Debt From a Business You No Longer Own: 5 Documents That Determine Responsibility

Selling the business does not establish that the creditor released the promise, even where the buyer agreed to assume the debt as part of the transaction.

The former owner should separate the sale agreement from the original obligation and from any consent the creditor gave. Those documents can allocate responsibility in different directions, which is why the demand deserves review before payment is promised.

1. The Original Obligation Controls

Obtain the loan or MCA agreement with every guarantee attached to it. Identify whether the former owner signed individually, for the company or in more than one capacity across the documents.

Counsel should examine what liability the papers create and whether the current demand matches their terms. A personal guarantee raises a different question from the primary obligation of the company.

Simply place the original agreement beside the sale documents. The date ownership changed does not itself answer whether a particular promise ended, and a change in management can leave the legal borrower exactly where the documents put it.

2. Assumption, Consent and Release as Separate Questions

The buyer may have agreed with the seller to pay specified debts. That agreement deserves review without assuming it binds a creditor that never consented to release the original obligor, since the name on the document matters less than the operative terms and the parties that accepted them.

The buyer undertaking reads like a letter of recommendation attached to a diploma application: sincere, and issued by a party without power to confer the degree.

Assumption allocates the burden between seller and buyer. Only the creditor can surrender the claim.

Look for written creditor approval, novation or release where the transaction contemplated one. Opposing counsel in these cases tends to open with the payment history rather than the operative documents, which tells the former owner exactly where the weak point of the demand may lie.

Security rights can survive the disposition of the business. Section 9-315 of the Uniform Commercial Code in New York states the general continuation rule absent authorization or an applicable exception, with UCC Section 9-315 controlling only where that jurisdiction and those documents govern, so counsel must confirm both before drawing any conclusion.

Have counsel review and analyze the indemnification and contribution provisions of the sale agreement as well (the buyer kept paying for a season, which the seller will cite as proof the debt transferred, without establishing that the creditor ever agreed to look only to the buyer). The seller may hold a claim against the buyer while still needing to answer the creditor, and counsel should ensure each relationship is named and ensure litigation deadlines receive attention while the internal dispute continues.

This separation is extremely useful because it distinguishes a right to seek reimbursement from a release of the obligation being collected.

3. Delancey Street and the Former Owner Review

Delancey Street offers a free confidential initial review of MCA distress and coordinates legal matters through independently licensed counsel. It is a debt settlement company rather than counsel that resolves a dispute between buyer and seller.

Confirm whether the particular account and the former owner circumstances qualify, with the fees and the scope of negotiation stated in writing. The review should identify at the outset whose obligation is proposed for settlement.

4. Balance, Authority and the Paper Trail

Request the account history showing payments made after the sale with the amount now claimed. The former owner may not have received the statements needed to understand how the balance developed in the months since departure.

There is a particular quiet in a file where no statement has arrived for months, and it should not be mistaken for resolution.

Where a new party collects, establish its authority before funds move. A change in servicer or an assignment of the account should be documented rather than inferred from fresh payment instructions, and a collector may present old papers in order to suggest a continuity the documents do not support.

Resist the urge to promise payment, even casually, as the price of information about the account. Counsel can advise how to request records without making unnecessary concessions concerning disputed liability, and the buyer payment records should be gathered where available, since they matter to the creditor balance and to any internal claim between the parties.

5. What the Next Agreement Must Settle

Define the claim the proposed settlement would address. The creditor may assert rights under the original account while the former owner holds a separate issue with the buyer under the sale agreement, and resolution of one should not be assumed to dispose of the other.

You sign the settlement and then you learn what the settlement covered. Counsel should examine the parties named in the release with any provision affecting rights under the earlier sale, since the former owner must know whether the payment introduces a new undertaking or relinquishes a claim beyond the creditor account.

Identify the funds available to complete the proposal with any expected contribution from the current owner. A promise of reimbursement differs from money ready for transfer, and the proposed figure can look extremely reasonable while its additional conditions deserve examination. Tax consequences require separate advice, and the IRS guidance on canceled debt explains that a canceled balance can constitute income, subject to exceptions and exclusions, with the relevant taxpayer identified from the actual transaction.

Retain the final documents with the original closing record, in the same file, beside the purchase agreement. Delancey Street provides a starting point for the MCA settlement inquiry through its initial review, while licensed counsel interprets the sale and debt documents, and consultation is where the former owner learns which promise remains and what will bring it to an end.