Washington Business Debt Settlement and Merchant Cash Advance Lawyers

Washington Business Debt Settlement and Merchant Cash Advance Lawyers

If you own a small business in Washington and are struggling with debt, you may be considering debt settlement or merchant cash advances to find some financial relief. However, these options come with legal implications that business owners should understand before moving forward.

Overview of Business Debt Settlement in Washington

Business debt settlement involves working with a debt settlement company to negotiate with your creditors to reduce the amount you owe. The debt settlement company will put together a settlement offer, usually for 30-50% of what you owe, to pay back the debt in a lump sum. If the creditor agrees, the debt can be considered settled.

There are a few things to keep in mind about business debt settlement in Washington:

  • Debt settlement can impact your business’s credit score and ability to get financing in the future. Creditors may close accounts and report nonpayment to credit bureaus.
  • Settled debt may still be considered taxable income by the IRS. Speak to a tax professional to understand any tax obligations.
  • Upfront fees for debt settlement services cannot exceed 15% of the debt amount in the first six months (per Washington debt settlement laws).
  • The debt settlement company must be registered in Washington to operate legally. Verify registration with the Washington Department of Financial Institutions.

So while business debt settlement may help resolve unmanageable debt, business owners should carefully weigh the pros and cons given the legal and tax implications.

Merchant Cash Advance Regulations in Washington

A merchant cash advance provides a business with a lump sum of capital in exchange for a percentage of future credit card and/or debit card sales. It functions similarly to a business loan but without set repayment periods or fixed interest rates.Merchant cash advance companies must follow Washington‘s usury law and cap annual percentage rates (APRs) at 12% for loans under $100,000. However, some merchant cash advance companies try to skirt this cap by:

  • Structuring the advance as a purchase of future receivables rather than a loan with interest charges
  • Only disclosing the fee amount rather than an APR

This makes it difficult for business owners to compare merchant cash advance offers. Be sure to analyze:

  • The total amount being advanced
  • Fees being charged
  • The fixed daily/weekly payment amount
  • How payments are collected

This will help determine the true cost of the capital.

Working with a Business Debt Lawyer in Washington

If you are considering business debt relief optionsit’s highly recommended to consult with a business lawyer in Washington to understand the legal implications fully. Avvo and FindLaw can help you locate qualified lawyers.A knowledgeable business lawyer can:

  • Review debt settlement agreements and negotiate better settlements
  • Analyze merchant cash advance offers to lower rates and costs
  • Develop alternative debt relief strategies based on your situation
  • Advise on bankruptcy protections if debts become unmanageable
  • Ensure compliance with Washington’s laws and regulations

They serve as your legal advocate to get the best possible financial outcome while limiting legal risks to your business.

Pros and Cons of Business Debt Settlement

Debt settlement can be an attractive option for Washington business owners facing large amounts of unsecured debt owed to creditors and vendors. Here are some key pros and cons to weigh:Pros

  • Settle debt for less than you owe – Typically settle debt for 30-50% of the amount owed.
  • Avoid bankruptcy – Settling debt can prevent having to pursue Chapter 7 or Chapter 11 bankruptcy.
  • Become debt-free faster – Lump sum settlement can resolve debt much faster than drawn out repayment plans.
  • Tax benefits – Settled debt not paid back can be written off as a loss, providing tax savings.


  • Hurt business credit score – Missed payments will negatively impact your business’s credit rating with ability to get approved for financing.
  • Short term cash flow issues – Lump sum settlement payments may strain cash reserves in the short run.
  • Tax liabilities on settled debt – The IRS may still consider forgiven debt as taxable income, resulting in a tax bill.
  • Collection lawsuits still possible – Creditors can still sue for full repayment despite ongoing settlement talks.

As you can see, while settlement provides debt relief, it can worsen credit, strain cash flow, and create tax issues. Consulting a business lawyer and tax professional can help mitigate risks.

Key Washington Laws Impacting Business Debt Relief

If pursuing debt settlement or merchant cash advances, Washington has laws and regulations that govern these transactions that business owners must follow. Here are some of the most important to know:

  • Debt Adjusting Act – Governs the licensing and practices of for-profit debt settlement companies operating in Washington. Caps fees at 15% of debt in first 180 days.
  • Collection Agency Act – Requires licensing for companies collecting or attempting to collect overdue payments and debts owed by Washington businesses.
  • Consumer Loan Act – Sets provisions around allowable interest rates and fees on different types of small business financing and loans made to Washington companies.
  • Criminal Usury Law – Establishes a criminal usury rate of 12% APR on merchant cash advances made to Washington small business owners. Interest rates above this threshold can warrant charges.

Violating these regulations around debt relief and alternative financing can lead to significant penalties, lawsuits, and even criminal charges in some cases. Hence working with legal counsel is highly advised before moving forward with any arrangement.

4 Defenses Washington Business Owners Have Against Creditors

If your Washington business is facing aggressive collections or lawsuits from unpaid creditors and lenders, certain legal defenses may help limit repayment obligations or even discharge the debt fully:

1. Improper Service of Process If a creditor sues your business for nonpayment, but you were not properly served the lawsuit paperwork, the case can potentially be dismissed on grounds of improper service.

2. Statute of Limitations Expiration Debt collection lawsuits must be filed within a certain timeframe that varies by state. In Washington, it is between 3-6 years depending on the type of debt. If past this statute of limitations, the courts may dismiss the lawsuit.

3. Unfair Lending Practices If creditors did not properly disclose fees, interest rates, or repayment terms, the debt may be invalidated due to unfair and predatory lending practices.

4. Chapter 7 Bankruptcy Filing for Chapter 7 bankruptcy can eliminate qualifying business debts entirely through liquidation. While a last resort, it is a legal defense to wipe debts clean and start rebuilding.If facing collections, don’t communicate directly with creditors without first consulting business legal counsel to understand defenses available. The wrong move could inadvertently reset statutes of limitations or validate debts making matters much worse.

Alternatives to Debt Settlement for Washington Businesses

While debt settlement is one route to resolving unmanageable business debts, several alternatives exist under Washington law that may be better options depending on your situation:

Debt Consolidation

Debt consolidation combines multiple debts into a single new loan with one monthly payment. This simplifies payments and often lowers interest rates.

Debt Refinancing

Debt refinancing pays off existing debts with new financing that has better terms, which reduces interest rates and monthly payments.

Chapter 11 Bankruptcy 

Chapter 11 bankruptcy allows restructuring of debts under court supervision while keeping the business operating. Repayment plans are customized based on income.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy liquidates eligible assets to pay back creditors, eliminating qualifying business debts entirely once complete. However, the business must cease operations.Be sure to consult a small business lawyer in Washington to discuss the pros, cons, and eligibility requirements of these debt relief alternatives for your specific situation. The right option can help resolve financial troubles while limiting the legal risk and liability to your business.

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