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Collecting from a company that has closed or filed bankruptcy

On Behalf of | Aug 12, 2021 | collections

Collecting an unpaid debt can be difficult. People will often take dramatic steps to avoid repaying what they owe. Even if your company primarily does business-to-business sales, unpaid debt could still affect your budget and solvency.

When a business owes you money, you may take multiple different steps to try to collect from them. If they refuse to pay or claim that they are unable to, you may need to file a lawsuit to collect on the debt. What happens if the company tries to shut down or file for bankruptcy specifically so it can avoid repaying your business?

You may be able to go after the owner rather than the company

People create businesses to protect themselves from legal and financial liability. An individual who starts an LLC does so in part to avoid responsibility for debts incurred by their company. The board members of a bigger corporation have similar protections, even if they helped form the company.

In most cases, the owners and board members of corporate entities are not responsible for business debts. However, when a company acts inappropriately, when they commingle personal and business funds or commit acts of fraud that impact your business, you can ask the courts for help.

Piercing the corporate veil is a legal process through which you can potentially hold an owner or board member responsible for misconduct and unpaid debts. Especially when the business is now closed or does not have the assets currently to repay the debt, trying to collect from individuals rather than the business may be a better approach. Piercing the corporate veil can be a complex process, but it can help you collect on an otherwise uncollectible debt.