As a business owner, there is a certain amount of debt that is considered healthy and even expected to operate. While debt can be a necessary evil, it is also something that can get out of hand if you aren’t careful. Before you know it, you might be in too deep and find yourself unable to pay back the debts that your business owes. This is not a place that any business wants to be. However, if it is where you find yourselves, it might be time for a creditor compromise. Principle Insolvency is here to talk about what a creditor compromise is, and what it means for your company.
How the Creditors Compromise Works
When you are in a position where a creditor compromise is necessary, you will need to follow a certain system to get things underway. Here is the way things are going to shake out:
– Assessment: The first thing that you will need to do is assess your financial situation. Look at the debts that you owe and determine a repayment plan that is realistic. You will need to take into account things like bills, income, expenses and your assets during this part of the process.
– Draft: You will then draft a proposal which will include and outline clear repayment options. You need to include the amount, the timeline and terms that will guide this payment plan.
– Approval: Once you have submitted this plan to your creditors, they will be able to approve it and move forward or deny it which will take you back to the drawing board. They must agree to the terms for this plan to be binding.
– Legally Binding: When a creditor accepts the proposal, it becomes a legally binding contract. As long as the terms of the proposal are met, the creditor can’t come back and attempt to get more money back.
Different Types of Creditor Compromises
There are three different approaches when it comes to a creditor compromise. Here are the three main types that are usually followed.
– Lump-Sum Payment: This type of compromise includes a one time payment by the business owner to the creditor to settle the debt.
– Payment Plan: If a lump sum can’t be paid all at once, the business owner may request a compromise in which payments are made until the debt is settled.
– Hybrid: There are often times where a business owner will make a lump sum payment and then make payments after that until the rest of the debt is settled making it a hybrid of the two mentioned above.
Insolvency Services in Auckland, Hamilton, Levin & New Zealand Wide
If you are a business that is facing financial trouble, it might be time to turn to Principle Insolvency to help you navigate your next step. It is our goal to help you understand what your options are moving forward and helping you determine which one suits your needs best. Call us today!