Can an MCA Funder Freeze Your Personal Bank Account? 6 Reviews of Ownership and Exemptions

No, not on the strength of a missed payment alone, and most MCA providers will not simply freeze your personal bank account without first going through legal proceedings. In fact, in order to collect, MCA providers must typically acquire a judgment first. Then, they will be entitled to freeze your assets, such as bank accounts.

Personal Guarantee Clause

Almost every (if not every) MCA agreement has a “personal guarantee clause,” which is a promise that you - personally - will cover the loan in the event the business doesn’t make a payment. The loan might start off as a business debt, but every personal guarantee blurs that line. If the MCA provider wins a judgment against you, they can begin garnishing your personal bank accounts.

In theory, an LLC or corporation shields you from creditors of the LLC or corporation. But with a personal guarantee, you give the MCA provider a direct pathway into your personal accounts.

The flip side matters too. If you signed no personal guarantee and no confession of judgment in your own name, the funder’s claim is against the business only. To get at your personal funds, it must prove fraud or break through a company veil. It’s a separate case.

Learn to read your contract. What you read in the ad is never quite as binding as what’s written in the contract. For instance, the Federal Trade Commission sued one funder - RCG Advances - in part because RCG publicly advertised “no personal guaranty” but then required owners to personally guarantee the “loans” anyway.

A Judgment Is a Court Order

A judgment is a court order that permits the winning party (a “judgment creditor”) to collect from the losing party (a “judgment debtor”). A judgment opens all the options you hear about - liens, levies, bank account freezes, wage garnishment, and so forth. Judgments typically are the result of a creditor filing a lawsuit and winning. It’s important to know that there are other ways that creditors might get a judgment.

There is also the confession of judgment. That is the promise you make up front, which lets a lender skip the trial and go right for the judgment. Many borrowers only find out about it when their bank accounts are frozen. Some folks will also get a judgment against them because they ignored the lawsuit, creating a so-called default judgment. The idea is that, by ignoring the lawsuit, you’ve opted not to defend yourself. But for many people, a lawsuit is the first notice of any problem.

On August 30, 2019, the state amended New York’s laws to prevent anyone from filing a confession of judgment against anyone not a New York resident (or against a business with no place of business in New York). This leaves business owners in the state still exposed.

If the lender hasn’t gotten a judgment yet, there is nothing legal about a bank account freeze. A nasty letter from the funder’s lawyer is not a judgment, and neither is a phone call. Unauthorized ACH debits may be disputed through your bank.

Joint and spouse accounts: Even if your spouse isn’t named in the lawsuit, joint bank accounts are normally accessible to judgment creditors. In common-law states, the judgment creditor generally cannot garnish an account not in the debtor’s name. Community property states such as California, Texas and Arizona are different: This is a complex area, but if you or your spouse owns property and live in a community property state, a creditor may be able to reach some of that property depending on the circumstances.

In New York, once a lender has a judgment, the lender’s lawyer can send your bank a restraining notice, and the bank freezes the account. It happens with no new court order and no judge ever looking at it again. A restraining notice is different from a levy: A restraining notice doesn’t turn over the money; it simply freezes the account. A subsequent order - the levy order - is necessary to direct the bank to turn over the money.

How long does it last? The notice binds the bank for up to one year after service, or until the debt is paid or the judgment is vacated, whichever happens first. And there’s a ceiling: if the bank has held onto twice the amount of the judgment, it no longer reaches your other money.

In California, by contrast, lenders need a court-issued writ of execution delivered to the sheriff or marshal, who serves the bank. In Texas, accounts holding only current wages are generally exempt from garnishment; Florida has a head-of-household exemption that may protect deposited wages. State rules have enough variation to make a search worthwhile.

What money is protected: You automatically get to keep Social Security, SSI, VA, Railroad Retirement and federal civil-service retirement benefits directly deposited in the two months before the account review (or the balance, if lower). That’s automatic, even if you don’t file any papers. That’s the case unless the order comes from the federal government or a state child-support agency. New York also protects a minimum balance, depending on where you live. For any other exempt money, you have 20 days from the postmark on the bank’s mailing of the notice to send back the bank’s exemption claim form. If the creditor doesn’t object to your claim within 8 days of the postmark on your claim form, the bank must give you back the funds.

If You Are Already Frozen

Find out who froze it and why. Call the bank, get a copy of the paperwork and find out who issued it. Find out whether the judgment came by default or confession of judgment. And finally, look at the bank statement over a two-month period before the levy. Is there any exempt deposit, such as Social Security, disability or veterans benefits? If so, get proof.

You have options. A default judgment may be vacated if service was improper or you have a meritorious defense. A confession of judgment might be invalid if the contract was unconscionable. Funders are often willing to settle for less even after judgment. And filing bankruptcy brings an automatic stay that halts the levy.

Avoid taking the money out of the bank and putting it somewhere else. That can be a fraudulent transfer if you took it out to keep it away from the creditor. A new bank account at another bank doesn’t solve the problem because the creditor can find that bank account and levy it too. So, the real fix is to address the lawsuit and the judgment.

A judgment doesn’t fade either. In New York, a money judgment is good for 20 years. In California, it is good for 10 years, but it can be renewed. In other states, five to twenty years is typical. There are a lot of ways to deal with this, but don’t count on time.