To choose between a debt settlement company vs law firm vs doing it yourself, first ask whether you have been sued, had a confession of judgment entered, had your account frozen, or had arbitration filed against your business. If so, and your business is an LLC or corporation, you need a law firm. If not, it is a cost question based on the size of your debt and the number of funders you owe.
How do I choose between a debt settlement company vs law firm vs DIY?
The cost figures are my best estimate from what firms publish on their websites; I do not know the actual rates.
Which option fits your situation
| Your situation | Doing it yourself | Settlement company | Law firm |
|---|
| Sued, COJ entered, account frozen, or arbitration filed (LLC or corporation) | Not permitted in court on your own above $10,000 in New York City | Cannot file an answer or anything else for you | Required |
| One funder sued, others quiet | Possible with the other funders | Can negotiate with the other funders | Needed for the sued funder, plus someone to coordinate the whole stack |
| No suit, one funder, smaller balance | Your best option to save money | A fee of 15% to 25% will be too high | Worth it just to look over your deal |
| No suit, two or three funders | Possible, but default triggers multiply | Viable if your contracts don't penalize it | Depends on the per-funder fee |
| No suit, four or more funders | Hard to coordinate alone | A percentage fee may cost less than a law firm | Best if you have usury or recharacterization defenses |
Why is being sued more important than debt size and funder count?
Because, in New York, a corporation "shall appear by attorney." N.Y. CPLR 321(a). The exceptions are small claims and commercial claims courts, which cap out at $10,000 in New York City, and I don't know of any funder that sues for that little. Federal courts agree, Rowland v. California Men's Colony, 506 U.S. 194. An LLC effectively can't represent itself either, and a settlement company can't answer for you.
A sole proprietor or a guarantor sued personally may appear "in person." Id.
You only have 20 or 30 days to "appear" after service, depending on how you were served, N.Y. CPLR 320. In Pennsylvania, you have 20 days to respond to a complaint, and if a confession of judgment has been entered against you, 30 days to petition the court to strike or open it, 231 Pa. Code § 2959. If an arbitration award is entered against you in New York, you have 90 days to challenge it, N.Y. C.P.L.R. 7511. (The New York Attorney General is suing Rapid Ruling, a sham arbitration service, alleging about 3,000 MCA arbitrations in which 97% of businesses didn't appear.) And if your account has been frozen in New York by a restraining notice, which your creditor's attorney can issue without going to court, only a court can unfreeze it if the funder won't agree.
Why do debt size and the number of funders matter?
No law says how much you can owe before you need to hire someone, so it comes down to cost. If you owe one funder $30,000 and a settlement company wants 15% to 25%, that's $4,500 to $7,500, probably more than a lawyer would charge to review a deal you negotiate yourself. But if you owe 5 funders a total of $250,000, that's $37,500 to $62,500 to a settlement company, while a law firm charging $3,000 to $10,000 or more per funder, as many advertise, would charge $15,000 to $50,000 or more.
Stacked contracts have default triggers, some for stacking itself. A hold-out funder does not need to sue to gain leverage over you. Once your customer receives a signed notice of assignment, paying you no longer settles its bill, under UCC 9-406(a). You or a settlement company can ask the funder to withdraw the notice, but fighting it requires a lawyer. If you deal with only one funder, know that New York's Second Department has ruled that a merchant who never used the contract's reconciliation procedure could not later call it illusory. Funders can act fast; in Oakshire Properties v. Argus Capital Funding, the funder filed a confession of judgment two days after the merchant asked for a lower payment.
For what settlement companies and law firms can each do, see Should I hire a debt settlement company or a law firm for MCA debt?
What if some funders have sued and others have quiet positions?
You probably will need both avenues: an attorney for the lawsuit, and a settlement company or yourself for the quiet positions. But what you do with one funder may impact your attorney's ability to fight another. Have one person handle strategy for every funder. Only conversations with an attorney or the attorney's staff are privileged under CPLR 4503. Your communications with a settlement company or with the funders may be discoverable if your attorney raises a usury defense. New York's First Department recently strengthened that defense in People v. Richmond Capital Group, affirming that the MCAs at issue were in fact usurious loans.
See When do I need an attorney for my MCA debt and when can a settlement company handle it? to learn when an attorney is required.
Frequently Asked Questions (FAQ)
Is there a contract penalty for using a settlement company?
Yes, some do. One MCA contract filed with the U.S. Securities and Exchange Commission adds a $10,000 fee or 25% of the outstanding balance if the merchant retains a third-party debt relief or re-negotiation firm and redirects communication to that firm, so read your contract before enrolling.
Will I have a tax liability on settled debt with either firm?
The tax result is the same whoever negotiates. Canceled business debt is generally taxable income. If your business was insolvent, you can exclude only up to the amount of your insolvency, using IRS Form 982. Even without a Form 1099-C, you must report the canceled debt, according to IRS Publication 4681. Ask a tax professional whether an MCA discount even counts as canceled debt.
Is it legal for a settlement company to charge me upfront fees?
Yes, for business debt. The ban on debt relief companies collecting advance fees comes from a federal rule on telemarketing to consumers. Telemarketing between businesses is exempt from the rule.
What if I live in California and I'm a sole proprietor?
It may matter. Beginning July 1, 2025, the Rosenthal Act covers commercial debt owed by a natural person to a commercial financing provider, including MCA-style receivables purchases, when the total owed to that creditor is $500,000 or less.