“What happens if a creditor sues me while my company is in a debt relief program?” The short answer? The mere fact that a business is enrolled in a debt relief program usually won’t stop a lawsuit. If you’re hiring a debt settlement company to settle your business debts, chances are you’re already deep in trouble financially. Before you sign up for a payment plan, or make any payment toward a debt, make sure you know that the majority of debt relief companies offer no protection against lawsuits. Creditors and collection agencies know how this system works, and, unfortunately, some try to take advantage of desperate business owners.
Some creditors will agree to forego suing the debtor if the debtor pays the agreed-upon amount on time. They keep their end of the deal. This might be a shock, but not all creditors are on the up-and-up. Some will actually encourage you to enter a payment plan and then sue anyway. Even if you stick to the payment plan.
Some debt relief plans are just fancy ways to say “bill collector pretending to be your friend.” They tell you to make one big payment each month and to stop paying all your other bills, even if you’re not really behind yet. The more you stop paying, the more likely the creditor is to sue you. The debtor thinks they’re getting help by paying the settlement company, but all they’re really doing is digging a deeper hole and risking more lawsuits. It’s easy to see how an owner ends up there. When you’re already in financial distress, you don’t think twice about stopping your payments or signing a contract that puts your fate in another company’s hands. You’re just trying to survive. But that doesn’t mean you’re getting what you need. A debtor’s feeling of helplessness is the best friend of a crook. No one likes to be alone, so they’re grateful for anyone pretending to hold out a helping hand.
If you are the debtor and you don’t think the creditor will keep his side of the bargain, or if you think you’ll have trouble sticking with the payment plan, you shouldn’t bother with a debt settlement company unless it’s a law firm. At Delancey Street, we’d say the same about ourselves. We’re not a law firm; we refer the business owner to a vetted, independent attorney if litigation is the better path, and it’s between the owner and that lawyer.
You Get Notice
The one piece of good news: almost without fail, the lender will send you notice before any kind of action is taken. If a creditor is suing, or considering foreclosure or repossession, you get notice. If a creditor is trying to garnish your wages, you get notice. And if you get notice, you’ll have time to respond to the lawsuit, or to do whatever it takes to protect yourself from all that worst-case stuff. Early action is better, and not ignoring notices means keeping as many options open as possible. The longer you wait the more power your creditors have and you lose your ability to control the situation.
While it might sound better to join a debt relief program than going through bankruptcy, in many cases, it’s not. There are several reasons why. Once someone files for bankruptcy, an automatic stay kicks in. It stops anyone from suing the debtor, and it stops anyone from trying to collect money. To file a lawsuit, a creditor first has to get permission from the court by filing a motion for relief from the stay. Not only does the automatic stay stop lawsuits, but it also stops foreclosures, garnishments, repossessions, and those annoying phone calls you get from your creditors every day.
A debt relief program is just that: a program. It’s not a guarantee that the debtor will get relief. Even if the agency is legitimate, a change in the debtor’s financial situation can disrupt the plan.
In a Chapter 7 case, many or all the debts will be erased, so you don’t legally have to pay the debt any more, and the creditor can never do anything more on the erased debt. If you file for Chapter 13, you will be required to enter into a repayment plan that will usually last three to five years, and during that time you will have to pay a percentage of the debt. You cannot be sued, however, while this repayment plan is in process. If we determine that bankruptcy, such as Subchapter V, is the better course of action for the owner, we will let the owner know right from the first call and refer the owner to a bankruptcy attorney.
A Debt Relief Plan Is Worth Considering
So is a debt relief program right for your business? That depends. If you’re hoping for a guaranteed solution to all of your business’s financial woes, it’s not. If you’re banking on it, you will be disappointed. A debt relief company can help you secure a deal and manage debt, but they usually can’t stop creditors from taking legal action. A debt relief plan is worth considering if the business owner can afford the payment schedule and can trust that the creditors will follow through on the promise. When that happens, our senior advisors will negotiate with the merchant cash advance funders or lenders on the owner’s behalf, for a lesser amount than what the business owner actually owes. They’ll do that instead of giving the business owner another loan. Our initial consultation is free and confidential.
