Why Business Debt Settlement is Better Than Bankruptcy

Filing for bankruptcy can be a difficult decision for any business owner. While it may seem like the only option when facing serious financial struggles, there are actually alternatives that may allow you to avoid bankruptcy and resolve your debt. One such alternative is business debt settlement.

What is Business Debt Settlement?

Business debt settlement involves working with a debt settlement company to negotiate directly with your creditors to settle your debts for less than you owe. The goal is to come to an agreement where the creditor accepts a lump sum payment that is less than the full balance owed. This can help businesses in financial distress avoid bankruptcy and eliminate debt.
Some key things to know about business debt settlement:

  • It does not require going to court like bankruptcy. Settlement happens directly between the business, settlement company, and creditors.
  • Settling debt means you can pay off debts and become debt-free without filing for bankruptcy.
  • Creditors often agree to settlements since they want to recoup some money rather than risk nonpayment if a business files bankruptcy.
  • Settlements typically allow businesses to resolve debt for 30-50% less than the full amount owed.

How Does Business Debt Settlement Compare to Bankruptcy?

While bankruptcy and debt settlement both aim to resolve overwhelming business debt, there are some key differences between these options:

Impact on Credit Score

Bankruptcy devastates credit scores, with a bankruptcy staying on a business credit report for 10 years. Debt settlement allows businesses to resolve debt without a bankruptcy filing, leading to less long-term damage to credit.


The legal costs of bankruptcy can be substantial, often reaching into the tens of thousands of dollars. Business debt settlement is often more affordable, with most settlement companies charging a percentage of enrolled debt as their fee.

Business Operations

Filing bankruptcy can disrupt business operations and place major restrictions on financing and spending decisions. With debt settlement, businesses can continue operating without bankruptcy’s operational burdens.

Debt Relief

While bankruptcy eliminates all eligible debt, businesses must still repay certain debts like taxes and secured loans. Settlements negotiate debt reduction on unsecured debts like credit cards, medical bills, vendors accounts, and personal loans.

Credit Access

A bankruptcy makes obtaining financing very difficult for up to 10 years. Settlement preserves the option for credit lines in the future once debts are resolved.

When is Business Debt Settlement the Better Choice?

Business debt settlement offers important advantages for companies facing financial hardship without being completely insolvent. Key situations where settlement is preferable to bankruptcy:

  • You need to preserve business relationships with creditors and vendors.
  • You want to avoid long-term damage to business credit scores.
  • Your business still generates sufficient cash flow to potentially repay reduced debt.
  • You have primarily unsecured debt like credit cards, medical bills, personal loans etc.
  • You need flexibility to make financing decisions without bankruptcy restrictions.
  • You want to avoid bankruptcy’s negative stigma and reputational harm.

Essentially, if your business is still viable but struggling with debt repayment, settlement allows you to resolve debt and rebound more quickly than bankruptcy.

What Debts Can Be Settled for a Business?

Many unsecured debts can potentially be reduced or eliminated through business debt settlement. Common debts targeted for settlement include:

  • Business credit cards
  • Medical bills
  • Past due vendor accounts
  • Outstanding accounts receivable
  • Personal credit cards used for business expenses
  • Personal loans used for business purposes
  • Business equipment financing loans
  • Judgments against the business

Even severely delinquent debts and debts in collections may still qualify for settlement. For very old debt or debts already in litigation, settlements can resolve these obligations before further legal action is taken.

What Debts Cannot Be Settled?

While settlement helps with unsecured debts, certain secured or priority business debts cannot be settled:

  • Business taxes
  • Payroll taxes like payroll withholding taxes
  • Loans backed by business assets like equipment loans and commercial mortgages
  • Business expenses that could create personal liability like employee wages and vendor bills

These debts would still need to be repaid in full outside of the settlement process.

How Much Can Business Debt Settlements Reduce Debt?

In general, expert negotiators can settle business debts for 30 to 50 percent less than the full amount owed. However, the final settlement percentage depends on your specific financials and debts. Factors like:

  • Your current ability to make any payments
  • The age and delinquency status of debts
  • Amount owed to each creditor
  • Historical business earnings and equity
  • Collateral used to secure debts

All contribute to settlement percentages. With very old, severely delinquent debt owed to creditors you no longer do business with, settlements of 50 percent or more are common. More recent debts are typically harder to settle for as large of discounts.

Can I Settle Business Debt Without a Company?

Attempting DIY debt settlement without a professional company is very difficult. Creditors prefer working through debt settlement firms. These firms have established relationships with creditors and expertise negotiating settlements. Going alone means lacking the leverage and credibility needed to secure favorable settlements.
Using a business debt settlement company also saves you time and stress. These firms handle all aspects of the settlement process for you:

  • Initiating negotiations with creditors
  • Preparing documentation and financial statements
  • Corresponding and following up with creditors throughout negotiations
  • Advising on structuring and timing settlement offers
  • Finalizing and executing debt settlement agreements

Relying on a trustworthy settlement company means you can focus on operating your business rather than getting bogged down in debt settlement negotiations.

How Does the Business Debt Settlement Process Work?

The business debt settlement process typically involves several key steps:

1. Client Intake and Analysis

The settlement company collects information on your business’s financial situation, debts owed, revenues and expenses. They use this intel to develop your optimal settlement strategy.

2. Negotiations and Settlement Offers

Your settlement firm reaches out to creditors and uses expert tactics to negotiate debt reductions. Initial settlement offers are structured based on your business’s ability to fund settlements.

3. Finalizing and Executing Settlements

As creditor negotiations progress and offers are refined, your settlement company finalizes agreements with creditors. They execute debt settlement contracts on your business’s behalf to formalize terms.

4. Settlement Funding

With agreements in place, you work with your settlement firm to fund settlements from business earnings, loans or investors. Creditors provide detailed settlement payment instructions.

5. Debt Relief!

Once settlement payments clear, creditors release your business from further debt obligation. With settlements funded, you are now debt-free and back on the path toward financial stability.

Reputable settlement firms manage this entire process for you, applying their expertise to secure optimal settlements.

What Settlement Firms Charge for Their Services

Most business debt settlement companies work on a contingency fee basis, meaning there are no upfront fees. Instead, they charge a percentage of the total enrolled debt as their fee for services. This percentage might range from 15% to 25% on average.
The main benefit of this fee model is that settlement firms only earn their fee if settlements are secured for your business. There is alignment where the firm is incentivized to negotiate the very best settlements possible to maximize their fee. They earn nothing unless your debt is successfully reduced.
Apart from contingency fees, there are typically no other charges when working with a settlement company. Reputable firms do not nickel and dime clients for extras. As your representative, they handle everything from start to finish in exchange for their earned contingency fee percentage.

What to Look for in a Business Debt Settlement Company

Choosing the right settlement company gives you the best chance for success negotiating with creditors. Here are key traits that quality business debt settlement firms have:

  • Specialize exclusively in business debt settlements, not personal debt
  • Have 10+ years experience negotiating business settlements
  • Maintain dedicated business debt settlement teams
  • Get clients relief from 80% or more of debt on average
  • Charge contingency fees aligned to your success
  • Are transparent about likelihood of settlement success
  • Have strong business creditor relationships
  • Provide excellent customer service and communication

Vet any settlement company thoroughly before engaging their services. While most will seem eager to help at first, only proven experts can reliably negotiate the maximum debt relief.

What If I Have Fallen Behind on Payments?

Falling seriously behind on unsecured debt payments can actually strengthen your leverage to negotiate debt settlements. Collectors face uncertainty on whether they will ever get paid. This motivates them to accept reasonable settlement offers.
Just beware that falling behind on secured debts like equipment financing or payroll taxes can trigger legal action. These should be kept current whenever possible while negotiating other unsecured debt settlements.
Also know that falling behind will result in severe damage to your business credit scores. However, settlements let you resolve debts before bankruptcy or legal judgments which cause even more long-term harm.

Can I Get Financing While Attempting Settlement?

One downside to debt settlement is that it may be difficult to secure new financing while enrolled in a settlement program. Lenders balk at providing credit to a business actively defaulting on debts.

However, some settlement companies like Delancey Street have investor relationships to provide funding for clients while settlements are negotiated. These funds can be used to operate the business or initiate settlement offers to kickstart negotiations.
Tap into all available resources to obtain operating capital, enabling you to power through settlement until becoming debt-free.

How Long Does Business Debt Settlement Take?

The debt settlement timeline varies based on total debts enrolled and creditor willingness to negotiate settlements promptly. Most business debt settlement programs aim to resolve all negotiated debt within 12 to 36 months.

Simple cases with a single creditor may settle within a few months. But programs enrolling multiple creditors across many debts often take 12+ months to fully complete. Complex negotiations and funding settlements in stages stretches out timelines further.
Regardless of total duration, reputable settlement firms keep clients updated on progress through each phase of the settlement process.

Can Debt Settlement Impact My Employees?

One top concern business owners have about debt settlement or bankruptcy is the potential impact on employees. Rest assured there are ways to resolve your debts without negatively affecting employees:

  • Debt settlements focus exclusively on resolving unsecured debts. This leaves money available to make payroll and cover operating costs.
  • Settlement firms help craft budgets ensuring payroll and personnel costs are accounted for before funding settlements.
  • For larger companies, only owner/executive level debts tied to the business may be enrolled in settlements rather than payroll or vendor debts.
  • Employees do not need to be informed about ongoing settlement negotiations in most cases.

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