The MCA debt relief costs include the amount paid to settle the MCA's, the debt relief company's fees, the court and attorneys' fees if a funder sues you, and the federal taxes on the forgiven MCA debt. If you are solvent (your assets are worth more than your debts), the all-in cost to settle your MCA's is about 77 cents on the dollar.
You can substitute your own numbers below.
What does MCA debt relief cost once you add everything up?
Let's assume you are solvent and want to settle three MCA's for 50 cents on the dollar, and the business debt relief provider's fee is 20% of the enrolled debt. Let's further assume Funder A has a forum selection clause in New York and has sued you for $120,000, Funder B is owed $80,000, and Funder C is owed $50,000, for a total of $250,000.
Providers online say MCA settlements range between 30 and 60 cents on the dollar, but I have not seen any official data on this, so 50 cents is a guess. This will cost you $125,000 and forgive $125,000 in debt.
The table below assumes you are a single filer with $60,000 in other taxable income, using the IRS 2026 tax brackets.
| How much does it cost to settle MCA's? | Total cost | Assumptions |
|---|
| Pay the settlements | $125,000 | 50 cents on the dollar of $250,000 (assumption) |
| Debt relief company's fee | $50,000 | 20% of $250,000 (assumption) |
| Federal income taxes on the $125,000 forgiven, after deducting the $50,000 fee in the same year | $17,086 | See details below |
| Court fees and attorneys' fees | TBD | Obtain a quote and add it to this table |
| Total | $192,086 | 77 cents on the dollar |
If you exclude the income taxes, the costs are about 70 cents on the dollar, which is what most debt relief websites show.
How much is the debt relief company's fee?
Debt relief companies charge between 15% and 25% of the enrolled debt. Some companies charge a percentage of the savings instead. For instance, 25% of the $125,000 in savings is $31,250, and fees as high as 35% of the savings have been reported. What is included in the fees: How much do MCA settlement companies charge? How the two fee models compare: Percentage of enrolled debt vs. percentage of savings: which is better?
The federal rule which prohibits debt relief companies from charging advance fees generally does not apply to business to business calls. See 16 C.F.R. § 310.4(a)(5) and § 310.6(b)(7). More on this: Do business debt settlement companies charge upfront fees?
How much does it cost to defend a lawsuit?
The court fees are relatively low, but the attorney's fees and interest can be substantial. Under New York law, the defendant must pay $45 for every motion or cross motion it files, and must pay $95 if it is the first party to file a request for judicial intervention. See New York Civil Practice Law and Rules (“CPLR”) § 8020.
I could not find any reliable data on what attorneys charge to defend MCA lawsuits. Some debt relief companies include legal defense as part of their program.
If the funder gets a judgment for $120,000, it will accrue interest at 9% per annum, or $5,400 every six months ($29.59 per day). See CPLR 5004. (The rate is 2% only for a consumer debt against an individual, which MCA's are not.) The funder can also serve a restraining notice, which will freeze up to twice the amount owed in your bank account.
How much tax will you owe on forgiven MCA debt?
The IRS taxes the cancellation of debt, so you may face a large tax bill. Using the 2026 federal tax brackets and ignoring the fee deduction:
- If you are a single individual with $60,000 in other taxable income, you will pay an extra $29,086 in federal taxes on the full $125,000.
- If you are insolvent by $80,000 just before the settlement, you only pay taxes on $45,000 of the forgiven debt, an extra $9,900.
- If you are a C-Corp without losses, you will pay 21% of the forgiven debt at the entity level ($26,250).
Under 26 U.S.C. 108, you can exclude discharged debt to the extent that you are insolvent. Include all of your assets at fair market value when you determine your insolvency amount, including retirement accounts. The exclusion requires a Form 982, and it is really a deferral because you have to “pay” for it with reduced tax attributes like losses and basis. See IRS Pub. 4681.
Remember that the MCA “debt” may not be a debt for these purposes, as it is supposed to be a purchase of your receivables. To learn about settling equipment financing, credit lines, and vendor debt, see How much does business debt settlement cost?
How can I reduce the total amount?
A few things minimize your taxes and legal costs:
- Use the worksheet in IRS Pub. 4681 to see how much of your debt will be taxable when it is settled.
- Deduct your debt relief fee in the same year that your debt is settled. Here, deducting the fee reduces the tax from $29,086 to $17,086.
- Settle before a judgment if the funder is suing you, so you don't pay 9% a year on the debt.
- Be wary of installment agreements that make your entire balance due if you miss one payment, because the “affordable” deal can end up the most expensive one.
Frequently asked questions about MCA debt
Do I pay taxes on my forgiven MCA debt?
Usually, yes. The IRS treats canceled debt as income. Since your MCA is a business debt, you will report it on your Schedule C, E, or F. That said, it may not be considered a debt since MCA funders claim that they are purchasing your receivables, so talk to your CPA.
What if the funder doesn't send a 1099?
Even if they don't send you a 1099-C, you still have to pay taxes on the forgiven amount. The $600 threshold is not a tax provision; it only tells lenders when they have to file the 1099-C. Plus, it is not clear if MCA funders have to file a 1099-C at all.
Can I deduct my debt relief fee?
In general, fees for debt relief are ordinary and necessary business expenses under 26 U.S.C. 162(a), so you can deduct them. However, there is no IRS guidance specifically on this issue, so talk to your CPA.
Does my entity type affect how much tax I pay?
Yes. For C-Corps, the taxes apply at the entity level at a flat 21%. For S-Corps, the insolvency exclusion applies at the entity level and the taxes apply when the income passes through. For partnerships and multi-member LLCs, the exclusions apply at the partner level.