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

What California Law Actually Changes About Your File

Most of what a California business owner gets told about restructuring is either federal (bankruptcy) or borrowed from New York, where the merchant cash advance industry grew up and where most of the reported decisions live. Neither transfers cleanly. California caps interest through a constitutional provision that exempts almost every institutional lender operating here. California abolished the confession of judgment outright while New York merely restricted where one can be filed. California has a disclosure statute that predates New York’s and covers a different dollar band. If you are working from an out-of-state playbook, you are arguing points that do not exist here and missing the ones that do.

The seven laws below are the ones that change a business debtor’s position in a measurable way, meaning they either give you a defense worth money, cut off a collection route your funder was counting on, or open an exit that does not require a bankruptcy judge. They are ordered so the early ones are the ones you can act on in the next two weeks, using documents already in your file. Each one comes with the section number so your lawyer can pull it, and with the part nobody mentions: who it does not help, and what it costs to run.

One framing note before the list. Delancey Street is a business debt settlement company, not a law firm, and the negotiating we do runs alongside attorneys within our network who handle the litigation and the licensing research. When a statute below turns into an actual filing, that is their side of the table. What we can tell you is which of these seven arguments has moved a settlement number in the files we work, and that is not the same list a general commercial litigator would give you. If your funder has already sued, the overview at MCA defense lawyers in California covers the litigation posture; this page is about the statutes underneath it.

1. The $500,000 Disclosure Line at Fin. Code §22800

California put a commercial financing disclosure statute on the books before any other state did. Division 9.5 of the Financial Code, added by SB 1235 in 2018, makes a "provider" hand a set of disclosures to a "recipient" at the moment it extends a specific offer, and get the recipient’s signature on that disclosure before the deal closes. Two definitions decide whether your deal is inside it. Section 22800(d) defines commercial financing to include an accounts receivable purchase transaction, factoring, asset-based lending, a commercial loan, an open-end plan, and lease financing. Section 22800(n) defines a recipient as someone presented an offer equal to or less than $500,000. Above that number, the statute simply does not apply to you.

Section 22802(b) lists what has to appear: the total funds provided, the total dollar cost of the financing, the term or estimated term, the method and frequency and amount of payments, the prepayment policy, and the total cost expressed as an annualized rate. That last one is why the industry fought the rule for four years. Section 22804(c) suspended every provider’s duty to comply until the Commissioner’s regulations took effect, and the Department of Financial Protection and Innovation’s rules were approved by the Office of Administrative Law on June 9, 2022 and became effective December 9, 2022. An offer extended to you before that date carries no disclosure obligation at all, which is the first date to check on any file older than four years.

Then read §22801, because the exemptions are broad: depository institutions, Farm Credit lenders, any commercial financing secured by real property, certain dealer and vehicle-rental transactions of $50,000 or more, and a de minimis carve-out for a person doing one transaction in California in twelve months, or five or fewer that are incidental to its actual business. And Division 9.5 gives you no private right of action of its own. What it gives you is a documented statutory violation, which matters for reasons covered in item 7. Because a sibling page walks the failure modes line by line, we are not repeating them here: see MCA disclosure violations in California and the SB 362 breakdown.

2. Licensing, and the Section That Voids the Contract

Fin. Code §22100(a) is one sentence: no person shall engage in the business of a finance lender or broker without obtaining a license from the Commissioner. Section 22009 says a finance lender includes anyone in the business of making commercial loans, and §22004 says a broker includes anyone in the business of negotiating or performing any act as broker in connection with loans made by a finance lender. Those two definitions are doing real work, because they are keyed to loans. A person who genuinely buys receivables is not making a loan and does not need a CFL license, which is why the first eleven pages of your agreement insist repeatedly that this is a purchase and not a loan.

The reason the licensing question is worth chasing anyway sits at §22750. Subdivision (a) says that if any amount other than or in excess of the charges permitted by Division 9 is willfully charged, contracted for, or received, the loan contract is void and nobody has any right to collect or receive any principal, charges, or recompense. Subdivision (b) extends the same result to a willful violation of any provision of the division in the making or collection of a loan, and it says explicitly that this applies whether the violator is a licensee or an unlicensed person subject to the division. Void, and no right to principal. That is a remedy nothing in New York’s disclosure statute comes close to.

Which means the whole argument rides on recharacterization. If the advance is a loan, an unlicensed funder is exposed to §22750(b) and a licensed one is exposed to whatever else in Division 9 it violated. If the advance is a bona fide purchase of receivables, none of it applies and you are back to the disclosure and contract arguments. Two practical notes. The word "willfully" appears in both subdivisions and it is the defense every funder raises. And the DFPI’s licensee lookup is free and takes four minutes, so run the funder and the broker who placed the deal before you pay anyone to research the question.

3. Usury That Exempts Almost Every Lender You Will Meet

California’s interest cap is in the Constitution, at article XV, section 1, and it reads nothing like a modern statute. Absent a written contract the rate is 7 percent. Parties may contract in writing for up to 10 percent where the money is for primarily personal, family, or household purposes. For any other use, meaning every business advance, the ceiling is the higher of 10 percent per annum or 5 percent plus the rate the Federal Reserve Bank of San Francisco establishes on advances to member banks, measured on the 25th day of the month preceding execution or funding. On its face that is a hard cap in the low teens.

Then the same section lists the exempt classes, and the list swallows the rule: industrial loan companies, credit unions, banks, licensed pawnbrokers, personal property brokers, real estate brokers on loans secured by real property, agricultural cooperatives, and, critically, "any other class of persons authorized by statute." Fin. Code §22002 uses that clause on purpose. It says Division 9 creates a class of exempt persons pursuant to section 1 of article XV. A licensed California finance lender is therefore outside the constitutional cap entirely, and so is its successor in interest, because article XV extends the exemption to any successor to an exempted loan or forbearance.

So two doors have to be open before a California usury argument gets anywhere: the transaction has to be a loan rather than a genuine purchase of receivables, and the funder has to fall outside every exempt class. In the files we see, that combination is rare, and a New York style argument built on a flat criminal usury number does not translate. What does translate is the post-judgment arithmetic. Article XV caps judgment interest at 10 percent and Cal. Civ. Proc. §685.010(a) sets it there, with a 5 percent rate carved out only for a natural person’s personal debt under $50,000 or medical debt under $200,000. A commercial judgment against your company accrues at 10 percent, compounding your urgency by roughly your balance times a tenth every year you wait.

4. California Abolished the Confession of Judgment

Cal. Civ. Proc. §1132(a) now reads, in full: a judgment by confession is unenforceable and may not be entered in any superior court. That language arrived through SB 688 (Stats. 2022, ch. 851), signed September 29, 2022 and effective January 1, 2023, which also repealed §§1133 and 1134, the sections that had set out the procedure. Subdivision (b) preserves a judgment by confession obtained or entered before January 1, 2023, so the cutoff date is the whole inquiry on older paper. Before the repeal California allowed the device but required an independent attorney’s certificate, which is a detail worth knowing only because funders sometimes still cite it.

For a restructuring, the consequence is calendar time. A California funder that wants a judgment against your entity has to file a complaint, serve it, and either take a default or litigate, and every one of those steps is a week or a month you can use to negotiate, gather the disclosure and licensing facts from items 1 and 2, and decide whether to fight or fold. Funders know this, which is why the pressure shifts to the pre-suit phase: the demand letter, the default interest recital, the threat to notify your customers under U.C.C. §9-406, and the reconciliation request that gets denied.

The gap is that a confession entered somewhere else still travels. A judgment taken by confession in a state that permits them can be brought into California under the Sister State Money Judgments Act, and it arrives entered rather than filed, with a short clock attached. That mechanism, the deadlines, and what actually works against it are covered at whether a confession of judgment is enforceable in California, because it deserves its own page and not a paragraph.

5. The Voidable Transactions Act Behind Every Restructuring Plan

California enacted the Uniform Voidable Transactions Act at Civ. Code §3439 et seq. Section 3439.04(a) makes a transfer or obligation voidable as to a creditor two ways: with actual intent to hinder, delay, or defraud, or without receiving reasonably equivalent value while the business was engaging in a transaction for which its remaining assets were unreasonably small, or while it intended or should have believed it would incur debts beyond its ability to pay. Section 3439.05 adds a third route for creditors whose claims already existed: no reasonably equivalent value plus insolvency at the time or as a result.

Subdivision (b) then lists eleven factors courts weigh on actual intent, and reading them tells you exactly which restructurings get unwound. Whether the transfer went to an insider. Whether you kept possession or control afterward. Whether it was disclosed or concealed. Whether you had already been sued or threatened with suit. Whether it moved substantially all of your assets. Whether you were insolvent or became insolvent shortly after. And factor eleven, which is the OldCo to NewCo pattern written into the statute: whether the debtor transferred the essential assets of the business to a lienor that transferred the assets to an insider of the debtor.

We are not going to tell you how to structure around that list, and anyone who offers to should be shown the door. The reason to know §3439.04(b) is defensive. A restructuring worth paying for is built to be explainable against those eleven factors, with contemporaneous valuations, arm’s-length terms, and a paper trail showing what value came back into the company, because §3439.08(a) protects a transferee who took in good faith and for reasonably equivalent value and §3439.08(d) gives a good faith transferee a lien to the extent of the value it gave. Remedies under §3439.07 include avoidance, attachment, an injunction against further disposition, and appointment of a receiver over the transferee’s property, so the downside is not a damages award you can settle.

6. The Assignment for the Benefit of Creditors Nobody Offers You

A general assignment for the benefit of creditors is the California wind-down that never gets pitched, because there is no filing fee to mark up and no docket to point at. Cal. Civ. Proc. §493.010 defines it: an assignment of all of the assignor’s transferable, non-exempt assets, for the benefit of all creditors, that does not itself create a preference among them. You sign the business over to an assignee, who liquidates it and distributes the proceeds. There is no petition, no first-day hearing, and no judge whose calendar sets your closing date, which is the entire appeal for a company whose value is evaporating weekly.

The mechanics live at §1802. Within 30 days after the assignment has been accepted in writing, the assignee gives written notice to creditors, equityholders, and other parties in interest, working from a list you sign under penalty of perjury under subdivision (c). Subdivision (b) requires the notice to set a claims bar date not less than 150 days and not more than 180 days after that first notice goes out. Section 1800 lets the assignee recover preferences the way a bankruptcy trustee would, and Civ. Code §3439.07(d) lets the assignee use the voidable transaction remedies from item 5 on behalf of the creditors it represents.

From your funders’ side, an ABC ends the race, and that is precisely why it produces settlements. Once the assets are with an assignee, there is nothing left inside your entity to levy on, the daily debits have no account to hit, and the funders are negotiating with a fiduciary who owes them a pro rata distribution rather than with a founder they can pressure. What it does not do is discharge anything. It does not touch a personal guarantee, it leaves secured creditors’ liens intact, and it requires an assignee willing to take the file, which for a company with no unencumbered assets can be nobody. It also puts your conduct as a director of an insolvent company under a microscope, so this is a decision made with counsel and not from a blog post.

7. Section 17200 Reaches One Business Suing Another

Bus. & Prof. Code §17200 defines unfair competition as any unlawful, unfair, or fraudulent business act or practice, plus unfair, deceptive, untrue, or misleading advertising. Business owners assume the unfair competition law is a consumer statute. It is not limited that way. Section 17201 defines "person" to include corporations, firms, partnerships, joint stock companies, associations, and other organizations of persons. Section 17204 gives standing to a person who has suffered injury in fact and has lost money or property as a result of the unfair competition. Your LLC that paid $180,000 in daily debits on a $100,000 advance has lost money, and it is a person.

The prong that matters here is "unlawful," which borrows a violation of some other law and makes it independently actionable. That is the bridge from item 1. Division 9.5 hands you a documented disclosure violation and no private remedy; §17200’s unlawful prong is where a private remedy can come from. It runs the other direction too: Fin. Code §22161(a)(5) makes engaging in an act that violates §17200 a violation of the California Financing Law in its own right, which folds the regulator back into the picture for a licensee.

Now the limits, because they are real and a lawyer who skips them is selling you something. Section 17203 authorizes injunctions and orders restoring money or property acquired through the unfair practice. That is restitution, not damages, and no jury. Section 17208 gives you four years from accrual. Section 17206’s $2,500 per violation civil penalty is recoverable only by the Attorney General, a district attorney, or specified city attorneys, so it is not yours to collect, though it is a genuine motivator when a regulator is already looking. And §17205 confirms these remedies stack with everything else, which is the point: §17200 is rarely the whole case and frequently the count that survives a demurrer while the others get trimmed.

Two Contract Sections That Change the Settlement Paper

Your funding agreement almost certainly contains a one-way attorney fee clause: if the funder enforces, you pay its fees, and there is no reciprocal right. Cal. Civ. Code §1717(a) rewrites that. In any action on a contract that specifically provides for fees incurred to enforce it, whichever party prevails on the contract gets reasonable fees, whether or not that party is the one named in the clause. The same subdivision makes any provision purporting to waive §1717 fees void. The practical effect is that a funder filing a weak collection case in California is exposed to your fees, and that exposure is a number it has to price into a settlement.

Note §1717(b)(2) before you get excited: where an action is voluntarily dismissed, or dismissed pursuant to a settlement, there is no prevailing party for fee purposes. That is exactly why a funder facing a real defense dismisses rather than losing, and why a settlement agreement that is silent on fees leaves your fees where they fell.

The second section shows up in the release your funder will send you. Cal. Civ. Code §1542 provides that a general release does not extend to claims the releasing party does not know or suspect to exist and that, if known, would have materially affected the settlement. That is why a competent funder’s release includes an express §1542 waiver, and why an incompetent one does not. Read for it. What you waive knowingly on a settled file is a business decision; what you waive by signing boilerplate on a disclosure or licensing claim you had not yet investigated is a loss you will not find out about for two years.

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.