Chat with us, powered by LiveChat

Pitfalls to Avoid With Do-It-Yourself Business Debt Settlement

Falling behind on business debt payments can be scary. You may be tempted to try settling the debts yourself to save money on fees. However, DIY debt settlement has serious risks. As a business owner, you need to understand the pitfalls before attempting it.

Know Your Rights

The Fair Debt Collection Practices Act (FDCPA) protects you from harassment by debt collectors. Collectors cannot call before 8 am or after 9 pm unless you agree. They also can’t threaten violence, use profanity, or repeatedly call just to annoy you. If collectors cross the line, you can sue them. Learn your rights under the FDCPA here.

- -

Get Organized

Make a list of all your business debts with account numbers, balances, interest rates, and minimum payments. Also note which accounts are with original creditors versus collection agencies. Getting organized helps you know who to contact and how much you really owe.

Research State Laws

Debt settlement regulations vary by state. For example, Texas requires debt settlement companies to be licensed while Arizona has no special rules. Check your state laws regarding do-it-yourself debt settlement to avoid surprises.

Calculate a Realistic Offer

A debt collector may initially ask for 70% to 100% of the amount owed. Be ready to start lower, around 20% to 50% of the total. Calculate an offer amount you can realistically pay in a lump sum. Remember, collectors often accept less than half the original debt.

Get Terms in Writing

Verbal agreements mean nothing in debt settlement. Always get any deal in writing before paying anything. The agreement should spell out the lump sum amount, deadline to pay, and assurance the creditor will remove negative marks from your credit report. If they won’t put it in writing, walk away.

- -

Open a Separate Bank Account

To save up for settlements, open a new checking account your creditors don’t know about. Automatically transfer a portion of your income to this account weekly or monthly. Never commingle settlement funds with operating accounts creditors can access or freeze.

Consider Tax Implications

If a creditor forgives $600 or more of business debt, they may issue a 1099-C form reporting the amount forgiven to the IRS. Depending on your situation, cancelled debt may be taxable income. Consult a tax pro to understand the potential tax costs.

Get Professional Support

A business lawyer can review settlement agreements to spot red flags. An accountant can advise you on the financial and tax implications. And a therapist or coach can help you handle the stress. Don’t go it completely alone.

Send Payments by Certified Mail

Always send settlement payments by certified mail with return receipt requested. This creates a paper trail proving the creditor received your payment. Never send cash, and make checks payable only to the creditor, not any individual person.

Follow Up in Writing

After paying the settlement amount, follow up in writing to confirm the creditor has zeroed out your account balance. Keep all records showing the debt is legally satisfied in case of errors or disputes later.

- -

Prioritize Debts Wisely

If possible, settle secured debts like equipment loans first, since the creditor can repossess collateral. Similarly, settle debts with the highest interest rates to stop accrual and compounding. Leave low-rate debts until last.

Don’t Settle New Debts

Creditors are more likely to settle older delinquent accounts that have been charged off. If the debt is less than 6 months past due, you’ll pay closer to the full balance. Let newer debts age before attempting settlement.

Beware Debt Relief Scams

Beware any person or company asking for large upfront fees to settle your debts. Advance fees are illegal. Get help only from reputable non-profit credit counseling agencies.

- -

Consider Other Options

Debt settlement has risks, like getting sued or owing taxes on cancelled debt. Consider all options like credit counseling, debt consolidation loans, or bankruptcy. Settling debts yourself is challenging – know when to seek professional guidance.

While do-it-yourself debt settlement may seem like an easy way to resolve business debts, the risks and pitfalls are real. Arm yourself with information, get organized, and seek legal and financial advice to make the process manageable. With eyes wide open, you can negotiate settlements and move your company back toward financial health.

Pitfalls to Avoid With Do-It-Yourself Business Debt Settlement

Falling behind on business debt payments can be scary. You may be tempted to try settling the debts yourself to save money on fees. However, DIY debt settlement has serious risks. As a business owner, you need to understand the pitfalls before attempting it.

Know Your Rights

The Fair Debt Collection Practices Act (FDCPA) protects you from harassment by debt collectors. Collectors cannot call before 8 am or after 9 pm unless you agree. They also can’t threaten violence, use profanity, or repeatedly call just to annoy you. If collectors cross the line, you can sue them. Learn your rights under the FDCPA here.

- -

Get Organized

Make a list of all your business debts with account numbers, balances, interest rates, and minimum payments. Also note which accounts are with original creditors versus collection agencies. Getting organized helps you know who to contact and how much you really owe.

Research State Laws

Debt settlement regulations vary by state. For example, Texas requires debt settlement companies to be licensed while Arizona has no special rules. Check your state laws regarding do-it-yourself debt settlement to avoid surprises.

Calculate a Realistic Offer

A debt collector may initially ask for 70% to 100% of the amount owed. Be ready to start lower, around 20% to 50% of the total. Calculate an offer amount you can realistically pay in a lump sum. Remember, collectors often accept less than half the original debt.

Get Terms in Writing

Verbal agreements mean nothing in debt settlement. Always get any deal in writing before paying anything. The agreement should spell out the lump sum amount, deadline to pay, and assurance the creditor will remove negative marks from your credit report. If they won’t put it in writing, walk away.

- -

Open a Separate Bank Account

To save up for settlements, open a new checking account your creditors don’t know about. Automatically transfer a portion of your income to this account weekly or monthly. Never commingle settlement funds with operating accounts creditors can access or freeze.

Consider Tax Implications

If a creditor forgives $600 or more of business debt, they may issue a 1099-C form reporting the amount forgiven to the IRS. Depending on your situation, cancelled debt may be taxable income. Consult a tax pro to understand the potential tax costs.

Get Professional Support

A business lawyer can review settlement agreements to spot red flags. An accountant can advise you on the financial and tax implications. And a therapist or coach can help you handle the stress. Don’t go it completely alone.

Send Payments by Certified Mail

Always send settlement payments by certified mail with return receipt requested. This creates a paper trail proving the creditor received your payment. Never send cash, and make checks payable only to the creditor, not any individual person.

Follow Up in Writing

After paying the settlement amount, follow up in writing to confirm the creditor has zeroed out your account balance. Keep all records showing the debt is legally satisfied in case of errors or disputes later.

- -

Prioritize Debts Wisely

If possible, settle secured debts like equipment loans first, since the creditor can repossess collateral. Similarly, settle debts with the highest interest rates to stop accrual and compounding. Leave low-rate debts until last.

Don’t Settle New Debts

Creditors are more likely to settle older delinquent accounts that have been charged off. If the debt is less than 6 months past due, you’ll pay closer to the full balance. Let newer debts age before attempting settlement.

Beware Debt Relief Scams

Beware any person or company asking for large upfront fees to settle your debts. Advance fees are illegal. Get help only from reputable non-profit credit counseling agencies.

- -

Consider Other Options

Debt settlement has risks, like getting sued or owing taxes on cancelled debt. Consider all options like credit counseling, debt consolidation loans, or bankruptcy. Settling debts yourself is challenging – know when to seek professional guidance.

While do-it-yourself debt settlement may seem like an easy way to resolve business debts, the risks and pitfalls are real. Arm yourself with information, get organized, and seek legal and financial advice to make the process manageable. With eyes wide open, you can negotiate settlements and move your company back toward financial health.

Get Debt Relief Today

Delancey Street is here for you

Our team is available always to help you. Regardless of whether you need advice, or just want to run a scenario by us. We take pride in the fact our team loves working with our clients - and truly cares about their financial and mental wellbeing.

"Super fast, and super courteous, Delancey Street is amazing"
Leo
$500,000 MCA Restructured Over 3 Years
"Thanks for helping me in literally 24 hours"
Jason
$250,000 SBA Loan Offer in Compromise
"Great choice for business owners who need a trustworthy partner"
Mary
$350,000 MCA Restructured Over 2 Years

In The Media

Delancey Street CEO discusses ways to reward employees
Delancey Street CEO discusses the benefits of franchising on Forbes.
Delancey Street CEO discusses management on AMEX.
Best Michigan Business Debt Counselors

Best Michigan Business Debt Counselors Navigating the choppy waters of…

Best Michigan Financial Advisors

Best Michigan Financial Advisors Choosing the Right Financial Advisor in…

Best Michigan Bankruptcy Lawyers

Best Michigan Bankruptcy Lawyers Navigating the choppy waters of bankruptcy…

Best Michigan Turnaround Management Firms

Best Michigan Turnaround Management Firms Introduction Navigating financial distress and…

Best Kansas Turnaround Management Firms

Best Kansas Turnaround Management Firms Introduction to Turnaround Management Firms…

Delancey Street simply gets it. You're talking to experts.
Steven Norris
Get Help Today

Ready To Get Started?

If you have questions, feel free to shoot us an email, or fill out our live chat.

Schedule Consultation