businesses pursue debt settlement with proven firms. The savings radically accelerate the path to restoring financial stability.

Critical Success Factors

While settlement provides many advantages over bankruptcy, there are several critical success factors to ensure the best outcome:

  • Act Quickly – The sooner you engage a settlement firm to start negotiations, the more leverage and options available.
  • Commit Fully – You must be ready to document finances, open a dedicated account, and follow the strategic plan. Half-measures lead to frustration.
  • Stay the Course – As difficult settlements stretch 6 to 24 months for resolution, persevering is key.
  • Remain Transparent – Hiding accounts or debts will sabotage the process and your legal protections.
  • Prioritize Settlements – Once settlements are reached, you must adhere to the negotiated payment plans.
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Reaching agreements with each creditor involves extensive back-and-forth communication and documentation. Patience is vital, as drawn-out talks are often required to secure maximum savings.With realistic expectations about the process, business debt settlement empowers impactful resolutions superior to bankruptcy.

When is Bankruptcy Potentially Necessary?

Despite the many attempts settlement firms make to negotiate with creditors, there are certain situations where declaring bankruptcy becomes the only remaining option:

  • Lawsuits and Judgments – If creditors sue your business and receive legal judgments, bankruptcy may be the only choice.
  • Imminent Foreclosure/Repossession – If asset forfeitures are days away, bankruptcy may temporarily halt action.
  • Prohibitive Upfront Costs – Very old delinquent debts may require large initial payments for creditors to engage in settlement talks.
  • Tax Agency Liens – Once the IRS or state place liens due to unpaid taxes, bankruptcy may be unavoidable.

While bankruptcy might delay creditor actions or eliminate tax bills, it comes at an immense long-term cost through public records and credit devastation. Pursuing settlement first makes strategic sense in most cases. However, our attorneys are always prepared to guide you if bankruptcy becomes an inevitability.Is Business Debt Settlement the Right Move?Here are a few key questions to consider that might indicate business debt settlement is your best path forward:

  • Are you currently struggling to make only minimum payments on debts?
  • Have creditors turned accounts over to aggressive collection agencies?
  • Are phone calls from creditors becoming an unmanageable distraction?
  • Has prioritizing past debts stunted your future business growth?
  • Is the mounting interest on debts discouraging you?

Being perpetually buried by high-interest debt with no end in sight means you could benefit from the proven debt settlement approach. Most businesses find the process leads to greater peace of mind and optimism about the future.However, if you remain current on all accounts or have assets to quickly eliminate debts through liquidation, settlement may not be necessary. As always, assessing options with financial experts and attorneys is wise.

Delancey Street is here for you

Our team is available always to help you. Regardless of whether you need advice, or just want to run a scenario by us. We take pride in the fact our team loves working with our clients - and truly cares about their financial and mental wellbeing.

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