Debt Relief for a Business Owner: 7 Options Sorted by Whose Debt It Is

Every debt an owner carries has a signature on it, and the signature decides which kind of relief can reach it. Business owners in trouble tend to describe their situation as one pile: the advance, the card, the loan, the taxes. The law sees three piles, sometimes four, and the relief that works on one of them can be useless, or harmful, on another.

The first pile is business-only debt, signed by the company and no one else. The second is business debt an owner personally guaranteed. The third is the owner's own consumer debt. Taxes cut across all three. Seven options follow, sorted by the pile each one can reach.

1. Negotiated Settlement Reaches Business-Only Debt

A debt the company alone owes can be negotiated by the company, for less than the balance, in exchange for a lump sum or a payment schedule the business can carry. This is the ordinary work of a business debt settlement, and it takes place with few of the protections consumers assume exist. The Fair Debt Collection Practices Act defines a covered debt as one arising from a transaction "primarily for personal, family, or household purposes," so a funder or collector pursuing a business obligation is generally outside it. The Telemarketing Sales Rule's ban on advance fees for debt relief, at 16 CFR 310.4(a)(5), is removed for calls to a business by the Rule's business-to-business exemption, though its prohibitions on misrepresentation reach those calls.

A settled balance can also produce taxable canceled debt income, and the IRS explains that exclusions such as insolvency or bankruptcy have requirements of their own. That question belongs to a tax adviser before the settlement is signed. Relief, in every one of these piles, is a matter of reading signatures before reading offers.

2. Refinancing Reaches Business Debt That Is Still Current

Where the business is behind on nothing and pays too much, a refinance replaces debt rather than reducing it. SBA 7(a) rules require the refinanced debt to have been current for at least the past 12 months, with no payment more than 29 days late. For a business already in default, the door to this option is closed more often than open.

3. Subchapter V or Chapter 7 Reaches the Entity

A business that needs a court's protection can file its own case. Subchapter V of chapter 11 is available to a small business debtor whose noncontingent liquidated debts, as of the petition, do not exceed $3,424,000, the figure in effect since April 1, 2025, with Congress considering legislation to restore a $7.5 million limit that had not been enacted as of September 27, 2026. A filing triggers the automatic stay against collection from the debtor, subject to exceptions.

Chapter 7 is different in kind. Section 727(a)(1) of the Bankruptcy Code denies a discharge to any debtor that is not an individual; the LLC or corporation is liquidated by a trustee and ends. An entity appears in federal court through licensed counsel, so either filing needs a lawyer. A settlement company cannot file either one.

4. The Guaranty Needs Its Own Release

This is the pile that surprises owners, and it is the one where relief can go wrong without anyone noticing. A personal guaranty is a separate promise, so every option in the first three sections can resolve the company's side while leaving the owner's side intact.

The bankruptcy version of this trap is well documented. The Second Circuit has stated that stays under section 362(a) "are limited to debtors," leaving a co-defendant who has not filed outside them, and courts extend protection to a non-debtor only in limited circumstances, by motion. An LLC's chapter 11 does not, by itself, stop a funder from suing the owner on the guaranty. An entity's chapter 7 does not discharge it.

The settlement version is quieter. A release that names the company, and only the company, may leave the guaranty standing, and a funder that accepted a discount from the business may still hold the owner to the difference. The release should name the guarantor expressly and release the guaranty expressly.

The company can be finished with a debt that the owner is not.

Guaranties are not all alike, either. Under the uniform text of UCC 3-419, a guarantor of collection is pursued only after efforts against the principal debtor fail, while a guarantor of payment can be pursued directly, though most MCA guaranties are separate contracts drafted in their own terms (usually as a guarantee of the merchant's performance, a phrase whose scope depends entirely on what the merchant promised, which is why the whole agreement, and not the guaranty page alone, has to be read before anyone decides what the owner personally owes). Which sort an owner signed is found in the document.

5. Personal Bankruptcy Reaches the Owner

An owner whose guaranties exceed what any business settlement can address may need a personal case. Chapter 13 is available only to an individual with regular income whose unsecured debts are less than $526,700 and secured debts less than $1,580,125, figures adjusted April 1, 2025. Individual debtors must, subject to limited exceptions, complete a credit counseling briefing within 180 days before filing, and the chapter 7 means test applies only where debts are primarily consumer debts. Whether guaranteed business debt counts as consumer debt turns on its purpose, and that analysis belongs to bankruptcy counsel.

6. Consumer Debt Relief Reaches the Owner's Own Cards and Loans

The owner's personal credit cards, medical bills, and other household debt live under the consumer rules the business side lacks. A for-profit company selling consumer debt relief by telephone cannot collect fees until it has settled at least one debt and the customer has paid under that settlement. A nonprofit credit counseling agency may offer a debt management plan, which the FTC describes as a schedule under which the counselor uses the consumer's deposits to pay unsecured debts. Those protections are real. They end where the business begins.

Put another way, and more precisely, they end where the purpose of the debt stops being personal, which is not always where the owner's name stops appearing.

7. Taxes Follow Their Own Rules in Every Pile

Business income taxes, sales taxes, and payroll taxes resolve through the taxing authority: installment agreements and, where the IRS accepts one, an offer in compromise. The withheld share of payroll taxes carries the trust fund recovery penalty, which the IRS can assess against a responsible person who acted willfully. Bankruptcy Code section 523(a)(1)(A), read with 507(a)(8)(C), keeps that liability alive through an individual's discharge. No settlement company can negotiate it.

Where Delancey Street Fits

You find out which pile a debt is in by reading who signed it, and then the options narrow on their own. Delancey Street, not a law firm, works in the first pile and the second: merchant cash advances and the business debt around them, and the guaranty release is a term to ask any settlement provider about, this one included. It does not handle personal consumer debt, and it refers legal questions to independently licensed attorneys. Some owners need bankruptcy counsel before they need anyone else, particularly where lawsuits are already pending on several fronts or personal guaranties exceed what the business could ever settle; a free and confidential initial review with the company can at least sort the piles before that decision is made.