Resolve Business Debt
5 Steps Toward an Agreement You Can Perform

The amount a creditor will accept matters less than whether the business can pay it without producing the next default, though negotiations often reverse that order.

A settlement that performs needs three foundations: an affordable source of funds, a defined obligation, and written terms that explain what payment accomplishes. Five steps build those foundations in sequence, and each step protects the ones after it. Begin with cash, end with paper, and let the number emerge in between.

Cash Available for Settlement

With payroll due Friday and suppliers holding the next shipment, the account balance flatters the owner. A forecast that includes payroll, taxes, rent, and the vendors required to keep operating shows the true figure, and the balance visible on screen is not the same as money available for settlement, particularly before a payroll run.

Use collected revenue where possible and mark expected receipts as expectations. Take a hypothetical account with three advances and one tax lien: the daily debits leave little each afternoon, and a proposal built on morning balances collapses by evening. Simply mark the proposed settlement contribution separately from operating expenses, and have an adviser review and analyze the assumptions before the number goes out.

And this step feels like postponing the important conversation. It is the important conversation. An offer founded on cash the business cannot release may secure an acceptance and still leave the owner with another breach.

The Obligation Inventory

Before any creditor hears a number, the owner should assemble the full list of obligations with creditor names, payment schedules, security interests, and personal guarantees. Notices deserve a separate file, because a demand letter disappears among routine statements and resurfaces as a lawsuit.

The list need not be elegant. It needs to identify what is owed and the dates that control the next decision, and where a balance is uncertain the entry should say so rather than invent precision from memory. That discipline is extremely useful when three creditors describe one balance three ways. Several obligations that arrived through different brokers often share one confusing trading name, while the contracts name an entity the owner barely recognizes (our files show the pattern, though no dataset fixes how often it occurs).

Beside the list, record where each creditor draws its power. Creditors press for acknowledgments in order to narrow defenses before negotiation starts. A secured claim, a signed guaranty, and an active lawsuit each change the shape of negotiation, and counsel should ensure legal notices reach the right hands and ensure disputed positions receive separate treatment. Demand letters age into judgments when they sit unread.

Proposal Terms That Survive Performance

A proposal the business cannot perform is a second default with a signature on it. The terms should state the amount, the schedule, the source of funds, and exactly what payment extinguishes, because vague language about resolution leaves the deficiency alive and the guaranty untouched. Payment dates should track revenue cycles rather than calendar optimism.

Negotiate the release with the same care as the number, insisting that the writing name the borrower, the guarantors, the accounts covered, and the treatment of any UCC filings or confessions associated with the debt. Providers who fund one settlement with another advance sell motion rather than relief, and the owner who borrows at a premium to close a discount has usually purchased neither. The logic is outlandish on its face, though exhaustion makes it persuasive, and the omission of tax from the comparison is extremely common in our files. What the creditor promises orally, or withholds from the draft, decides whether the agreement is worth the paper it consumes.

Obtain a clear statement of consequences if payment arrives late, since performance occasionally slips even under honest forecasts. The agreement should address cure, notice, and the status of the release after a missed installment, and twenty pages of remedies for a six month schedule should give any signer pause. Counsel should ensure the final draft matches the business forecast before anyone signs. A proposal that assumes perfect collection months invites the very breach it was drafted to prevent.

Delancey Street Review and Independent Counsel

Delancey Street operates as a debt settlement company. Legal work goes to independently licensed counsel. The company offers a free confidential initial review for MCA distress, and the Delancey Street initial review compares a negotiated resolution with the business capacity and the creditor position.

The settlement salesperson (whose optimism the engagement letter rarely shares) cannot compel any creditor to accept terms merely by enrolling the account. Ask whether each debt qualifies, who contacts the creditors, and how fees are calculated, because company descriptions of debt scope differ. Resist the urge to promise a creditor payment before the forecast supports it, even casually, since an unkept promise hardens every later discussion.

A first conversation with Delancey Street costs nothing and assumes nothing; it is the beginning of a diagnosis, with independent counsel handling suits, liens, and guarantees. Steps taken, or not taken, before the first lawsuit shape the price of everything after.

Liens, Sales, and the Tax Aftermath

New York statute provides that a security interest generally continues in collateral despite disposition unless the secured party authorized a free and clear transfer, attaching instead to identifiable proceeds subject to stated exceptions, and the UCC rules on disposition of collateral explain why selling the business never by itself sells the lien. Governing jurisdiction matters, and a filing alone proves neither amount nor enforceability.

Settle the authorizations before marketing any encumbered asset. The IRS guidance on canceled debt treats forgiven balances as taxable income subject to stated exclusions, so the after tax cost belongs in the arithmetic. Seldom does a closing produce the clean break the parties imagined; documents, releases, and filings close it afterward.