Why Business Debt Settlement is Preferable to Bankruptcy

Why Business Debt Settlement is Preferable to 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 often better alternatives that allow you to avoid the long-term consequences of bankruptcy. One such alternative is business debt settlement.
Business debt settlement provides many advantages over bankruptcy:

You Keep Operating Your Business

With business debt settlement, you get to keep operating your business as usual throughout the process. This allows you to continue generating revenue and working towards restoring your financial health. Bankruptcy, on the other hand, often requires ceasing business operations.

Less Damage to Credit Score and Reputation

While business debt settlement may still have some impact on your credit score and reputation, it is far less damaging than bankruptcy. Bankruptcy devastates credit scores and leaves a permanent stain on your business record that can ward off future clients, vendors and financing opportunities.

Lower Overall Repayment Amounts

In debt settlement, you can often negotiate down total repayment amounts by 30-50%. This happens through direct negotiations with creditors. With bankruptcy, there is no flexibility or room for negotiation on what you end up repaying. You must adhere to court-ordered repayment plans.

Faster Process with Less Court Involvement

Business debt settlement is a much faster process than bankruptcy, often taking just 12-48 months until all debts are resolved. It requires little to no court involvement. Bankruptcy drags on through lengthy court proceedings that examine all aspects of your finances. The court remains involved throughout bankruptcy repayment plans that typically take 3-5 years.

More Control and Flexibility

You maintain far greater flexibility over which debts get paid off first and other decisions with business debt settlement. The court controls nearly all aspects of bankruptcy, leaving you with little input on the process.

How Does Business Debt Settlement Work?

  • The business debt settlement process involves:
  • Hiring a settlement firm to negotiate with your creditors
  • Stopping monthly payments so accounts fall into default
  • Creditors agree to reduced lump sum settlements to recoup losses
  • You make monthly payments into a secured account
  • The firm uses this account to reach and fund settlements
  • Once all settlements are reached, debts are resolved

Though allowing accounts to go into default sounds risky, professional settlement firms have processes to ensure creditors don’t take drastic actions. Maintaining open communication is key.

When is Business Debt Settlement a Good Option?

If your business is facing situations like the following, debt settlement may be preferable to bankruptcy:

  • Revenue no longer covers monthly debt obligations
  • Falling behind on payments to multiple creditors
  • Creditors are threatening legal action
  • Bankruptcy would cause unacceptable damage
  • Court-ordered asset liquidations must be avoided

As long as you have regular income that allows for some level of repayment over time, debt settlement can resolve amounts owed without bankruptcy.

What Debts Can Be Settled?

Many types of business debt can be negotiated through professional settlement services:

  • Business credit cards – Most banks will negotiate credit card debt.
  • Business loans and lines of credit
  • Accounts receivable financing – Factoring companies will often settle.
  • Equipment financing leases – Settlement avoids surrendering equipment.
  • Business mortgages and property loans
  • Commercial vehicle financing
  • Past-due supplier invoices – Freeing up vendor relationships.

Even very high balances across multiple accounts can realistically be resolved through settlement.

Common Settlement Outcomes and Terms

While settlement outcomes vary case-by-case, some common examples our clients have achieved include:

  • Waiving all interest/fees owed – Cutting balances by 20-40% immediately.
  • Paying just 10-50% of original balances over 12-48 months – With interest frozen.
  • Halting creditor legal action after just one payment.
  • Consolidating multiple debts into one monthly payment.
  • Stopping collection calls within the first 30 days.

Based on past client experiences, we anticipate being able to resolve your current debts for likely 30-60% less than what bankruptcy would require. This projection can be refined once we conduct a full review of your accounts and negotiate directly with your creditors.

How Much Could Bankruptcy Cost Your Business?

To weigh whether settlement or bankruptcy is best aligned with your goals, it helps to understand just how severely bankruptcy punishes small businesses:

Company Bank Accounts and Cash Seized

Any cash your business has on hand when filing bankruptcy could get turned over to creditors. The court also often seizes full control over company bank accounts and cash flow. Good luck paying ongoing expenses like payroll and rent when all accounts are frozen.

Essential Equipment and Property Liquidated

The bankruptcy court identifies company property and equipment deemed “non-essential” and forces its liquidation. Say goodbye to these valuable assets even if they are vital to operations. Fighting the court on liquidations rarely succeeds.

Key Contracts Defaulted and Cancelled

Many supplier, vendor, client and financing contracts contain clauses allowing the counterparty to cancel if one side files bankruptcy. Even if contracts remain valid, expect less favorable terms in the future.

Company Leadership Barred from Industry

Those with a 20%+ ownership stake in the business may be barred from taking leadership roles in the same industry going forward. This can strip away your lifelihood if bankruptcy courts prevent working for competitors.

Costly Legal Fees Throughout Process

Between court and attorney costs, business owners spend an average of $15,000-$30,000+ navigating the bankruptcy process. Much of these costs come upfront before any debt gets resolved.

Years of Court Oversight and Repayment Plans

Bankruptcy drags on for years as the court examines your finances, creates a repayment plan and monitors adherence to it. Expect 3-5 years of court involvement compared to just 12-48 months resolving debts in settlement.

Permanent Damage to Business Credit and Reputation

Nothing telegraphs “financial risk” to future clients, partners and lenders like bankruptcy permanently marring your business record. This black mark can plague ventures for over a decade.

Could Settlement Be a Better Path Forward?

Based on the lasting harm bankruptcy inflicts, most business owners benefit from at least exploring debt settlement. Industry-leading firms succeed in these key areas:

  • Negotiating repayment discounts of 30-50% across all debt.
  • Preventing creditor harassment and lawsuits during program.
  • Allowing owners to maintain control of company finances.
  • Charging monthly fees aligned with client savings.
  • Resolving all debts within 12-48 months.
  • Leaving credit/reputation intact for faster recovery.

Reputable settlement services also provide total transparency upfront on what their programs can achieve based on your unique situation.
You receive a complete breakdown of:

  • Total debt balances
  • Minimum discounts targets on each account
  • Monthly settlement funding amounts
  • Fees paid to the settlement firm
  • Timeline for resolving each debt

This allows comparing bankruptcy and settlement costs/terms side-by-side to decide on the best path.
There is no obligation to enroll if the analysis shows bankruptcy as the superior option based on your goals.

Could Our Debt Settlement Program Help?

If you remain unsure whether bankruptcy or debt settlement best aligns with your business goals, Delancey Street’s settlement services may provide clarity.

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