MCA Reduction Program: 6 Terms to Read Before Enrolling

Lower payments are a relief when your business or practice can’t meet its MCA payments. A lower payment is the one part of an MCA reduction service you like. But it’s only one part. There are six things in the writing you want to read:

• what you are paying for,
• where your MCA payments go,
• fees and when they are charged,
• advice to stop or redirect MCA payments,
• who handles a lawsuit,
• and how you cancel.

Your contract will spell out what you are buying. The general phrase “MCA debt relief” means almost anything and nothing. Here are a few common meanings: they will negotiate with your creditors to get a lower balance; they will negotiate for you, and then set up a new payment schedule; they’ll let you borrow to pay off your creditors; or a combination of these. Ask what “debt relief” means for the company you are talking to. There are a number of versions of debt relief and settlement plans and MCA debt relief with different costs and risks.

Seeing a “payment” for debt relief go out of your account is not proof it went to a funder. “Program payment” could mean that your funder was paid, that a fee was charged, or that the payment is sitting in the account for some future purpose. Ask the company you work with for a statement listing every deposit and transfer that goes out, every penny of every fee they charge, and exactly what funders each payment went to and when. Hold this against your bank and MCA statements.

Are you saving for a future settlement, but making no payments in the meantime? That could be risky. For consumer debt, the FTC says that savings can sit in a dedicated account at an independent third party, belong to you, and be withdrawable anytime without penalty. Ask if your debt relief plan follows that model.

How Much It Costs to Get That Reduction

The amount you’ll save is easy to understand; less money out the door sounds like a good thing. But how much it costs to get that reduction can also be important. The settlement contract should say what fees are charged, when, and what they cover. It should say if it is possible to owe a fee when a settlement was not reached, how that can happen, and what you would owe. Compare both sides of the ledger. Remember that you’ll need to handle your other MCAs at some point, and make sure you have enough left over to pay for the new settlement.

For consumer debt, the fee is usually a percentage of each debt settled, or the amount of savings, and it is charged only after a settlement. MCA relief programs might be very different in this area. Check the contract closely, and ask about it on the phone. For consumer debt, the FTC made settlement companies spell out their fees, the terms of their offers, how long it takes, the amount needed for a settlement to be offered, and the effect of missing payments. Ask your MCA program for the same in writing, and compare your contract to the notes from your phone calls. If something is on the phone, but not in writing, ask why.

Pay attention to the tax effect of canceled debt. It could add to the cost of your settlement. Forgiven debt usually becomes taxable income, in the year the debt is canceled. If you were “insolvent” when the debt was canceled, you can exclude it to the extent you were insolvent. You would note that on Form 982. Ask a tax adviser about your situation.

Redirect Payments

It’s not unusual to be advised to stop or redirect payments while talks are underway. A settlement company might have a plan for you to direct your MCA payments to a savings account to later fund a settlement. The FTC warned that missing payments can bring late fees and penalties. Those make you owe more money. Plus, the funder could view that as a default. Ask if your agreement includes written advice to do that, and if so, why.

Signing up with a debt relief or settlement company does not by itself change the agreement with the funders you owe. You still owe them, and they can still try to collect. Ask the debt relief company what happens if a funder does not agree to their offer. Ask the settlement agent to make it clear what they’ll do if the MCA provider keeps pulling payments or taking legal action against you.

One major thing to find out is what the settlement agent does for you if a funder sues you. Talk to them about this, and see if there is mention of that in the contract. Can you get sued while waiting for a settlement? For consumer debt, the FTC says you might. Settlement talks do not automatically extend the deadline in a lawsuit against you. Ask the program service how they help with lawsuits. Do they have a team to defend, or help arrange a lawyer?

How You Get Out of the Contract

The last part of the agreement is how you get out of the contract. Read it before signing. Since your agreement with your funders does not change with the new debt relief contract, leaving that agreement can leave you right back where you were. For consumer debt, the FTC says the fees already paid are gone, and debts not settled can be still owed. Ask what happens if you need to stop their program.

If you want to cancel or change service companies, make sure you look at what you agreed to. Notice rules and deadlines can be written in, and unpaid fees can linger. Some of your money might be sitting in an account for later, and you want to know where. Changing to a new company does not undo a valid settlement agreement, so make sure to find out what the switch could cost you before doing it.

If you are comparing companies, online reviews and lists of “top providers” can give some information about a debt relief or settlement company. Someone else’s ‘best for me’ does not show how they handle disputes or emergencies. Use online info as a guide to questions for the company, and then use the written contract to compare answers.

If you are already enrolled with a “debt relief” program, but not getting updates, check your court calendar. Sometimes those stall out or end, but the lawsuit does not. Get a statement that accounts for every debt relief payment, then list out the status of each debt.