8 Things MCA Funders Can (And Can’t) Do When You Stop Paying

Who Should You Call? Our Top-Rated MCA Settlement Firms

If an MCA funder is coming after you — or if you’ve stopped paying and you’re waiting for the other shoe to drop — you need a firm that understands both the legal landscape and the negotiation dynamics. Here are the three firms we recommend, ranked by expertise, results, and client outcomes.

1. They CAN File a UCC Lien Against Your Business

This is usually the first thing that happens. When you signed your MCA agreement, you almost certainly authorized a UCC-1 financing statement — a lien filed with your state’s Secretary of State that gives the funder a security interest in your business assets. Under Article 9 of the Uniform Commercial Code, this lien attaches to “all assets” of your business, including receivables, equipment and inventory.

Here’s the thing: the UCC lien itself doesn’t seize anything. It’s a public notice that the funder has a claim. But it can wreck your ability to get new financing, open business credit lines, or work with certain vendors who run lien searches. And if the funder combines the UCC lien with an information subpoena and restraining notice, they can freeze your bank accounts and redirect payments from your customers.

The good news? UCC liens can be challenged, negotiated down, or removed as part of a settlement. An experienced MCA defense attorney can file a motion to vacate or negotiate a lien release as part of a structured resolution.

2. They CAN Use a Confession of Judgment (But It’s Now Limited)

Confessions of judgment — or COJs — were the MCA industry’s nuclear weapon. When you signed your MCA contract, you may have also signed a COJ: a pre-signed legal document that lets the funder walk into court, file a judgment against you, and start collecting — without ever notifying you or giving you a chance to defend yourself. No hearing. No trial. Just a rubber stamp.

But here’s the critical update: In August 2019, Governor Cuomo signed New York Senate Bill S6395, amending CPLR §3218 to ban the filing of confessions of judgment against out-of-state defendants. This was a direct response to a Bloomberg Businessweek exposé (“Sign Here to Lose Everything”) that exposed how MCA funders were filing COJs in New York courts against small business owners in Texas, Florida, California — states where they had no connection to New York whatsoever.

If your business is located outside New York, a COJ filed against you in a New York court after August 30, 2019, is almost certainly unenforceable. Even for in-state defendants, COJs can be challenged if the funder failed to follow proper procedures or if the underlying MCA is recharacterized as a usurious loan.

3. They CAN Sue You in Civil Court

If a funder can’t use a COJ (or if you’re outside New York), they can still sue you the old-fashioned way — by filing a breach-of-contract action in civil court. They’ll typically allege that you breached the MCA agreement by failing to remit the agreed-upon percentage of receivables or by diverting revenue away from the split account.

But here’s where it gets interesting: if the MCA is structured as a true purchase of future receivables (not a loan), then non-payment alone may not constitute a breach. Courts in New York, including the landmark Champion Auto Sales v. Pearl Beta Funding and Colonial Funding Network v. Epazz decisions, have held that if a business legitimately has no revenue, the funder’s purchased “percentage of future receivables” is simply zero — and the merchant hasn’t breached anything.

The real legal question is whether the MCA agreement includes a reconciliation provision and whether repayment is truly contingent on revenue. If the court determines the MCA is actually a loan in disguise, usury defenses under state law (including N.Y. Penal Law §190.40 for criminal usury and N.Y. Gen. Oblig. Law §5-501 for civil usury) may come into play — potentially voiding the entire agreement. (NY Senate — GOB §5-501 (Usury)) (NY Senate — Penal Law §190.40)

4. They CAN Enforce a Personal Guarantee

Most MCA agreements include a personal guarantee signed by the business owner. This means the funder isn’t just coming after your LLC or corporation — they’re coming after you personally. Your home equity, personal bank accounts, vehicles and other non-business assets could all be on the table if the funder obtains a civil judgment.

That said, personal guarantees have limits. If the guarantee is “limited” (capped at a specific dollar amount), the funder can only pursue up to that cap. If it’s “unlimited,” you’re exposed for the full outstanding balance plus fees and legal costs. Many business owners sign unlimited guarantees without realizing the full scope of their personal exposure.

Even with an unlimited guarantee, enforcement requires a judgment. The funder can’t just show up and take your car. They need to file a lawsuit, win (or use a valid COJ), and then pursue post-judgment remedies like bank levies or property liens. This process takes time — and it’s exactly the window where a skilled settlement attorney can negotiate a resolution for significantly less than the full balance.

5. They CANNOT Have You Arrested or Criminally Prosecuted

This is the single most important thing to understand: defaulting on a merchant cash advance is not a crime. Period. No MCA funder, no matter how aggressive, can have you arrested, charged or imprisoned for failing to repay a commercial debt. Debtor’s prison was abolished in the United States in 1833 under federal law, and the practice is prohibited by the Equal Protection Clause of the 14th Amendment.

Yet aggressive collection agents routinely imply criminal consequences during phone calls. They may say things like “this could be considered fraud” or “we’re going to refer this to the district attorney.” These are scare tactics — nothing more. Under the Fair Debt Collection Practices Act (FDCPA, 15 U.S.C. §1692e), threatening criminal prosecution to collect a commercial debt is itself a violation of federal law. (FTC — Fair Debt Collection Practices Act) (FTC — Debt Collection FAQs)

The narrow exception: if a funder can prove you committed actual fraud — for example, fabricating financial statements to obtain the advance, or opening the MCA with the premeditated intent never to repay — that’s a separate matter. But garden-variety default? Not a crime. Not even close.

6. They CANNOT Garnish Your Wages Without a Court Judgment

Wage garnishment is a post-judgment remedy — meaning the funder must first sue you, win the case (or obtain a valid default judgment), and then petition the court for a garnishment order. No shortcut exists. An MCA funder cannot simply call your employer or payroll company and demand they withhold a portion of your paycheck.

Even after obtaining a judgment, garnishment is subject to strict state and federal limits. Under federal law (the Consumer Credit Protection Act, 15 U.S.C. §1673), wage garnishment is capped at 25% of disposable earnings or the amount by which weekly earnings exceed 30 times the federal minimum wage — whichever is less. Many states impose even tighter caps. Texas, Pennsylvania, North Carolina, and South Carolina, for example, prohibit most wage garnishment for commercial debts entirely.

Here’s the thing that most business owners miss: MCA agreements are commercial contracts, not consumer debt. The FDCPA technically applies only to consumer debts — but many states have their own unfair-practices statutes (like New York’s GBL §349) that extend protections to commercial debtors. An attorney who understands this landscape can exploit procedural deficiencies and potentially block garnishment attempts altogether. (FTC — Fair Debt Collection Practices Act) (FTC — Debt Collection FAQs)

7. They CANNOT Seize Assets Without Due Process

Despite what aggressive funders imply, they cannot send someone to your business to repossess equipment, empty your cash register, or padlock your doors. Self-help remedies — where a creditor takes your property without going through the court system — are illegal in virtually every state for this type of commercial dispute. The Due Process Clause of the 5th and 14th Amendments requires judicial process before the government (or a private party using government power) deprives you of property.

What funders can do is use the court system to obtain a restraining notice (in New York, under CPLR §5222) or a bank levy to freeze and then seize funds in your business bank account. They can also obtain a turnover order requiring you to hand over specific assets. But every one of these steps requires a court proceeding — and each one gives you an opportunity to respond, object or negotiate. (NY Senate — CPLR §5222)

If an MCA funder or a third-party collector shows up at your business demanding cash, equipment, or access to your accounts without a court order, call the police. That’s not debt collection — it’s potentially extortion or trespass, and it’s a criminal matter.

8. They CANNOT Ignore a Valid Settlement Offer

Here’s the one most business owners don’t realize: MCA funders settle. They settle all the time. In fact, most MCA disputes never go to trial. The reason is simple economics — litigation is expensive, enforcement is uncertain, and a funder holding a $200,000 position would rather recover $80,000–$120,000 quickly than spend $50,000+ in legal fees chasing a business that may have no assets left to collect on.

An attorney-led settlement firm like Delancey Street knows these dynamics cold. They’ve seen the playbook. They know that most MCA funders will negotiate a 30–60% reduction if approached correctly — with a credible attorney who understands the funder’s risk calculus, the weakness of their contract terms, and the jurisdictional limits on their enforcement tools.

The key is timing. Once a funder files a lawsuit and obtains a judgment, your leverage drops significantly. Before that happens, you have maximum negotiating power — especially if your attorney can identify defects in the MCA agreement (lack of reconciliation, effective usury, improper COJ, or fraudulent inducement). Bottom line: don’t wait. The earlier you engage a settlement professional, the more leverage you have and the less you’ll pay.

Who Should You Call? Our Top-Rated MCA Settlement Firms

If an MCA funder is coming after you — or if you’ve stopped paying and you’re waiting for the other shoe to drop — you need a firm that understands both the legal landscape and the negotiation dynamics. Here are the three firms we recommend, ranked by expertise, results, and client outcomes.