MCA Debt Relief: 5 Decisions Before the Next Withdrawal

”MCA debt relief” is the label for four different deals -- reconciliation, restructuring, settlement, and insolvency. These are wildly different outcomes, both for the business and for the firm itself. No one relief package fits every situation. Without knowing all of the details of your case, it is impossible to know in advance which is the best one. Each of these deals requires an entirely different strategy, so before the next daily debit you have to make five critical decisions. First, which kind of deal is really being offered? Second, does the contract have a reconciliation clause? Third, should the business keep paying or stop paying? Fourth, is it a lawyer’s problem or not? And finally, who gets the file?

Read the Terms Carefully

Sellers say what they think people want to hear, not what they actually plan to do. They use words like relief, forgiveness, forbearance, help, rescue, assistance, payment plan, or a hundred others, but not settlement or reconciliation. That’s because these words require specific forms of action, whereas relief and its cousins are suggestive rather than directive. Read the terms carefully. Among other things you should be looking for is whether or not you are obliged to stop paying. If so, then you probably have a settlement, whatever it is called. If new money is involved, it is refinancing, not relief: You are paying an existing debt by acquiring a new debt.

All reconciliation does is put you back on your original terms, using the steps laid out in the contract between you and the debt provider. Reconciliation does not lower the balance. Reconciliation only lowers the debit. If the contract offers you reconciliation, then ask for it whether it is being called relief or something else. For a relief firm, reconciliation is too little business. All contracts are only as good as the other party’s willingness to honor it.

Just like reconciliation, restructuring does not change the balance. Restructuring extends more time for repayment. A longer schedule can mean you pay more and spend more time doing so. Your funder doesn’t have to agree to it. If they do not agree, then no change will occur. Settling usually changes the terms only after you have stopped paying.

Settlement reduces the total balance rather than adjusting how the balance is paid. Most settlement programs are only for defaulting merchants. A default can give the creditor the legal right to require the entire debt to be repaid immediately. The contract your business signed will define the funder’s rights. The worst possible result for you is that it becomes a legal claim. The greater the time between the initial stop of payment and the day of settlement the greater the risk.

A settlement comes with many provisos and tax implications, so it can’t be a one-minute thing. 1099-C forms tell the IRS how much debt forgiveness you got during the year. Your lender might send one to you and might not. Whether your company gets a 1099-C doesn’t matter as much as whether you might owe tax on the forgiven debt. If your business was insolvent, the next step is speaking with a tax professional.

Lawyer Problems

Suits and other legal claims are lawyer problems. If you already have been sued by your processor or funders, this is no longer a relief situation. It has become a legal issue, and an answer deadline is running. There are relief firms who are law firms, and ones that are not. The only party able to represent you in a lawsuit is a lawyer, a member of the bar, holding a license in your state.

Insolvency should be considered from the start if gross receipts can’t cover the debt. If a business is not viable, then the solution cannot be created by a funding or financial instrument. Some debt relief companies don’t say insolvency because it is not part of their business plan. Filing bankruptcy stays creditor action under federal law. And Subchapter V is an option for small businesses (up to $3,424,000 in qualifying debts). A reputable debt relief company will alert clients when bankruptcy is becoming the only remaining alternative. Look for a lawyer with insolvency experience.

Who Gets the File

Whoever gets the file needs all original contracts, including schedules and addenda. Bank statements from each funding date to the present. Failure to provide them can make it impossible to know whether you are being made a fair offer or are being taken. A percentage quoted before that review? It’s advertising. It indicates where to enter this merchant on the sales department’s price list.

On the first call, ask: Are you a law firm? Can you explain how reconciliation, restructuring, settlement, and insolvency are different from each other? Can I get a settlement or reconciliation without stopping payment? Do I sign anything before a financial review of all original contracts and bank statements? And how are the fees handled? Paid up front or at closing?

There is no good and bad answer here. Any company asking for an upfront fee means it will have its money even if your problem does not get resolved. A fee paid only on a closed deal can motivate a relief firm to settle rather than win. Either way, get a clear agreement in writing.

Not every situation has a relief possibility. A firm admitting it cannot be a help is more honest than one guessing at a fee quote.