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Ely, Counselor at Law
Category: Legal
Satisfied Customers: 102379
Experience:  Private practice with focus on family, criminal, PI, consumer protection, and business consultation.
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We owner financed a small business sale. Buyer defaulted in

Customer Question

We owner financed a small business sale. Buyer defaulted in less than a year after paying just 10%. He is probably going bankrupt and seems to have amassed debt while driving the business into the ground. I am leery of taking the business back as I don't want to assume his debt. What is the law in colorado about this, and can I recoup assets of the business without assuming his debt? Is intellectual knowledge considered an asset. And what if we find a new buyer. Then do we have to reassume the company and his debt. Can we restart the business under a new LLC apart from his debt?
Submitted: 1 year ago.
Category: Legal
Expert:  Ely replied 1 year ago.

Hello and welcome to JustAnswer. Please note: This is general information for educational purposes only and is not legal advice. No specific course of action is proposed herein, and no attorney-client relationship or privilege is formed by speaking to an expert on this site. By continuing, you confirm that you understand and agree to these terms.

I am sorry to hear about this situation.

First of all, this all depends on how the owner financing contract is worded. It has less to do with statutory law, and more to do with the choices the contract gives.

If the owner financing contract ("contract") is worded that all the relief that the seller shall have is to take back the collateral, then there is nothing else that the seller can do but to take back the collateral. I doubt that the contract is that restricted, however. In a good contract, the seller can not only take back collateral, but may pursue the buyer for any sum left over that is not satisfied by the collateral (which would have to be appraised for worth and that worth applied to the sum owed).

Intellectual "knowledge" is not an asset. Meaning, it cannot be seized.

Assuming that the contract allows to pursue the buyer for whatever is still owed even after the collateral is seized, then the seller may with to:

1) take the business back

2) assess its value

3) apply that value to the money owed

4) and then pursue the buyer for the difference still owed

5) whether or not the seller continues to run the business or winds it down and simply begins a new one at this point under a different LLC is up to the seller and does not really affect the above.

I hope this helps and clarifies. Please use the SEND or REPLY button to keep chatting, or please RATE when finished. You may always ask follow ups at no charge after rating. Kindly rate my answer as one of TOP THREE FACES/STARS and then SUBMIT, as this is how experts get credit for our time. Rating my answer the bottom two faces/stars (or failing to submit the rating) does not give me credit and reflects poorly on me, even if my answer is correct. I work very hard to formulate an informative and honest answer for you; please reciprocate my good faith with a positive rating.

Expert:  Ely replied 1 year ago.
Hello again. This is a courtesy check in to see if you needed anything else in regards ***** ***** question because you never responded or marked the question positively. I am simply touching base. Let me know. Thanks!