Business Debt Restructuring in New York: 7 Laws That Change Your Leverage (2026)

Why the Statute Book Is the Best Asset You Have Left

You are probably reading this because four positions are pulling from the same account and the deposit that was supposed to cover payroll got eaten by 9:15 in the morning. We understand what that feels like, and we are not going to spend three paragraphs describing it back to you. What matters right now is that New York happens to be the single worst state in the country for a funder to be caught cutting corners in, and if your advance was written here, or your contract picked New York law, that is worth real money to you at the negotiating table.

The seven laws below are not a survey of everything in the CPLR. Each one changes something concrete: what your funder had to put in writing before you signed, what happens to the balance if a court decides the deal was a loan, where a confession of judgment can be filed, how fast money can be frozen after a judgment, what a restructuring can and cannot move out of the way of a creditor, and what the Attorney General has already done to companies in this business. Read them as a checklist against your own file.

One caveat before you start. Nothing here is a reason to stop paying, move assets, or ignore a summons that has already been served on you. Some of these statutes are shields and some of them are the exact tools a funder will use against you if you get creative. Where that distinction matters we say so, and the answer in those spots is always the same: put it in front of a licensed New York attorney before you act on it.

1. Article 8 Forced an APR Onto Your Contract

New York’s Commercial Financing Disclosure Law sits at Financial Services Law §§801 through 812, with the implementing rules at 23 NYCRR Part 600, adopted February 1, 2023. Section 803 is the operative list for sales-based financing, which is the statute’s name for a deal repaid as a percentage of your sales or revenue. Before you sign, the provider owes you the total financing amount and the disbursement amount if the two differ, the finance charge, an estimated annual percentage rate stated in those words or as APR, the total repayment amount, the estimated term, the payment amount and frequency, a description of every other fee including draw fees, late fees and returned payment fees, and whether paying early costs you anything extra. Section 809 requires the provider to get your signature on those disclosures.

Coverage is where funders get caught. Section 802 exempts a financial institution, a lender under the federal Farm Credit Act, financing secured by real property, a true lease under UCC article 2-A, a provider that does five or fewer commercial financings in New York in a twelve month period, and, at §802(g), any individual transaction over $2,500,000. Run your own numbers against that list. A $75,000 advance from a funder writing hundreds of deals a year is squarely inside the statute, which means the estimated APR your salesperson never said out loud was supposed to be on a signed page in your file. Pull the closing documents and see whether it is.

The honest limit on this one is the remedy. Section 812 gives the superintendent civil penalties of $2,000 for each violation, $10,000 for each willful violation, and the power to order restitution or an injunction on behalf of a recipient hurt by a knowing violation. That is regulatory enforcement, not a check written to you. Article 8 does not spell out a private damages action for a merchant, and courts have not settled whether one is implied, so the working use of a missing disclosure is as negotiating material, as support for a complaint to the Department of Financial Services, and as corroboration for the recharacterization argument in item 3.

2. The 25% Line and the Corporate Usury Trap

New York runs two usury rules at once, and business owners routinely reach for the wrong one. Penal Law §190.40 makes it criminal usury in the second degree, a class E felony, to knowingly charge interest at a rate exceeding twenty-five per centum per annum where that is not authorized by law. Then General Obligations Law §5-521 takes the ordinary usury defense away from you: subdivision 1 says no corporation shall interpose the defense of usury in any action, and subdivision 3 carves the exception back open only for a corporation asserting criminal usury under §190.40. So a corporate borrower complaining about 21% is out of court, and the same borrower documenting 300% is not.

What makes that carve-out worth something is the consequence attached to it. In Adar Bays, LLC v. GeneSYS ID, Inc., 37 N.Y.3d 320 (2021), the Court of Appeals held that a loan found criminally usurious is void in its entirety, principal included. Look at that from the other side of the table. A funder facing a 40% haircut in settlement talks is annoyed; a funder whose own paperwork could zero out the whole instrument, in a state where the rate on the face of it is a felony, has a different risk calculation and usually a different lawyer on the call.

Two catches, and they are real. Usury is a doctrine about loans, so the argument only starts once the agreement is treated as a loan rather than a purchase of receivables, which is the whole fight in item 3. And the defense generally does its work inside litigation, which means it pays off when the funder sues you or when the funder’s counsel prices settlement against the chance of losing the balance outright. It is not a self-executing right to stop paying, and treating it as one is how merchants hand a funder an easy default.

3. Recharacterization Turns on Three Factors

Every merchant cash advance in New York is drafted to say it is not a loan. The controlling appellate framing is LG Funding, LLC v. United Senior Properties of Olathe, LLC, 181 A.D.3d 664 (2d Dep’t 2020), where the Second Department set out three things a court may weigh in deciding whether the transaction is really a loan: whether the agreement contains a reconciliation provision, whether it runs for a finite term, and whether the funder retains recourse against the merchant if the business fails through no fault of its own. The word the court used is permissive, so no single clause decides it and no funder gets to win by pointing at a caption.

Federal judges sitting in New York have run that analysis to the funder’s detriment. In Fleetwood Services, LLC v. Ram Capital Funding, LLC, No. 1:20-cv-05120 (S.D.N.Y. June 6, 2022), affirmed by the Second Circuit at No. 22-1885 (June 8, 2023), the agreement was treated as a disguised loan. And Lateral Recovery, LLC v. Capital Merchant Services, LLC (S.D.N.Y. Sept. 30, 2022, No. 1:21-cv-09336, Liman, J.) is worth reading closely before anyone tells you the case law is settled: the court looked at three different MCA forms and split them, holding one a usurious loan as a matter of law, finding a question of fact on the second, and accepting only the third, which carried a genuine reconciliation provision, as a true purchase of receivables. It also let RICO unlawful-debt claims survive dismissal.

For your file, the fight is almost never about the contract language, because most forms now recite a reconciliation right. It is about whether the funder honored it. Requests you sent, the bank statements you attached, the response you did or did not get, the date the daily amount stayed flat while revenue fell by half: that record is what converts a paper reconciliation clause into an illusory one. Save it in one place, in date order, before anyone starts negotiating. If you want a sense of how New York counsel builds that record, our page on MCA defense lawyers in New York walks through it.

4. The 2019 COJ Amendment Repriced Your Funder’s Case

Before August 2019, a funder holding your signed affidavit could walk into a New York county clerk’s office and leave with an entered judgment against a business in Arizona that had never heard of that county. Senate Bill S6395, signed August 30, 2019 as chapter 214 of the Laws of 2019, amended CPLR 3218 to close that off. The affidavit now has to state the county where the defendant resides, and the filing can only go to the clerk of the county the affidavit named or the county where the defendant resided when it was filed. A government agency enforcing a civil or criminal law kept the ability to file anywhere; your funder did not.

The reason this belongs on a restructuring page has nothing to do with sympathy for out-of-state merchants. It changed the price of your funder’s cheapest collection route. Entering a confessed judgment costs a creditor $15 in statutory costs plus disbursements under CPLR 3218(b). Filing a lawsuit instead means a summons and complaint, service, an answer period of 20 or 30 days under CPLR 3012 depending on how you were served, a motion schedule, discovery where your reconciliation emails become their problem, and calendar time in a busy county. Litigating a contested commercial case in New York runs into five figures before anyone talks about trial.

That gap is your negotiating room. A funder deciding whether to spend real money litigating against a merchant with an Article 8 disclosure hole and a reconciliation record will often take a number it would have laughed at in 2018, because the alternative is eighteen months of its own capital tied up in a case it might lose outright under item 2. What the amendment did not do is abolish confessions of judgment, and if you live in New York your signed affidavit is still live paper. We cover exactly when it bites in our breakdown of whether a confession of judgment is enforceable in New York.

5. A Restraining Notice Is Why Timing Beats Argument

The single fastest thing that can happen to your cash in New York needs no judge. Under CPLR 5222(a), a restraining notice may be issued by the clerk of the court or by the judgment creditor’s attorney as an officer of the court. Under 5222(b), a garnishee served with one is restrained as to property it holds and property that later comes into its hands, it may stop withholding once it is holding twice the amount due on the judgment, and the notice runs for one year against a person other than the judgment debtor. It is a post-judgment device, which is the part that should shape your calendar: it does not exist while you are still pre-judgment.

There is a wrinkle that cuts against you and almost nobody mentions it. In Aspen Industries, Inc. v. Marine Midland Bank, 52 N.Y.2d 575 (1981), the Court of Appeals confirmed that a restraining notice creates no lien and that the bank’s own right of setoff is superior to it. If your operating bank is also holding your line of credit or your equipment note, the money in that account can be applied to the bank’s own paper ahead of the funder who served the notice. Two creditors, one balance, and you are not the one deciding the order.

So the sequencing lesson is unglamorous and expensive to ignore: the window in which restructuring is cheap closes when a judgment is entered, because after entry your funder’s next step costs it one letter signed by its own lawyer. If you are pre-judgment, that is the moment to have counsel engaged and a proposal moving. If a notice has already landed, that is a different and more urgent project, and the mechanics of it are broken out step by step on our page about the New York CPLR 5222 restraining notice.

6. The Voidable Transactions Act Cuts Both Ways

New York replaced its old fraudulent conveyance article with the Uniform Voidable Transactions Act, now Debtor and Creditor Law article 10, running from §270 through §281-A. Section 273(a) makes a transfer or obligation voidable as to a present or future creditor either where the debtor acted with actual intent to hinder, delay or defraud, or where the debtor got less than reasonably equivalent value while its remaining assets were unreasonably small for its business or it should have known it could not pay debts as they came due. Section 273(b) then lists eleven factors courts may consider on intent, among them transfers to an insider, retained control after the transfer, concealment, a suit already threatened, a transfer of substantially all assets, inadequate consideration, and insolvency around the time of the transfer.

The deadlines and the remedies matter as much as the test. Under §278, a claim under §273(a) must be brought within four years of the transfer or, if later, one year after it was or reasonably could have been discovered; a §274 claim against a present creditor gets four years; and the insider transfer described in §274(b) gets one year. Section 276 supplies the remedies, §276-A allows attorney’s fees in an action to avoid a transfer, and §277 protects a transferee who took in good faith for reasonably equivalent value. Section 273(c) puts the burden on the creditor, by a preponderance of the evidence.

This statute is on the list because it points both directions and business owners usually only hear about one. It is what a funder’s counsel reaches for the moment your equipment shows up on a new entity’s insurance certificate, and article 10 does not require anybody to prove you meant to cheat: the constructive prong needs only inadequate value and a thin balance sheet. It is also what you reach for when a broker or an affiliate stripped value out of your company on the way in. A restructuring that moves assets without independent counsel documenting value received is not a restructuring, it is a §273 exhibit.

7. Executive Law §63(12) and the AG’s Track Record

Executive Law §63(12) lets the Attorney General apply to the supreme court, in the name of the people of the State of New York, where a person engages in repeated fraudulent or illegal acts or otherwise shows persistent fraud or illegality in carrying on business, and it supports injunctive relief along with restitution and damages. There is no private right to bring a §63(12) claim, so this is not a cause of action you file. It is the reason certain funders behave differently in New York than they do in states where nobody has ever looked at their contracts.

The record is specific and it is public. In People v. Yellowstone Capital LLC, a consent order and judgment was entered in Supreme Court, New York County on January 16, 2025 under Index No. 450750/2024, totaling $1.065 billion, cancelling $534.5 million in outstanding debt and requiring $16.1 million in immediate restitution, covering more than 1,100 New York businesses and more than 18,000 nationwide, on allegations of rates running as high as 820% a year; the Attorney General announced it on January 22, 2025. In the Richmond Capital Group matter, the Attorney General won on liability in September 2023, a money judgment of approximately $77.3 million was entered on April 11, 2024, and on February 19, 2026 the Appellate Division, First Department vacated the monetary part of that judgment and remanded on restitution while otherwise affirming. The liability holding stands; the dollar number is back in play.

The newest filing is worth watching rather than relying on. The Attorney General sued Rapid Ruling and its founders on June 8, 2026, alleging that in the platform’s first three years roughly 3,000 arbitrations produced no appearance by the small business 97% of the time, with arbitrators ruling for the initiating funder in nearly all of them. Those are allegations and nothing has been proven. What all of this means for your file is narrow and useful: a funder already inside an enforcement record tends to price a quiet resolution differently, and a complaint you file with the Attorney General’s office creates a dated record that costs you nothing but time.

Who Should You Call? Our Top-Rated Business Debt Firms

One firm on this list works the entire lifecycle of a business debt file, from stopping the daily debits through attorney-led negotiation, UCC lien removal, and a signed release. The other two cover broader debt categories that often sit alongside the advances. Choose accordingly.