Texas Business Debt Settlement: 5 Issues That Now Deserve a Closer Look

The Texas agreement on the desk may be governed by a statute that did not exist when it was signed.

House Bill 700 added Chapter 398 to the Finance Code for commercial sales based financing, effective September 1, 2025, with 2026 rules implementing its requirements. Settlement now requires two readings: what the enterprise can pay, and what the provider disclosed, debited, and drafted.

1. Date the Transaction Before Reading the Statute

Six months after the contract was signed, the law around it changed. That sentence describes a large share of Texas MCA disputes now in negotiation, and it decides which questions counsel can ask.

The enacted text covers commercial sales based financing, including qualifying internet transactions that reach Texas recipients without a local office behind them. Banks and certain other entities and transactions stand outside the chapter. An ordinary business loan does not enter the framework, and not every frequent withdrawal is a covered transaction because the provider uses advance terminology.

Ask counsel to identify the product, the parties, and the funding date before any disclosure argument is built. Simply calling each withdrawal an MCA establishes nothing about coverage. What gets remembered, or forgotten, will be decided by whichever party kept the paper, and coverage turns on the enacted definitions rather than the marketing vocabulary.

Earlier bill versions carried different thresholds and different contours. The enacted text of Texas HB 700 is, if precision matters more than comfort, the only version that governs, and a summary prepared during the legislative session can give the wrong answer with peculiar confidence.

A statute that took effect in September cannot be violated by a disclosure made in March. The file must be dated before it is judged.

2. Trace the Renewal Money Through the Disclosures

For covered specific offers below one million dollars, the statute requires disclosures addressing the financing amount, the disbursement, the finance charge, and the total repayment, with payment timing, other charges, security terms, and broker compensation included. The recipient signs the disclosures before the application is finalized.

The distinction between the financing amount and the disbursement does most of the work. An owner can accept a substantial nominal figure while receiving far less usable cash, because the transaction retires an earlier balance or retains charges at funding. Where new financing pays an existing sales based balance, additional disclosure concerning the amounts applied to that balance is required. Compare those figures against the payoff records. The renewal described as fresh money in order to secure a signature the accounting could not have earned may have delivered little more than a new schedule for the old debt.

Keep screenshots or copies of electronic disclosures as presented. Portal access months later may not reproduce the same version. Preserve the correspondence identifying which proposal was accepted.

Reconstruct the renewal as a transaction with several destinations: begin with the financing amount, subtract the charges retained at funding, then subtract the sum assigned to the prior obligation. The remainder should correspond to the cash that reached the operating account. A mismatch is a matter for analysis with documents and amounts stated. That distinction carries the negotiation.

3. Test the Debits and the Confession Language

Section 398.055 declares a covered financing contract containing a confession of judgment provision or similar term void and unenforceable. Coverage and the particular language require legal review and analysis before anyone treats the clause as boilerplate.

Automatic debits face a specific condition rather than a universal ban. The adopted 2026 rules explain that automatic deposit account debits require a validly perfected first priority security interest in all of the recipient accounts receivable. The presence of a filing alone answers nothing about perfection, priority, or the rights the agreement describes.

4. Keep the Lawsuit and the Regulator on Separate Tracks

No private lawsuit arises under the chapter. Section 398.102 states that it creates no private right of action, and the limitation is extremely consequential, though owners encountering it for the first time tend to read past it toward the remedies they prefer. A regulatory complaint does not serve as a personal damages case, and counsel must identify and brief any available claim or defense under the law that supplies it.

The adopted Texas commercial financing rules supply implementation detail on registration, misleading statements, and unauthorized debits. Registration is an administrative status. It is not an adjudication of the dispute, and a provider registration certificate settles nothing about whether a particular agreement or enforcement step was lawful.

A pending lawsuit keeps its own calendar throughout. Sending papers to a regulator or engaging a settlement service creates no extension from the court, and the response deadline needs a named person responsible for it.

Often we see files where the lawsuit calendar was entrusted to no one.

I have yet to see a default judgment against an owner who calendared everything.

Where MCA pressure complicates the Texas picture, Delancey Street offers a free confidential initial review of the advance position, as a debt settlement company rather than a law firm, with legal interpretation of the statute left to independently licensed counsel. Confirm eligible debts, service scope, and fees. The statutory questions and the settlement budget belong in the same assessment without being confused with each other.

5. Settle From Capacity on Complete Paper

Simply list the expenses and receipts available to support payment, carrying existing obligations at current terms until written confirmation changes them. A creditor can accept a smaller sum while rejecting the schedule the business needs, so read the amount and the timetable together and ensure the instrument states what a missed installment restores.

Resist the urge to offer the entire visible balance in order to end the call. Payroll and tax deposits remain invisible to the counterparty while remaining unavoidable for the owner, and the proposal that forgets them fails at the first payroll date after signing, an extremely expensive moment for discovery.

Counsel should ensure the settlement instrument names the parties, the covered obligations, and the conditions of the release that follows performance, with personal guarantees and security interests addressed on their own terms rather than assumed away by payment. The IRS treatment of canceled debt makes tax part of the same planning, since a reduction in an enforceable balance can produce income subject to stated exceptions. Measure the result after fees and tax before describing any percentage as savings. The percentage was accurate. The savings were theoretical.

A negotiated agreement earns its value when it creates obligations the enterprise can perform. Delancey Street initial review provides a starting point for the inquiry, with legal questions entrusted to counsel. The objective is a supported resolution whose practical effect stays clear after the pressure that produced it has passed, like a room that stays standing after the scaffolding comes down, which is the only test a settlement ever meets.