Delancey Street Debt Relief: 6 Things to Know Before the First Call

Before calling a settlement company for help with your MCA, make sure you understand exactly what these firms are, and what they can do for you. For starters, they are not law firms. They are negotiators. They are appropriate for settling debts without going to court. Be sure to ask upfront and in detail how they calculate fees. Be realistic about the timeframe of a settlement. A settlement won’t automatically clear a lien or nullify a personal guarantee. And be aware that a settlement on a debt is generally a taxable event. Get every promise in writing.

In simple terms, a settlement company offers a third-party service to negotiate a financial outcome between parties in a commercial debt contract. In the case of a merchant cash advance debt, this company will negotiate the difference between the balance owed on a non-performing agreement versus a new “agreed upon” negotiated settlement amount. Settlement companies employ skilled negotiators, but they are not necessarily attorneys. They are not always licensed to dispense legal advice. If your legal issue goes to court, negotiators can no longer represent you. To have a legal representative in court, you must hire a lawyer. It is unwise to rely solely on a negotiator when facing a legal problem.

Negotiators often step in early when you’re facing a stack of advances, you can’t keep up with payments, and your situation hasn’t yet reached the point of a lawsuit, a judgment, or your account frozen. In all these cases, the goal is to stay out of court. And keep the business operating. If you are served with a lawsuit, if a confession of judgment is entered against you, or if a bank account is frozen, you’ll need to talk to a lawyer. In a lawsuit, deadlines matter. Missing them can lead to default judgment. Employing the services of both a negotiator and a lawyer can be an effective strategy.

Fee Structure

A settlement company could charge you in a variety of ways. They may charge a percentage of the debt when you enroll your account. They may charge a percentage of the amount you ultimately save when your account settles. Or, you may pay a flat amount. Find out when the fee is earned, and when it is collected. You should also ask a negotiator: How much will you charge me, and in what timeframe will you charge me? A negotiator should be willing to answer detailed questions about the fee structure. It’s imperative that you get every detail of a charge in writing. That includes what you’ll owe, how your obligation will be assessed, and what additional charges might be possible. For consumer debt, a federal FTC rule bans upfront fees by debt settlement companies. They can’t collect any payment until the debt is settled, the customer agrees to it, and the customer makes at least one payment on it. Business debt, as opposed to consumer debt, may not be subject to all of the same protections. You need to remain vigilant to protect yourself.

How Long a Settlement Will Take

There is no set formula for how long a settlement takes. And a settlement may take months to about a year, sometimes longer. Be wary of a negotiator who gives you an unrealistic estimate of how long a settlement will take. In all cases, a settlement requires the cooperation of the other party. Stopping payments might lead an MCA company to take action against you to collect the debt. As a result, while negotiations are going on, there can still be actions taken against you. It’s important to ask a settlement company, what will happen if a lender takes you to court? What if a bank account is frozen? What if a lien is placed on your assets?

A settlement is not an auto fix, and it won’t solve every part of your debt problem. And keep in mind that a settlement with a lender doesn’t instantly remove a lien. It doesn’t necessarily end or nullify a personal guarantee. It’s important to know exactly what you want, and exactly what a company you hire is able and willing to do. Moreover, be aware that a settlement on a debt is generally considered a taxable event, like income, unless bankruptcy or insolvency applies. Lenders generally file Form 1099-C when they cancel $600 or more.

State and federal laws govern debt collection practices and some creditors’ activities, but not all. There are several protections and requirements aimed at collecting on family, household and personal debt. It’s critical to understand they mostly bypass business debt. In March of 2024, the FTC extended its ban on false or misleading claims in telemarketing to calls made business to business.

To learn more about a company, it’s smart to check the company’s reviews on third-party review sites. Read reviews from a variety of sources. Don’t just pay attention to the number of stars assigned to the company’s reviews. Look for reviewers who relate how well a company lived up to their promises, and how their experience was compared to what they were expecting. Keep in mind that a review is only one person’s perspective and experience.

Don’t settle for broad answers. Be absolutely clear on the steps the negotiator will take to solve your problem. Just as important, be clear on what can’t be done. Get the answer to a key question: Who will do the work? Ask the company who will work on your case if your matter ends up in court. Ask what rights you’ll have, and what recourse you’ll have, if you’re dissatisfied with your service. Get every promise and step, every detail, in writing before paying anything. If you’re confused or unsure, ask another question. Get a better, more detailed, written answer.