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Can you seek debt dismissal due to creditor misconduct?

On Behalf of | Apr 30, 2024 | Merchant Cash Advances, UCC Liens

As a business owner, you may have encountered situations where creditors have engaged in unfair or deceptive practices, such as misrepresenting the terms of a merchant cash advance (MCA) or improperly filing a UCC lien against your business. Managing debt can already be a significant challenge, and it becomes even harder when you encounter creditor misconduct. The good news is the state may dismiss your debt entirely due to creditor misconduct because of the legal concept known as the “unclean hands” doctrine.

The unclean hands doctrine

The unclean hands doctrine is a principle of equity that states if a party has acted unethically or in bad faith regarding the subject matter of the litigation, the court may refuse to grant them relief. In other words, if a creditor has engaged in misconduct related to the debt they are trying to collect, the court may dismiss the debt entirely. In some cases, the court may also award you damages for any harm caused by the creditor’s misconduct, such as emotional distress or financial losses. Creditor misconduct can take many forms, including the following:

  • Misrepresenting the terms of a loan or merchant cash advance
  • Failing to disclose important information about the debt
  • Engaging in deceptive or unfair collection practices
  • Unfair practices like charging excessive interest
  • Improperly filing a UCC lien against your business

Remember, while creditor misconduct can sometimes lead to debt dismissal, this outcome is not a certainty.

The reality of debt dismissal

Even though the idea of having your debt dismissed is promising, it is important to manage your expectations. The process can be complicated, and you would need to be able to show clear and convincing evidence of the creditor’s wrongdoing. It will require a solid strategy and the support of an experienced attorney.

You have the right to be treated fairly and ethically by creditors. By understanding your legal rights, you can protect your business and hold unscrupulous creditors accountable.