San Jose MCA Debt Relief Lawyers: 5 Cost Questions Before Settlement

Before you pay a lawyer or settlement company to work on merchant cash advance debts, ask them five things about the money. What does the fee pay for? Is that in writing? Where does each dollar of your money go? How much does a lawsuit cost? And what happens afterward? Price alone doesn’t answer any of them.

First, on merchant cash advance and ACH loan debt, a marketing claim of “we handle the debt” can mean almost anything at all. Ask what that does and doesn’t cover, then get it in writing. It can mean a negotiation service that is not an attorney-client relationship, arranging another advance, arranging collection of funds toward a possible settlement, arranging defense of a lawsuit, or some combination of the four. Get the exact scope of service in writing before you give money. Who does the lawyer represent? Do you handle the lawsuit? Check the lawyer’s license with the state bar.

Don’t leave yourself wondering how much a settlement is for or what it pays. In an agreement, list all the lenders and accounts the agreement covers, list the business entity and the owner by name, spell out how often and for what the service gives updates and copies, and spell out who they’ll send them to and how.

Is the Fee in Writing

Second, is the fee in writing? In California, if the total cost to the client will be reasonably expected to be over $1,000, it must be in writing. That must include how the fee is calculated (hourly or flat), what services the client will get, and what the lawyer and the client are each responsible for.

A client that’s a corporation may not be covered by that writing requirement. If that requirement is not followed, the client can cancel the contract, but the lawyer will still be able to get the reasonable value of the work. Don’t be afraid to ask for a bill. Clients are generally entitled to one within 10 days after request.

A contingency fee contract in California generally must say in writing that the fee is not set by law and can be negotiated. Even with that written notice, a lawyer cannot charge an unconscionable fee. It may sound comforting to hear “we have the lowest fee,” but comfort is not fact-based decision making.

Third, in a debt program, if you’ve got more than one account, where does each payment go? Who does the account belong to? Who has the rights to the funds, when funds are held for potential settlements? If funds are held toward possible settlement of a merchant cash advance or ACH loan, who can withdraw? When getting a breakdown of a debt program, ask, who pays the money out, who signs off on it, how much is being retained for services, and how much is passed to the creditor.

A deposit into a settlement program account isn’t necessarily a payment to the funder; you can’t tell what the funder received by looking at the program account. A payment isn’t necessarily a settlement. A negotiation doesn’t mean the funder stopped collecting or suing you. Make sure you get the settlement terms in writing. Keep proof of what the funder actually credited against the debt to make sure you don’t have more work to do.

What to Do When Served with Papers

Fourth, ask what to do when served with papers. A “review the papers” offer that comes with a discounted fee may exclude hearings or discovery requests, leaving you still exposed. Any reply must be made on time, but beyond that, who’s in charge of scheduling, of timekeeping, of discovery?

Signing up for a negotiation program doesn’t extend your deadline to answer or otherwise respond to the papers. A higher fee or payment to a lawyer also doesn’t guarantee better work or a good result. Be wary of anyone selling filing a response as buying a fixed number of months of “safety” from collecting; the extra time does depend on what the judge does.

A limited engagement can be fine, if you know what it includes and doesn’t. Look at what happens after the first step: does the lawyer need to be paid more, be authorized to advance, or turn it over to a different lawyer? Watch out for an ill-defined engagement, vague as to who will work on the case and the expected cost of doing it. Do ask how each lawyer you talk to proposes to handle your case.

What Happens Afterward

Fifth, find out what happens afterward. The IRS generally counts forgiven debt as income, but you may exclude up to the amount by which you were insolvent just beforehand, on Form 982. That means in general, “Pennies on the Dollar!” may really be “Cents on the Dollar, and Here’s the Tax Bill.” Find out what your tax situation is. A “cancellation of debt” form (1099-C) isn’t like a W-2: you aren’t necessarily out of tax trouble just because you never get one. Only certain entities, like banks and credit unions and businesses lending as a significant part of their trade, file them for debts of $600 or more.

If you later dispute the lawyer’s bill: Arbitration is voluntary for clients, mandatory for lawyers once the client begins the process. There is a filing fee for arbitration, in Santa Clara County it’s 8% of the amount disputed on disputes over $10,000, capped at $7,500.

If settlement talks fail, bankruptcy has costs too: smaller firms qualify for a simpler option if debts are no more than $3,424,000 (from June 21, 2024, and filed under “Subchapter V”). Chapter 11 also has a $1,738 filing fee. Get quotes in writing before you start the case.

Beware deals that sound too good to be true: a guaranteed percentage of debt forgiven before anyone sees the underlying contract, instructions to stop all payments without discussing risks, promises the enrollment alone will stop a lawsuit, a new advance described as debt reduction.

At a sales call, you don’t have to give any money on the spot. You don’t have to hear the end of the pitch. Ask them to email their proposed agreement and terms so you can read them carefully. When you review the agreement, look carefully to see how it answers your five questions. Compare it to what the person offered before, and ask where in the agreement you’ll find things like “settlement,” “reduced rate,” “the lawyer appears,” “we monitor payments.” If you don’t see what you expect, ask where it is, in writing. Don’t sign until you see what you expect. Keep your hands on your wallet and shut the conversation down until you have those terms.