Unpaid debt can impact the financial health of your business. A creditor can utilize various methods of collection when you owe it money. The unpaid debt can lead to collection calls and letters. It may also lead to legal consequences as well, including the removal of funds from your business bank account.
Lawsuits
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A creditor cannot take money from your business bank account without the legal right to do so. If you owe an unpaid debt, the creditor will first sue you in civil court. The intention of the lawsuit is to have the court issue a judgment against you. If a judgment is issued, it will specify how much you're legally obligated to pay the creditor. The judgment permits the creditor to seek collection of the debt via seizure of your assets.
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Significance
Asset seizure can include the money in your business bank accounts. The creditor can seize, or take, the funds in your business bank account up to the amount granted under the judgment. If the business that was sued has multiple business accounts, the creditor may seize funds from one or all of the accounts in satisfaction of the judgment debt. The creditor can seize the funds at the time the judgment is issued or in the future, if the seizure occurs before the expiration of the statute of limitation on the judgment order. Each state has its own statute of limitations on judgments. In Arizona, the statute of limitation on judgments is 10 years from the date the court issued the judgment.
Considerations
If the amount in your business bank accounts is insufficient to cover the amount of the debt, the creditor can pursue your other business assets as well. The creditor may be able to place a lien on business property or equipment you own. It may also be able to seize your business accounts receivables, which is the money owed to your business from customers or vendors. The creditor can seize one or more types of business assets as payment of the judgment debt.
Personal Guarantees
If you personally guaranteed the business debt, the creditor may be able to pursue both your business and personal assets. A personal guarantee means you personally agreed to take responsibility for the payment of the debt. This agreement gives the creditor the right to go after your personal assets. Many business credit card issuers require a personal guarantee from the business owner. Also, if you operate your business as a sole proprietor, you are personally responsible for the debts of the business.