Memphis MCA Debt Relief Lawyers: 5 Steps for Coordinating Defense and Settlement

If your business has merchant cash advance debt - maybe even multiple MCA debts - defense and settlement together are your strongest tools. They’re especially valuable if a funder is threatening to take legal action. As simple as it sounds, using them together is the way to resolve the matter as favorably as possible. There are five steps:

• 1. check for any lawsuits or collection actions and deadlines;
• 2. gather a complete set of documentation on each advance;
• 3. decide on realistic payments after a lawyer’s review and assessment;
• 4. negotiate each advance separately; and
• 5. make sure you check every settlement term.

Legal Deadlines

If a funder starts to make a legal threat, don’t wait. Find out if it has filed a lawsuit or assigned an advance to a collection lawyer, and check for legal deadlines. Ignoring legal deadlines can put your entire business at risk. Tennessee requires an answer to a lawsuit within 30 days of service, whether it’s in circuit or chancery court. How you have to respond doesn’t change because you’re in settlement talks with a funder or a debt relief company.

A funder that already has a New York judgment could also simply file it directly with either the circuit or chancery clerk. It doesn’t have to file any kind of new lawsuit. Once a Tennessee court accepts it as an enforceable judgment, it’s treated like one that was issued in Tennessee, including being subject to defenses. But 30 days have to pass after you are served before it can be enforced.

Both a law firm and a debt relief company may negotiate with funders, but there’s a difference when a funder questions how much you owe, demands that you make good on a personal guarantee, or sues. Find out up front if a debt relief company hands off settlements, who represents you if there’s a lawsuit, and whether your fee covers only negotiation. Know what’s included when you enroll, because it may not be court defense. When you hire a law firm, be clear on the scope of its representation, whether it’s a full-service retainer or a limited, flat-fee engagement. If your deal is fully contingent, check your state’s rules; in Tennessee, the fee agreement must be in writing and signed by the client, and it must show the fee percentage.

Gather up every funder’s paperwork, so you know how much you got for each advance, and what payments you made. You’ll need each funder’s agreement, their version of what you still owe, and personal guarantees. Include copies of all your bank statements. Court papers, like a summons and complaint, if there are any. Maintaining a complete set of documents can help protect you if a funder challenges how much you owe or what the terms are. A law firm or debt relief company doing a settlement also needs this information for an effective negotiation.

Choose Payment Terms

If the payment deduction is starting to hurt you and your business, don’t just stop paying. Funder agreements often say that blocking ACHs or stopping payments is a default; so, if your debt relief company plans to do it, have the plans fully reviewed first. The same’s true if you start to miss payments on your own. That’s because, if your business does anything that’s a default, a funder may demand the entire balance plus fees, call any guarantor, contact your customers, or even sue. Whether they can is something that’s decided by reviewing your whole agreement. You need to choose payment terms after a lawyer has reviewed all the advances. With less money coming in, your options are your agreement’s reconciliation procedure, renegotiating new terms, or filing bankruptcy. Each has to be considered to decide which is the best step, because stopping payments alone could lead a funder to send you to collections, or even sue you.

It’s natural to want to resolve the entire amount owed with every funder at once, especially if one MCA lender already filed a lawsuit. Multiple MCA debt, though, is where each funder needs to settle. You don’t get rid of it if just one does. You need a strategy to deal with the one funder trying to sue you while you’re still negotiating with other funders. There’s also no standard settlement percentage. It depends on your overall payments, your payment history, what’s in your agreements, any potential defenses, the funder’s position on settling, and what payment you can realistically afford. That’s why all the advances together can give you a picture of a combined, reasonable payment schedule you can afford.

A funder’s lawsuit doesn’t have to stop you from negotiating a settlement, but you can’t ignore it. When a funder sues, the lawsuit doesn’t go away if you do agree to settle. Your lawyer still needs to handle dismissal or judgment paperwork alongside the settlement terms.

The Full Settlement Terms Spelled Out in Writing

It’s as important to review the details of a settlement offer as it is to negotiate it. It isn’t done until you have the full settlement terms spelled out in writing with a release. What’s settled needs to cover every funder, entity, and guarantor that’s liable for the debt. Another area to check is every payment, due date, and what happens if you miss a payment. Settling and paying are two different things, and it’s important to know what will happen to the debt if you don’t make a payment.

Some people get a surprise when they sign a settlement agreement, but the daily ACH withdrawals don’t stop. Two big areas to check. The first is when the daily ACHs stop, whether with each settlement, or if they’re just replaced with new settlement payments. The second is whether any lawsuit is dismissed as well. Knowing you have the right settlement terms written down helps you deal with any collections that continue or a surprise judgment down the road. It’s also smart to review who’s responsible for filing the dismissal or satisfaction of judgment, and whether the UCC-1 termination is included.

There’s also the tax issue. The IRS usually treats forgiven debt as income, unless it’s excluded, like in bankruptcy. And a lender that cancels $600 or more may report a Form 1099-C to the IRS. This could affect your tax return. Get the advice of an accountant or tax professional beforehand.

Signing a settlement offer isn’t finishing it off. Some of the steps happen only after you’ve made the last payment. So keep your signed agreement, plus proof of payment, plus written confirmation of each follow-up step, in case you need to show you settled later.