Business Debt Resolution: 5 Documents That Establish Whether the Matter Is Finished

A business debt is completely settled only when you have the paper.

• First, look for a written settlement agreement.
• Second, request a receipt for your payment.
• Third, get an official UCC-3 termination notice.
• Fourth, ask for a court dismissal if there is a lawsuit or a satisfaction of judgment if there is a judgment.
• The fifth document is a Form 1099-C.

A document doesn’t establish that the matter is over merely because it exists. It’s the content of the document that matters.

After a debt settlement, you may find yourself having to fight again, or to settle twice, even if you work with business debt resolution pros. A business debt settlement - where you pay some amount in exchange for a cancellation of the remainder - is inherently a complicated issue. This is why the words “business debt settlement complete” might well be best uttered only after you have received all of the required documents.

As a business debtor, your best protection against having to fight twice over the same issue is to get things in writing before you pay. Your agreement should promise an end to debt collection and a forgiveness of the rest once you pay. It should name the exact obligation you are settling and give the UCC filing numbers. It should describe what releases of claims cover the business, any guarantors, and the collateral. It should say who will file a UCC termination notice and when. It should also say whether customer or processor payment notices get withdrawn. Be sure to look at what happens if you miss a payment. A lender agreeing to take less than full principal on an SBA-guaranteed 7(a) loan first needs written approval from the SBA. A lien against your company is not automatically one against your house. A personal guarantee is a separate obligation that needs its own review and own release.

Of course, you should get a receipt for your payment, just to prove that you paid. But don’t rely on the receipt as proof the matter is over. A receipt doesn’t say anything about whether the debt collector has done all it promised to do. Get one for every payment you make, as your official record that you have lived up to your end of the deal.

The same goes for notices. Some business debt collectors send demand notices to your customers. As part of the deal, insist that the debt collector provide you with proof that it has stopped sending such notices to your customers. The business settlement shouldn’t be deemed over until everything is cleaned up.

UCC-3 Termination

A UCC-3 termination does not necessarily erase your UCC-1 financing statement from history. It just ends its effect. A financing statement that simply lapses is not a release of the debt. Who can file a termination notice, and whether one is required, depends on the facts and the law. Do not assume you have the right to file one. Once you have paid the loan, send a signed demand to the creditor, requesting they send you a UCC-3 termination. The secured party has 20 days to either file or send you a UCC-3 termination. Failing that it owes you $500 plus the actual damages you suffer.

When you pull the UCC filing, search for your exact legal business name, not the trade name. Then, save the whole history, with amendments, assignments, continuations and terminations. And be sure to match the UCC-3 filing number with the UCC-1 filing number. There can be multiple liens against an asset, so the document you received might terminate only one lien. Many financing statements last for five years. But not all do. Best practice is to check the actual filing and your state law.

The Dismissal or the Satisfaction of the Judgment

If you have already paid the business debt, ask to see the dismissal or the satisfaction of the judgment. Check the dismissal wording, whether you fight it yourself or with a lawyer. A voluntary dismissal by notice or stipulation is usually without prejudice, unless it says otherwise. If it says ”without prejudice”, then the dismissal lets the claim come back later. If there is a judgment against you, your settlement should end it. In Virginia, a creditor must enter a satisfaction of judgment within thirty days of the payment being made. Be sure to get proof that it was filed.

Tax on Forgiven Debt

Creditors file a Form 1099-C when they cancel $600 or more after an identifiable event. Check the code in box 6. F is code for agreeing to take less than you owed. A 1099-C does not necessarily mean that the debt is canceled, though. If the creditor keeps collecting after sending you a 1099-C, remember: you still report the correct amount. In fact, the IRS thinks the debt may not really have been canceled, if the creditor is still trying to collect it. You usually do owe tax on forgiven debt, unless you were insolvent just before the forgiveness or the debt was discharged in a Title 11 bankruptcy. Use Form 982 to show this.

If your business debt is federal tax debt, the IRS must release its lien within 30 days of full payment. It may also withdraw the public notice if three years of returns are filed and estimated payments and tax deposits are current.

Be sure to keep all of these records together, so you have all you need to prove the business debt settlement complete. Keep the original loan agreement, and amendments, any security agreement, any guarantee, and the whole UCC history. You will also need the payment history, settlement papers, and every notice with the date you received it and your reply deadline.