A composition settlement is an agreement between a debtor and a creditor stating that the creditor will accept as settlement a payment from the debtor that amounts to less than what is owed in full.
Benefits
A composition settlement with creditors can be an alternative to bankruptcy. However, debtors are not released from making payments until they have fulfilled the payment provisions that both parties agreed to.
Logistics
Creditors are sometimes reluctant to agree to a composition settlement. However, if the request is from a small business, creditors may reason that there will be more in profits on future sales than on liquidation of the business.
Failure to Pay
If debtors fail to fulfill the terms of a composition settlement, they can be subject to a lawsuit. It is important to meet all obligations in a timely manner.
Collective Agreement
A composition settlement with creditors is both an agreement between the debtor and creditors and between the participating creditors themselves collectively. To be affective, all of the creditors must agree to accept less than what each party is owed.
Considerations
If you or your business is having trouble with finances, it may be viable to seek advice from a financial adviser regarding a composition settlement.
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