Let’s say, for example, that Ronald financed $10,000 in home repairs with a local construction company, but the company is now shutting its doors. Ronald still owes $5,000, so he’s wondering if he still has to pay back this money or if the closure of the business he owes money to wipes his slate clean.
Unfortunately for Ronald, experts agree that he’s likely not just going to be able to walk away from the debt, despite the company he owes money to shutting down.
Your duty to pay doesn’t disappear
While Ronald may have hoped he’d be off the hook once the construction company closed, that won’t necessarily happen.
“Generally, if you owe $5,000 to a company that goes out of business, you still have to pay it,” Romy Jurado, a Florida business attorney, told Moneywise. “The debt doesn’t simply disappear because the company closes. This is a common misconception.”
Jurado explained that your unpaid bill is an asset of the company, so the company could still try to collect as it goes through the shutdown process. If the business isn’t in a position to collect the unpaid amount itself, it could transfer or sell the debt to someone else, like a collection agency. And if it’s going through bankruptcy, the trustee could try to collect.
And other experts agree. “You absolutely still have to pay back that $5,000,” Stacy Kemp Ferrari, founder and managing partner at Kemp Law Group in Florida, told Moneywise. “The only question is who you’re going to pay it back to.”
Unfortunately, Kemp explained that “filing for bankruptcy actually gives them more reason to aggressively hound you for payments, since those debts are valuable corporate assets they can use to make payments for their own debts.”
There’s a simple reason why the debt doesn’t just disappear. As Michael Ziegler, an attorney and founding partner of Ziegler Diamond Law, explained, “A debt from a customer to a business creates a receivable. The receivable — the business’s right to payment — is considered an asset, just like any other asset.”
Ziegler compared the unpaid account to things like equipment the company owns or the money the company has in the bank. “Those things don’t just disappear into thin air the moment the business closes. Similarly, a business’s receivables don’t simply cease to exist when the business closes.”
