Iowa Business Debt Settlement Companies: 5 Criteria for Choosing a Service

Choose an Iowa debt settlement company by whether it satisfies five criteria: first, working on commercial debt not consumer; second, its Iowa license where one is required; third, a written contract explaining fees; fourth, a record you can check with independent sources; fifth, being truthful about the limits of such a program. Picking a firm can be hard. This guide reviews each of these five criteria to help you decide.

If your debt is your Iowa business, then you need a service capable of working on commercial debt. That is usually different from services for consumer debt. With the latter, the services are oriented to credit cards. Often the commercial creditor has filed UCC financing statements on business assets. Merchant cash advances structured as a purchase of receivables are another main form of debt. Even if a provider works on business debt as well as consumer, the company must have staff with the experience to know the specifics about commercial debt. Ask if it resolved an MCA file this month.

Also, a debt consultant, settlement company, restructuring firm, and debt relief company are not standardised titles from any licensing body. Some consultants diagnose then refer you to another firm to negotiate, so you pay twice. Ask in writing if the firm advising you will negotiate. An alternative to settling is “debt restructuring,” which changes your payments, for example by reducing the weekly debit.

Next, the company should have an Iowa license. The license covers debt management services. That is broad and includes negotiating debt settlement for a fee. No one may run such a business without the license if they solicit or contract with a debtor living in Iowa. The license has a $25,000 surety bond per office.

There is a legal wrinkle here. Iowa’s debt management law is written to protect debtors who are natural persons, i.e., not corporations. A sole proprietor who signs their own name on the credit application may be considered a debtor. The owner who signed a personal guarantee on the business credit is another candidate. However, the protection may not reach the corporation itself. If the law does not apply to your debt, then this can mean less protection on how the service must operate.

Checking a license takes a few minutes. The Iowa Division of Banking points to NMLS Consumer Access, a free search. Iowa licenses expire December 31 each year, so a license number that is a few years old is no help. An Iowa attorney who is acting purely as a lawyer is exempt and need not have the debt manager license.

There is no single right way to charge fees. Some providers collect a percentage of the enrolled balance. Others collect a percentage of the reduction at settlement. The flat monthly fee is another approach. The key is to get the fee schedule in writing before you sign and to see what happens to money paid in fees already if you quit the service early.

Iowa law sets a limit. It applies to licensed debt managers. The firm may charge a one-time fee. The fee is no more than $50. In programs where the provider does not handle your payments, there is another limit. It is an extra charge capped at 18 percent of the debt enrolled when you join. The FTC Telemarketing Rule covers how fees are collected by telemarketers, which bars fees until a debt is settled. However, whether that FTC rule reaches a commercial business trying to settle its own debts is not clear.

A fourth criterion is a record you can check independently. Debt settlement has few barriers to entry. Companies often use different names over time. Firms working under the same name for many years can be checked. One with a name of only eighteen months cannot. The BBB is one place to check. BBB records have flaws but have the benefit of being third party and public. A provider’s own testimonials are not independent. Read the negative reviews for a pattern. One complaint, even a bad one, does not prove anything. Look at how the service responded.

The last test is honesty. When you stop or make different payments during settlement, this can bring collection activity or credit reporting consequences. It also can lead to lender notices to your customers if your debt is secured by UCC financing statements. When a creditor will not negotiate, you can end up in court. A firm that does not say anything about downsides is not giving you all the facts.

Sometimes settlement is not the right solution. Say you have a viable business but one bad contract. You may be better off with a loan or a refinance. An active judgment collection may need an attorney first. Say you can’t make payroll tomorrow. That may mean you need to explore bankruptcy as an option. That is a conversation that requires an attorney, and talking to an attorney about it means getting legal advice that is outside debt settlement. Even when debt is forgiven, the IRS generally taxes it. IRS Form 982 has exceptions that can exclude forgiven debt as taxable income.

Bring a few questions for the first call. Ask how much of the caseload is MCA debt versus consumer debt. Ask who negotiates your file and whether you can speak to that person first. If a creditor refuses to negotiate, what will you do? Ask if the settlement agreement will include a written release of your UCC liens. You will need this to borrow money later. Whom do you turn away?

In settlement, there are a few warnings to watch out for. The CFPB warns against firms that charge you before they settle any debt, guarantee a set percentage cut, or tell you to stop talking to your creditors. Pressure to sign on the first call is another sign of trouble. If you have an issue with a provider, the Iowa Attorney General Consumer Protection Division has a toll-free line at 888-777-4590 outside the Des Moines metro.