Business debt settlement vs debt relief lawyer: the biggest difference is that a debt settlement company is generally not licensed, cannot provide legal advice and cannot appear in court on your behalf.
Settlement companies say they're "attorney backed" and debt relief lawyers say they do debt settlement. One big difference is the rules they follow.
Is a debt relief lawyer licensed differently from a settlement company?
There is no special license to be a debt relief lawyer, and a business debt settlement company does not generally need any license at all. Lawyers are different, because New York law prevents anyone from acting as an attorney unless they are "duly and regularly licensed and admitted" to practice law (New York Judiciary Law Section 478). An attorney "backing" a company cannot practice law where they are not admitted (Pa. Rules of Professional Conduct Rule 5.5), with limited exceptions.
Most state laws regulating debt settlement companies only apply to consumer debt. As of February 15, 2025, consumer "debt settlement services" providers must register with the California Department of Financial Protection and Innovation, but attorneys practicing law are exempt. Texas's new commercial financing registration law applies to funders and brokers, not debt relief companies. Georgia has a debt adjusting law that applies to corporations and caps fees at 7.5% of the monthly payment the debtor makes for distribution to creditors. Violating it is a misdemeanor, but the practice of law is exempt. It is unclear if it reaches companies negotiating lump sum business settlements; we found no cases on that issue.
What can a business debt settlement company legally do?
A debt settlement company can negotiate on your behalf with your creditors. In 2020, the Supreme Court of Ohio held that a non-lawyer company negotiating small business debt was not necessarily practicing law because it could act as a "messenger" between debtor and creditors. In Ohio State Bar Assn. v. Watkins Global Network, the company was found to have provided legal advice when it told a client how to avoid foreclosure. Thirty of the 31 counts against it were dismissed, and it was fined $1,000.
It cannot represent you in court, however. Under New York law, "a corporation shall appear by attorney" (CPLR 321(a)). Federal law has the same rule: an entity can only appear in federal court through a licensed attorney (Rowland v. California Men's Colony). It cannot even furnish you with an attorney, because New York law prohibits a corporation from rendering legal services (New York Judiciary Law Section 495). See Do I Need a Lawyer for MCA Debt or Can a Settlement Company Handle It?
What rules bind a lawyer that don't bind a settlement company?
Debt relief lawyers are bound by the rules of professional conduct of the state bar where they are licensed. Debt settlement companies are mostly bound by the terms of the contracts they have with their clients. The table below uses the Pa. Rules of Professional Conduct, which are similar to the ABA Model Rules.
| Issue | Debt relief lawyer | Business debt settlement company |
|---|
| Fees | No excessive fees; written fee arrangements for new clients and contingent fees (Pa. RPC 1.5) | Contractual requirements only |
| Money paid in advance | Must hold prepaid fees in a trust account until earned (Pa. RPC 1.15(i)) and refund unearned fees on termination (Pa. RPC 1.16(d)) | None |
| Confidentiality | Cannot reveal information relating to the representation without the client's informed consent (Pa. RPC 1.6) | Contractual requirements only |
| Conflicts | Must obtain informed consent for concurrent conflicts of interest (Pa. RPC 1.7) | None |
| Staff | Responsible for the conduct of nonlawyer assistants (Pa. RPC 5.3) | None |
| Court appearance | Can appear in court where admitted | Entities cannot appear in court without an attorney |
Who regulates business debt settlement companies?
There is no single regulator of business debt settlement companies, but some laws apply to them. The Federal Trade Commission's Telemarketing Sales Rule, amended to apply to business-to-business calls as of May 16, 2024, prohibits misrepresentations by debt relief services (16 C.F.R. §310.6(b)(7)). New York's FAIR Business Practices Act, which took effect on February 17, 2026, expands General Business Law §349 to prohibit unfair and abusive practices and lets the Attorney General act for small businesses. Unauthorized practice laws also apply, as the Ohio company in Watkins learned.
Lawyers are not excluded from the Telemarketing Sales Rule. According to the FTC guide on the TSR, there's "no general exemption from the TSR for attorneys who engage in telemarketing." But most lawyers fall outside it, because it only applies to interstate telemarketing and excludes sellers who meet the client face-to-face before signing them up. For advance fees, most lawyers representing businesses are covered by the trust account and refund rules in the table above.
What does it mean for a debt settlement company to have an "attorney network"?
This should mean independent attorneys who will represent you as their client, even if they are being paid by the company. Under Rule 1.8(f) of the Rules of Professional Conduct, an attorney can be paid by someone other than the client as long as:
- the client gives informed consent;
- there is no interference with the lawyer's independent professional judgment; and
- confidentiality is protected.
Under Rule 5.4, attorneys cannot split their fees with the company or form a partnership with it to practice law. You should receive an engagement letter from the attorney stating who their client is, either you or your company. See also Should I hire a debt settlement company or a law firm for my Merchant Cash Advance debt?
Frequently Asked Questions
Can a debt settlement company charge upfront fees to settle my business debt?
In general, yes. The Telemarketing Sales Rule's prohibition on advance fees does not apply to B2B telemarketing and only applies to unsecured creditors in any event. You are bound by the contract you sign, subject to any state unfair business practices laws.
Is everything I say to a debt settlement company privileged?
No. In New York, only confidential communications with your attorney or his/her employees are privileged under the statute. Even attorney communications are not privileged if they further a fraud, and privilege never shields the underlying facts.
Can my company's attorney also represent me in my capacity as a personal guarantor?
In many cases, yes, once the attorney checks for a concurrent conflict of interest under Rule 1.7. If your interests and the company's could conflict, the attorney must reasonably believe he/she can competently represent both of you, and you both must give informed consent.
Can I answer a lawsuit against my LLC myself?
Not in New York State or federal court. CPLR 321(a) requires a corporation to appear by attorney, and the Supreme Court has held that an entity may only appear in federal court through a licensed attorney. However, a sole proprietor is not an entity and therefore may appear on his/her own behalf.