Attorney Backed vs. Attorney Owned Debt Relief: Establishing Who Represents You

Small business owners ask frequently this question: “What’s the difference between debt settlement companies claiming to have attorney-backed programs and attorneys who actually represent businesses and litigate their matters?” Who is actually retained by you - and has a duty to you - makes a significant difference in what representation you have.

A law firm may be retained by businesses to negotiate resolutions with their creditors, litigate and file lawsuits, provide legal advice and has fiduciary duties to the client. On the other hand, debt settlement companies may be retained by businesses only to negotiate with creditors. They may not practice law on behalf of the business or give legal advice.

An “attorney backed” company may engage an outside attorney for some purposes, or a limited portion of your case. You should ask exactly who is negotiating with your creditors, who is representing you if you are sued by the creditor, and who is on your side if you find yourself in court. Read what you signed before you assume a lawyer is on your side in all instances.

Before you assume national law firms will go to court for you in every case, be sure you check your engagement and any authorization they have to appear on your behalf in other courts. Law firms sometimes engage local counsel to appear in court for clients.

The difference between hiring an attorney to represent you and hiring a “settlement” company becomes clear when a funder sues you, or tries to get your personal guarantee payments. Court deadlines for answering a lawsuit do not pause while you are waiting for a settlement. No matter where your case is with a debt settlement company, a creditor can still file a lawsuit.

According to Bankrate, some companies claiming to have “attorney-backed” or “attorney-model” programs may simply rent the license of a lawyer so that they can charge upfront fees. This is often without any actual attorney involvement in a matter. In January of 2024, the CFPB and seven state attorneys general filed suit against Strategic Financial Solutions, alleging that its affiliated law firms were a “facade” for illegal collection of at least $100 million in advance fees.

As a business, you also have fewer protections from unwanted telemarketing calls. The FTC’s Telemarketing Sales Rule does not include most sales calls to businesses. But rules that ban misrepresentations and false or misleading statements still apply.

A real lawyer has professional ethics rules they must follow. These say the lawyer can’t take direction on your case from whoever pays or recommends them. Ask for a clear explanation of the scope of the work and the fee basis, and get a written engagement letter that spells it out.

Breaking the Contract by Stopping Payments

A “settlement” company may tell you to withhold payments, block ACH debits, or otherwise break your contract with the funder. Many agreements call that a ”default,” and you need to know how the MCA contract defines it. The funder can exercise legal rights and demand the full balance, add fees and demand payment, notify your customers or your processor, go after the personal guarantor, or sue you for the entire balance of the contract.

A law firm advises you on whether you can stop payments to a creditor, stop an ACH debit and how to determine what your obligations are, especially when facing a lawsuit. A legal evaluation requires reviewing the agreement, your cash flow, and other factors. Whether the creditor and funder have a valid agreement with you, and whether the personal guarantor has liability, are questions that depend on the documents. Breaking the contract by stopping payments does not guarantee a settlement or prevent a lawsuit by the creditor.

Where You Stand in Negotiations

Program stalled? Call the company. Ask them to explain where your payments are going, what the percentage of those payments is that will be applied to your settlement, and how the negotiation process has been going. If the settlement company can’t tell you what efforts it has been making to get your creditor’s attention and where you stand in negotiations, that may be a bad sign. When you’re ready to have that conversation, check any lawsuit deadline first. Then list all the outstanding MCAs as settled, in negotiation, or in default. Print out and save copies of the payment confirmations, settlement agreements, release paperwork, and any other documents you have that are part of the settlement process.

Check the settlement agreement for when the ACH debits will be stopped, when the lawsuit will be dismissed, and who will file any UCC termination or lien releases. The signing of the settlement agreement doesn’t always guarantee all these steps will be done on time and in the correct order. Make a list of deadlines and responsibilities, and follow up regularly until the settlement is complete.

Scam Sign

If a company says it can stop any and all collection lawsuits, the FTC warns that this is a scam sign. Before you sign up, check the company with your state Attorney General and local consumer protection agency. Ask these questions to determine who actually represents your business:

• Who handles negotiations with creditors?
• Who defends you in court if your business is sued?
• Who is being retained (what does your contract say)?
• Who will actually speak to the judge, if the case goes to court?

Ask questions until you are comfortable with the legal protection you actually have.