Business Debt Attorney: 6 Situations That Call for Counsel Rather Than a Negotiator

If you operate a business, from time to time you may find yourself with a debt to a supplier, lender, creditor, or other third party that creates a problem. Maybe you’re in default and they are making demands, maybe you’re not sure you owe the debt or not, maybe the other side is saying things you are sure can’t be right. In a situation like this, how do you know whether you are dealing with a debt that might be resolved through some negotiation that you can do yourself, or whether you should engage the help of a lawyer who has a specialty in this kind of matter? To be honest, the answer does depend - to a point. Situations vary considerably. But some situations call for a lawyer rather than a debt negotiator or other help. So when is it time to talk to an attorney? Basically, anytime you need to know what your rights and liabilities are. Six situations that are good candidates to call a lawyer:

• being sued for an unpaid debt;
• calls about a debt when you signed a personal guarantee;
• payroll tax claims;
• a judgment or collection efforts;
• bankruptcy or liquidation;
• fraud claims or closing shop.

You’ll Need to Be in Contact with an Attorney

The most obvious time you need to talk to a lawyer is when the other side has taken the step of commencing legal action against your business or you as the business owner. Such a situation usually arises when the other side has issued a court summons and complaint, and the filing papers have either been delivered to you or to your place of business. Once a lawsuit has been filed, there will be deadlines in your case, and a decision you must make about whether to file an answer to the complaint. Answer deadlines can run quite short. In federal court, you only have 21 days to file an answer once a complaint has been served on you. But different courts set different periods. A corporation or LLC must be represented in federal court by a lawyer. So this can limit your options, and not responding to the summons and complaint can put your business at risk. Bringing in a third-party debt negotiator may be able to resolve a dispute outside of court, but a dispute that ends up in court will likely have other issues arise that the negotiator does not have the training to handle.

A personal guarantee is a legal agreement by the signer to repay a lender, if the borrower doesn’t. That’s a critical distinction, because if the business defaults on the debt, a creditor can sue your business, and if you’ve signed a personal guarantee, they can also sue you as an individual. The personal guarantee might apply to certain defaults or to all defaults, and the question of the strength of a personal guarantee varies depending on how it is worded. For COVID EIDL loans over $200,000, the SBA required personal guarantees from anyone with a 20 percent or greater ownership interest in the business. Personal guarantees are not limited to business loans: If you sign such a guarantee, you might find yourself liable for credit card debt, commercial leases, and on other financial obligations. If you’ve signed a personal guarantee that’s been called in by the lender, you need to know what your rights are, and whether you have an out from the guarantee or not. Having a lawyer look at your business’ obligations, particularly those obligations involving personal guarantees, can help you to understand where you are at risk and how that risk might be mitigated.

Another situation in which you’ll need to be in contact with an attorney is when your business owes payroll taxes. If you are the responsible party and the failure was willful, you can be assessed what is known as the trust fund recovery penalty, or TFRP. For this reason, dealing with a payroll tax liability is not like dealing with an ordinary business debt. Once the IRS sends you a notice of its intent to assess the TFRP, you generally have sixty days to make your case against it. Such a situation is one you will want a lawyer to advise you on, as it can put you, personally, at risk.

Once a lawsuit has proceeded to judgment, or a creditor has successfully obtained a confession of judgment, your situation can become more urgent. In a situation like this, you will not be in a position to deal with the creditor on a voluntary basis - you will be facing a court-ordered obligation. A lawyer can help you to understand the creditor’s rights, and can help you to explore options to clear the debt. On confessions, New York amended the law in 2019 and no longer allows creditors to file them in the state unless the debtor lives or operates a business in the state.

When your business is facing financial stress and you are considering bankruptcy, or when you are facing personal bankruptcy and your business is also in a precarious financial situation, you should consult with a bankruptcy attorney. Bankruptcy is a complicated process for anyone. Filing triggers the automatic stay, which prevents creditors from taking action against you or your property, but it does not relieve you of all your obligations. There are also timelines and exceptions to the automatic stay, so you will want to understand the process and its impact on your business. Also, your personal bankruptcy generally does not wipe out your LLC’s or corporation’s business debt. In Chapter 13, the co-debtor stay prevents creditors from pursuing collection from a co-signer on a personal debt. The debt must be for personal use, not a business debt. Businesses often have options other than bankruptcy, and an experienced debt attorney may be able to help you to explore those options.

Another time you should consider reaching out to an attorney who specializes in business debt is when you or your business is accused of fraud or illegal asset transfers. Such accusations can threaten the integrity of your business, and its ability to remain open, and may pose a risk to the people involved in its management. Also, you should consult an attorney if you are considering moving assets or closing your business because you are facing a creditor lawsuit. Closing your business may not be enough to put you in the clear on debts, but there may be measures you can take to put yourself in a stronger position to deal with those debts.

Debt Negotiator

In certain cases, you do not need an attorney for your business’ debt. Most debt negotiators cannot represent your business in court, though they are able to communicate with your business’ creditors on your behalf. A debt negotiator is a good option when you know you owe the money and are looking to work out a settlement rather than going to court. In some cases, creditors might waive a portion of the debt or let you pay off the debt over time. Under the Federal Trade Commission’s Telemarketing Sales Rule, companies selling debt relief services by phone cannot charge any fees until they have successfully settled or reduced at least one debt. Depending on the issues in a particular case, you may need both a negotiator and an attorney.

Gather All the Documents Related to Those Debts

Before you call anyone, list out the debts your business has and gather all the documents related to those debts. Gather all relevant contracts and agreements your business entered into. You’ll need to know how long the debts have been outstanding, and what, if any, court action has been taken. It’s best not to let the situation go until you are facing a deadline to file an answer, or an order for your business to appear in court.