COLLECTING WHEN THE COMPANY CRUMBLES
HOW TO SETTLE DEBTS WITH A COMPANY THAT’S GOING OUT OF BUSINESS
By Collections Guru Michelle Dunn
What happens when a business closes its doors? If you owe the business money, do you still have to pay the balance? If they owe you, will they still pay their outstanding bills? Many businesses are using the "financial crisis" excuse and trying to get out of paying outstanding invoices by arguing that the economy is so bad it should void legal obligations. However, this is not the case. You are entitled to get paid for work you have done or products and services you provided even when a company goes out of business. Even when companies file for bankruptcy you can collect. So how do you get these companies to pay?
If the business owes you ...
First, be sure you know what you're up against.
Start by looking at the company's structure - Was it a sole proprietorship, an LLC, a corporation? Look for personal guarantees, look at the past few months of ordering habits, do you see an increased pattern of ordering? They may have been trying to increase inventory to make more sales to pay for it, but maybe did not make those sales. Check your signed contracts and agreements with those companies and see if there are provisions for collecting, or any personal guarantees. If the business was a sole proprietorship, you can pursue the owner and utilize credit reporting as a way to get paid.
Look at your contracts - Recently there has been a court case about a disputed construction loan contract between Donald Trump and Deutsche Bank that included the unusually broad phrase, "any other event or circumstance not within the reasonable control" of the borrower. Essentially, Mr. Trump is arguing in a New York State court that the "calamitous economy" falls under that definition and Deutshe Bank cannot collect $40 million on a loan that Trump personally guaranteed for a hotel and condominium tower in Chicago. The moral to the story: Check your contracts for loopholes.
Once you have the facts and you can confirm that the business owes you money, here's what you can do:
- Hire a Collection Agency
- Utilize credit reporting
- Depending on your signed contract, you may be able to take court action.
- File a complaint with the Better Business Bureau.
- Find out if there are any pending class action lawsuits against the company and if there are, file a grievance with the county court so your name and amount due can be part of the suit.
If you owe a business that closes ...
We'd all like to use the sagging economy as an excuse for not paying debts, but we don't get off that easy. Let's say you owe Circuit City, for example. They are going out of business, having going out of business sales, letting employees go and closing their doors.
Many consumers think this means they don't have to pay the Circuit City credit card bill, and they couldn't be more wrong. When a company goes out of business they look at what is owed by those consumers on their credit cards and that is included in their plan of action. Consumers need to remember that there is no free ride, you bought something and you have to pay for it. Stalling and using excuses not to pay what you owe will only ruin your credit, incur more fees and could raise your interest rate.
Whether you owe them or they owe you, settling debts with companies that are going under can be difficult. Unfortunately, for more and more people in this economy, it's a fact of life. That's why it's best to know what your options are now, so you're not left holding the bag.