Delaware MCA Debt Relief Lawyers: 5 Distinctions Before You Retain Help

Before you retain Delaware counsel to represent your business’s interests, be aware of five distinctions. A law firm is not the same thing as a debt relief company, and there are many of those on the internet. Also, a settlement is usually not the same thing as broader relief on a merchant cash advance. Delaware’s usury rules will not help you as a company. And a “confession of judgment” clause in a contract is not the same thing as a court-issued final judgment. Finally, listen to the fee pitch and keep in mind it should be reduced to a written fee agreement.

MCA Debt Relief Company

Both a law firm and an MCA debt relief company may negotiate with a funder on a business’s behalf. The differences matter when the funder disputes the reconciliation request, tries to invoke a guaranty, or sues the company. When a funder sues, your company may be able to bring in counsel. Ask if that is an extra cost, and who is responsible for monitoring cases. Always clarify in writing who will perform what tasks for you and what their fees are.

Your counsel reviews your agreement with the funding company, looks for available defenses to the business’s obligation, and negotiates a resolution. If the funder sues, be clear on what your counsel is authorized to do on your behalf, and who is responsible for bringing in local counsel if that is required. Don’t assume enrolling in a debt relief program automatically includes court defense.

Some debt relief programs advise you to stop MCA payments or block ACH debits. Many agreements treat that as default. The funder may then demand its full claimed balance plus fees. It may tell your customers or credit card processor, pursue your guarantor, or sue you. Whether any of these is enforceable needs legal review. Don’t block payments until after you’ve had an attorney review your options. Also, stopping payments doesn’t guarantee settlement, and won’t always prevent a lawsuit.

Broader Relief

Settlement is a negotiated deal resolving an existing MCA. It may cut the funder’s claimed balance and can be paid as a lump sum or installments. Relief is the broader term covering settlement, payment restructuring, reconciliation, and legal defense of an MCA. When revenue falls, the agreement’s reconciliation procedure may matter. Whether settlement or some broader relief is right for your company depends on your contracts, cash flow, and whether there is an active lawsuit. Another type of relief is small-business bankruptcy under the Bankruptcy Code’s Subchapter V, if your company’s debts are $3,424,000 or less, for cases filed on or after June 21, 2024. Your situation may vary, so before settling ask whether a bankruptcy fits your case.

As for usury, Delaware law prohibits a corporation, limited partnership, “business trust” or LLC from raising a usury defense. And the general cap of 5% above the Federal Reserve discount rate does not apply to loans over $100,000 not secured by a principal residence. This leaves few business borrowers with a usury defense. Whether or not an MCA agreement can qualify as a loan is a separate question. Courts often ask one main question to decide this: who carries the risk that purchased receivables never get collected, the funder or the business. The answer will turn on your agreement. Ask a lawyer to review yours, and get a realistic answer.

A “confession of judgment” clause in a contract does not count as a court-issued judgment. Delaware law says a confession of judgment can’t become final unless the Prothonotary’s Office mails the debtor written notice of it by certified mail, return receipt, and offers a hearing on whether the debtor knowingly waived notice and hearing. If the debtor appears, the creditor must prove an effective waiver of notice and hearing. For out-of-state signers, the creditor must file a debtor-signed affidavit on the debtor’s Delaware contacts. So watch your mail, and do not ignore that certified letter. Since August 30, 2019, New York will not let a creditor file a confession of judgment against a debtor who doesn’t live in New York. A business doesn’t count as living somewhere unless it has a place of business there.

As for fees, Delaware’s Debt Management Services Act caps the total fees a debt-relief company may charge at 18% of principal, but it covers intermediaries for individuals, not businesses, and excludes legal services by a Delaware-licensed attorney. A business can’t lean on that cap. A lawyer’s contingent fee must be in writing, signed by the client. It must state the percentage and how expenses are deducted. A lawyer must explain the scope of work and the basis or rate of fee and expenses, preferably in writing, before or soon after starting. Ask for a written fee agreement spelling out these things, and be sure to review it before hiring someone.

A settlement is not new financing or automatic cancellation. Even lower periodic payments won’t necessarily mean a lower total. Before signing anything, check who and what gets released: only the company, or guarantors, too? What does a missed settlement payment trigger? Will ACH payments stop, and when? Get all this in writing. Will the other side dismiss any lawsuit? The UCC and other liens can’t be ignored. Each funder generally needs a separate agreement. Ask a tax professional how this may affect your business.

A Debt Relief Program Hits a Bump

Sometimes a debt relief program hits a bump you weren’t expecting. Maybe settlement talks stalled, the funder won’t negotiate, or a lawsuit arrived out of the blue. First, gather the program contract, all your payment records, and a list of every MCA, sorted into settled, under negotiation, in default, or in litigation. Get copies of your signed terms, payment confirmations, and releases if you have them. Then call your attorney.

If your company is already sued, check court deadlines first. Talking with a funder or debt-relief program doesn’t extend them. Bring your complete file to the attorney: your MCA agreements and guarantees, payment history, and bank statements, as well as any default notices, court papers, and settlement program contracts. No attorney can promise a specific settlement, discount, or timeline. Whether and how quickly a settlement works depends on case specifics.