The business world is fast-changing. According to the United States Small Business Administration (SBA) an estimated one in 12 companies closes up shop each year. The pandemic made things even more challenging. Last year, The Wall Street Journal reported that the COVID-19 pandemic resulted in an additional 200,000 business closures over what would normally be expected.
This raises an important question for those owed commercial debt: Can you still collect debt for a business that has closed? Legally speaking, the answer is ‘yes’—but there are some important challenges that you need to keep in mind. Our New Jersey debt collection attorneys explain the key things to know about collecting outstanding debt from a company that has closed.
Know the Law: You Can Still Collect Debts From a Closed Business
As a starting point, it is important to emphasize that you have the legal right to collect debt from a company or organization that has ended operations in New Jersey. There is no law that protects businesses that close from debt collection efforts.
Indeed, companies are still legally liable for debts that are valid and enforceable under state law. If you are owed money, you should not give up in debt collection efforts simply because the debtor company went out of business.
The Challenge: A Closed Business May Not Have Assets
While it is absolutely possible to collect debt from a company that is set to go out of business, is currently going out of business, or that has already gone out of business, the reality is that doing so can be challenging. This is especially true for firms that have already gone out of business. The more time that passes, the more difficult it will become to collect on an outstanding financial obligation.
Here is the basic challenge: A significant share of the companies that go out of business lack assets. Further, while individual business partners may be legally responsible for the debt of a general partnership, corporations and limited liability companies (LLC) provide legal protection to their owner.s. Only the New Jersey business entity itself may be liable for the debt—and that entity may have no remaining assets after it has gone out of business.
Debt Collection Tip: In some limited circumstances, debt collectors can “pierce the corporate veil” and hold a business owner personally liable for the company’s debt. In general, this requires proving that a fraudulent conveyance occurs or that the owner otherwise bears personal responsibility.
A Solution: Take a Proactive Approach to Debt Collection—Especially if a Company is Closing
As explained above, you have the legal right to collect debt from a company that went out of business. However, you should be prepared for challenges when trying to do so—especially if a lot of time has already passed by. The good news is that there are some solutions. A proactive approach can make a major difference.
Businesses that are closing must take certain actions. Business.NJ.Gov notes that companies that are shutting down in the state have a duty to notify creditors and resolve outstanding debts. If you received a notification that one of your debtor companies is shutting down, it is time to take immediate action to collect on any remaining financial obligations. An NJ collection lawyer can help.
All Debt Collection Efforts Must be Initiated Before the Statute of Limitations Expires
It is important to emphasize that all commercial debts are subject to a statute of limitations. Under New Jersey law (N.J.S.A. 2A: 14-1), a debt collection action must be commenced within six years. It does not matter whether or not the debtor business is closed or still operating. Debts that fall outside of the New Jersey statute of limitations are viewed as time-barred—meaning they can no longer be collected. If you have any specific questions about debt collection and the statute of limitations, our NJ collection attorneys are available to help.
Consult With Our New Jersey Debt Collection Lawyers Today
At Snellings Law LLC, our New Jersey commercial debt collection attorneys are committed to protecting the legal rights and financial interests of our clients. If you have questions about collecting debt from a closed business, we can help. Contact us today to request your strictly confidential case review. From our office in Parsippany, we represent businesses in debt collection actions throughout New Jersey, including in Morris County, Union County, and Bergen County.