Negotiating with Collectors

The pandemic has been very hard on small businesses, and many won’t survive. Our firm is offering a Covid Escape Plan, which allows business owners to wind-up their operations and close shop. As part of that process, we negotiate with creditors. Creditors can be landlords, vendors, franchisers, and/or banks. The goal is to reduce the liability owed by the business so that the business owner can cease operations without an impact on his or her personal finances.

I think there is a bit of a misconception about how the process of negotiating with creditors works. Many individuals believe that I can make a quick phone call and resolve the bill for pennies on the dollar. Unfortunately, that is never the case. Creditors can be very difficult to work with and rarely offer hefty discounts.

How much of a discount can we expect?

There is no exact figure as to the amount of discount you can expect. I find that it is much easier to negotiate large settlements, as opposed to small ones. For example, it would be much easier to negotiate a settlement for a business that owes $80,000 to their landlord than a business that owes $2,500 to a vendor. I have no idea why this is. I imagine it’s because the amount someone is collecting is a motivating factor towards settlement. If I owe you $80,000 and I offer you $40,000 today, that’s $40,000 in your pocket. You can do a lot with $40,000 so you might be tempted to take that offer. This is especially true when creditors often owe money to other people, which is frequently the case during these trying times.

Compare that to a circumstance where I owe you $2,500, and I offer you $1,250. There probably isn’t much you can do with $1,250 right now. You’re likely to hold out for the full amount because the risk is fairly low given the small amount owed.

Also, consider what a collections firm gets as part of the deal. Collections firms frequently take 33% or more of what they collect. Therefore, my $1,250 is only $825 – not an inspiring settlement.

As a general rule, I usually shoot to get a settlement of around 50% of what is owed. Sometimes you can do better, but it is rare. Normally, bills settle for 25%-50% off. Please understand, that figure may not apply to your business. Every case is different.

I also want to mention that discounts are usually only available when your business is actually struggling. If you’re doing ok but hoping to save some money, creditors can usually see right through that. They may ask for proof of your struggle if they sense you’re not being truthful. Remember, these people are almost never stupid, and, as a rule, I never assume they are.

If you make a reasonable offer and negotiate in good faith, you can usually reach a favorable settlement.

What does the process of settling bills look like?

My process differs depending on the number of bills outstanding. If you owe many different creditors, I usually start the process by sending letters to each creditor with our starting offer. This offer is usually pretty low, and the letter spells out why we’re struggling and how we owe a bunch of people.

If you only owe one creditor or that creditor is a sophisticated negotiator, like an attorney, I will call them. I can usually discuss the issue with them one-on-one and cut through a lot of the bullshit. That’s not to say they will negotiate a lower settlement; it just means that we can reach an agreement slightly faster.

Once I have made my initial offers, we usually have to wait for responses. Frequently, we’re dealing with middlemen who need to take the offer to their client or boss. Some people respond very quickly – say, in a week. But other organizations are extremely slow and can take two to three weeks to respond. Once we have a response, there is usually a bit of a back-and-forth until we reach a reasonable settlement. There is no magic to it. We just put in the time, working to get the creditor down to a number that makes sense to our client.

Once a settlement is reached, we need to prepare releases for each creditor. It is imperative that a release gets signed for each settlement. No checks get sent until the creditor releases our client from liability, in writing. Trust me, it makes everything easier in the end. The process of drafting and sending releases doesn’t take long, but we frequently wait a week or so for signature from the creditor.

The entire process usually takes four to six weeks to complete, depending on the number and reasonableness of creditors.

It also makes life a bit easier if you were current with your collectors prior to the slowdown. I find that people are much more willing to work with businesses that were good partners before the pandemic. If you have been avoiding bills for years, you probably won’t get much sympathy now.

Breaking a Lease

Lately, I have received a number of questions about breaking leases. Unfortunately, many businesses are struggling right now due to COVID, and some are looking to shut down. The trouble that many are facing is that they have years remaining on a lease and they are concerned about the liability they might have if they walk away.

There are essentially three ways to end a lease: (1) normal end date, (2) negotiating the remainder of the lease, and (3) walking away from the lease.

The key to remember as a small business owner is that you have likely signed a personal guaranty as part of the lease agreement so whatever decision the business makes will affect the owner personally.

Normal End of the Lease

Every lease has an endpoint. Sometimes that endpoint is a clear date, but other times, the agreement specifies that the lease is month-to-month. When the lease specifies an end point, you can simply allow the lease to end at the predetermined time. Obviously, you should be moved out and be prepared to turn over the premises on that date.

When the lease is open-ended, like a month-to-month lease, you can end the lease by providing sufficient notice to the landlord. What is sufficient notice? You have to give notice equal to the length of time between rent payments. For example, if you pay your rent monthly, the law requires notice of at least 30 days to break the lease. If your lease if for an extended period of time, technically you should provide more notice, but most courts will agree that 30 days should be sufficient notice.

You should provide notice in writing. An email or text does constitute writing, but I recommend sending a letter via email and sending it certified mail, that way you have a receipt. Keep any correspondence between you and the landlord in case the landlord later claims you didn’t provide adequate notice.

Negotiating the Remainder of the Lease

If you have a long time left on your lease, your best option will be to negotiate it with your landlord. Under the law, you are obligated to pay the lease till the end, but if you leave the landlord has a duty to re-rent the space to mitigate damages. Therefore, most landlords are willing to settle the lease for an amount equal to the time it will take them to re-rent the space.

For some locations, the landlord may have another tenant ready to go. Therefore, settling the lease should be very easy. Unfortunately, that is rarely the case right now. I usually recommend settling a remaining lease for between three and six months of rent, depending on the difficulty in finding a new tenant.

If you do settle the remaining lease, make sure to get the agreement in writing. The last thing you want is for the landlord to claim you owe more than you do. Ideally, the agreement will specify an exact amount of money and when it is due. Most landlords will want the settlement in a lump sum so be prepared to pay it all at once.

Breaking the Lease

This is the least desirable option because it will likely end in a lawsuit. Your landlord can sue you for the rent remaining on the lease plus any costs they incurred in coming after you. Realistically, the court will not award the landlord more than a few months of rent – enough time to find a new renter. Even if you have five years remaining, the court is unlikely to enter a judgment for that amount.

The other concern with this plan is that it will cost you attorney’s fees to defend yourself in court. This works out fine for the lawyers but just ends up costing you more. You are always better off to settle before a lawsuit.

However, sometimes it’s unavoidable. Some landlords can be very difficult to deal with. I understand where they are coming from. They have costs, too. But I generally recommend that my landlord clients work with the tenants to resolve the outstanding lease. A lawsuit is almost never a benefit to anyone but the lawyers. With that said, sometimes it is necessary.


Before you walk away from a lease, you should try to negotiate the remaining rent with the landlord. If the landlord won’t cooperate, you might need to bring in a lawyer.

COVID has hit so many businesses hard these last few months, and I expect there will be more trouble to come. We are currently offering a COVID Escape Plan, where we negotiate with all outstanding creditors, including landlords, so that business owners can close their business without the threat of personal liability and bankruptcy. If your business is in trouble, don’t go down with the ship. Give us a call at (630) 801-8661 or email us at

Commercial Leases – Part 3

This is the third installment of my series on commercial leases. I have noticed a general uptick in businesses (primarily new businesses) signing leases in my area. This series aims to cover the major issues that generally come up when reviewing a lease. If you need more specific help, please feel free to contact me.

Security Deposits

Most people understand what a security deposit is, but frequently, there are some misconceptions about how it should be used.

As a tenant, you will have to pay a security deposit. Generally, the amount is equal to one or maybe two months’ rent. The deposit is meant to be held by the landlord and applied to any unpaid expenses incurred by the landlord in connection with the tenant. The most common use of the security deposit is to fix the damage that the tenant left when they vacated the space. It can also be applied to any unpaid rent.

I think the biggest misconception about security deposits comes from landlords assuming that they get to keep the deposit. I have seen many conflicts arise because a landlord willfully withholds a security deposit after a tenant vacates a space. The fact is that if the tenant is not in default, the assumption is that the security deposit should be returned. If any of the deposit is used to repair damage, I think the repairs should be well documented so that the tenant knows exactly where their money went. This would really cut down on conflict.

Common Area Expenses

Common area expenses are paid in addition to rent for the upkeep of the common areas of the building. The landlord has to maintain the outside areas of a building, like parking lots and sidewalks, and it has to maintain shared interior space like bathrooms. Therefore, landlords generally charge additional fees to cover these expenses.

The normal way to divide common area expenses is to total the expenses and divide them among the tenants based on their pro-rata share of the floor space. The share is usually a percentage of the tenants leased space as compared to the entire building. Therefore, if you lease 20% of the building, you pay 20% of the common area expenses.

This system may or may not be fair depending on the building. If, for example, you run an insurance office next door to a restaurant, it might not be fair to divide the cost of garbage removal based on square footage because the restaurant most likely generates much more garbage than the insurance office per square foot. However, if the tenants are similar, a standard percentage is usually easiest.

The important thing to understand as a tenant is what your actual costs will be. If you are told the rent will be $1,000/month, that likely does not include common area expenses or taxes. Therefore, you will need to know those costs in order to actually budget for the cost of the space.


Taxes are usually divided like common area expenses, with each tenant paying a pro-rata share. Normal tax costs cover the standard real estate taxes for the building. This number can change from year to year based on the tax assessment so it’s important to understand how the building is being assessed.

But tax cost can (and usually does) include the cost of any special assessments or costs imposed by a governmental agency. Like many other costs associated with owning a building, the individual tenants may not reap many benefits from special assessments because of the short-term nature of their leases. Therefore, paying special assessment taxes is usually a cost with very little gain.

Just like I mentioned with common area expenses, as a tenant you need to know what the costs of renting the space will be. Rent normally does not include these additional costs so you need to budget for these items, as well.


All leases require the tenant to obtain insurance. This is more than just renter’s insurance. They will want the tenant to obtain liability insurance to cover any claims that may occur on the premises. This is a standard provision. Normal insurance coverage is $1,000,000 in liability coverage. Personally, I think this amount is extremely high for most businesses, but it’s the standard commercial policy.

The tenant will need to add the landlord as an additional insured on the policy. Again, this is standard. The landlord doesn’t want to have to pay for an injury that occurs in your space. If someone is to fall in your space, they will likely sue everyone. This isn’t because personal injury attorneys are evil. Rather, it’s just how the system works. Therefore, everyone will want insurance coverage.

Standard commercial policies are not very expensive, and frequently they include provisions that are a benefit to the tenant. For example, many policies include coverage for theft and fire, and some cover errors and omissions, as well.

Next Time

In my next article on commercial leases, I plan to cover use, maintenance and repairs, and subleasing. Please feel free to contact me with any additional questions.