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MCA default judgments show up through two mechanisms — and both of them strip you of your constitutional right to due process.
Confessions of Judgment (COJs): Many MCA contracts contain a clause where you pre-authorize a judgment against yourself. When the funder claims a default, they file the COJ directly with the court clerk — no lawsuit, no hearing, no notice to you. The judgment is entered immediately. You find out when your bank account is frozen. That is how it works. New York reformed this practice in 2019, amending CPLR §3218 to prohibit enforcement of COJs against out-of-state borrowers — but many funders continue to file them illegally.
Sewer Service: When a funder files an actual lawsuit rather than a COJ, they must serve you with the summons and complaint. “Sewer service” is when the process server falsely claims to have delivered the papers. The server files a fraudulent affidavit of service, the lawsuit proceeds without your knowledge, and a default judgment enters when you fail to appear within the 20- or 30-day answer period. This is not rare — a New York Times investigation documented widespread sewer service fraud in debt collection cases.
Here is the truth — New York law gives you three powerful weapons to vacate a default judgment. A sharp MCA defense attorney will figure out which one gives you the strongest shot — and in many cases, will fire all three at once.
CPLR §317 — Lack of Actual Notice: This is the strongest weapon for business owners who never received the summons and complaint. Under CPLR §317, if you were served by any method other than personal delivery — substituted service, nail-and-mail, service on the Secretary of State — and you did not actually receive notice in time to defend, the court must allow you to defend on the merits. You just need to show a meritorious defense. You do not need to show a “reasonable excuse” for the default. Lack of actual notice is enough. Period. The motion must be filed within one year of learning about the judgment and within five years of entry.
CPLR §5015(a)(1) — Excusable Default: If CPLR 317 does not apply — say you were personally served but did not understand the documents — CPLR §5015(a)(1) allows vacatur based on “excusable default.” You show two things: a reasonable excuse for not responding (illness, language barrier, reliance on funder’s oral promise not to sue) and a meritorious defense. File within one year of service of the judgment with notice of entry. Courts apply a liberal standard here — they want to decide cases on the merits, not on technicalities.
CPLR §5015(a)(4) — Lack of Jurisdiction: If the court never acquired personal jurisdiction over you — because service was never completed, the summons was defective, or you have zero connection to the forum state — the judgment is void. It can be vacated at any time. No time limit. None. A void judgment has no legal effect regardless of how long it has been sitting there. This is the nuclear option for out-of-state business owners targeted by MCA funders who file in New York courts without a proper jurisdictional basis.
You just found out about a default judgment. Your accounts are frozen. Payroll is due. You cannot wait. Your attorney files an Order to Show Cause (OTSC) with the court — and this is the emergency brake. The OTSC asks the judge to (1) temporarily stay all enforcement — bank levies, garnishments, liens — and (2) schedule a hearing on your motion to vacate. The judge reviews the OTSC on an emergency basis — typically the same day or next business day — and signs the temporary stay if the application shows merit.
The OTSC must include: your affidavit explaining why you never appeared, evidence supporting your claim (proof you were out of state on the date of alleged service, a meritorious defense such as usury or contract unconscionability, and any documentation of sewer service), and a proposed order. The funder then gets an opportunity to oppose the motion, and the court holds a hearing.
If the court grants the motion to vacate, the default judgment is erased — and the case starts fresh. Now you fight on your terms. You assert defenses: usury, reclassification of the MCA as a loan, unconscionability, fraud in the inducement, breach of the reconciliation provision. Here is the reality — most funders fold at this point. They settle rather than litigate on the merits. Their contracts cannot survive judicial scrutiny — and they know it.
To challenge the affidavit of service, you need to prove you were never actually served. This is how you win that fight:
Location Evidence: GPS data from your phone, credit card receipts showing you were elsewhere, airline boarding passes, hotel records, or EZ-Pass records that prove you were not at the address listed in the affidavit on the date and time of alleged service.
Physical Description Discrepancies: Process servers must describe the person they served. If the affidavit describes someone who does not match your age, gender, height, weight, or appearance, this is strong evidence of fraudulent service.
Building Records: If the affidavit claims service at your business address, obtain security camera footage, building access logs, or receptionist records showing no process server visited. Many commercial buildings maintain visitor logs that can disprove service claims.
Process Server History: Some process servers have documented histories of fraudulent filings. Your attorney will research whether the specific server has been sanctioned, investigated, or named in other sewer service challenges. The New York Department of State maintains licensing records for process servers. A server with a history of fraud is devastating evidence in your favor.
Vacating the default judgment does not make the underlying MCA debt disappear — but it puts you back in the fight. And that changes everything. Once the judgment is vacated, your attorney files an answer and counterclaims. The defenses hit hard: the MCA should be reclassified as a criminally usurious loan, the funder breached the reconciliation provision by taking fixed daily payments, the contract was unconscionable, the funder engaged in fraud. The Yellowstone Capital $1 billion settlement proved that MCA contracts are increasingly vulnerable to legal challenge.
Here is the reality — most funders prefer to settle once a default judgment is vacated. Litigation is expensive and unpredictable, and the funder now faces a defendant with legal representation asserting meritorious defenses. Settlement in the range of 30–60 cents on the dollar is common at this stage.
If you are an out-of-state business owner and the default judgment was filed in New York — where the vast majority of MCA judgments are entered — you have additional protections. And they are powerful. The 2019 amendment to CPLR §3218 prohibited enforcement of confessions of judgment against defendants who are not New York residents at the time the COJ is filed. If the funder obtained a COJ-based judgment against you after August 2019 and you were not a New York resident, the judgment is voidable as a matter of law. Period.
Even for judgments based on lawsuits rather than COJs, out-of-state defendants can challenge personal jurisdiction. Under the Due Process Clause of the Fourteenth Amendment, a court must have personal jurisdiction over you before entering a valid judgment. For out-of-state defendants, that requires “minimum contacts” with the forum state — and the MCA agreement alone is often not enough to establish New York jurisdiction, especially if your business has no physical presence, employees, or customers in the state.
If the court lacked personal jurisdiction, the judgment is void and can be vacated under CPLR §5015(a)(4) at any time — there is no statute of limitations. This is a particularly powerful defense for business owners who discover old default judgments that have been sitting there for years.
Both CPLR 317 and CPLR 5015(a)(1) require you to show a “meritorious defense” to the underlying MCA claim. This does not mean you must prove you will win — only that you have a defense that, if proven, would change the outcome. The bar is lower than most people think. Here are the meritorious defenses that win MCA cases:
Usury/Reclassification: If the MCA contract imposed fixed daily payments with no genuine reconciliation, it is reclassifiable as a loan subject to New York’s usury laws (civil usury cap of 16%, criminal usury cap of 25%). An MCA with a factor rate of 1.4 on a 6-month term carries an effective APR of approximately 150% — far exceeding any state usury cap. The Yellowstone Capital $1 billion settlement established that MCA reclassification is a viable legal theory.
Unconscionability: If the MCA terms were so one-sided that no reasonable person would agree to them — hidden fees, unreasonable default provisions, waiver of virtually all legal rights — the contract is unconscionable and therefore unenforceable.
Breach by the Funder: If the funder breached the MCA agreement first — failing to reconcile payments, debiting amounts in excess of the agreed percentage, violating any covenant — their breach excuses your performance. They broke the deal first. That matters.
Fraud in the Inducement: If the funder or broker made material misrepresentations to induce you to sign the MCA (e.g., misrepresenting the total repayment amount, concealing fees, or promising reconciliation they never intended to provide), the contract may be voidable for fraud.
These deadlines are non-negotiable. Miss one and you may permanently lose the ability to vacate the judgment. There is no second chance.
A default judgment does not just threaten your bank account. It destroys everything — your credit, your banking relationships, your ability to operate. Once you see the full scope of the damage, one thing becomes obvious — vacating this judgment is not optional. It is essential.
Credit Reporting: Default judgments show up on your personal credit report (if a personal guarantee was involved) and your business credit profile. The three major consumer bureaus stopped including civil judgments in 2017 — but business credit agencies (Dun & Bradstreet, Experian Business, Equifax Business) still report them. A default judgment can drop your business credit score by 100+ points. It can sit there for up to 7 years.
Bank Account Freezes: Once the judgment creditor finds your bank, they serve an execution with notice under CPLR §5222. The bank freezes your account — typically within 24 hours. You cannot access a single dollar until the freeze is resolved, which can take weeks. No payroll. No rent. No way to keep the lights on.
Property Liens: In New York, a money judgment automatically becomes a lien on any real property you own in the county where the judgment is entered, and it can be docketed in other counties to create liens on property there as well. This prevents you from selling or refinancing the property until the judgment is satisfied or vacated.
Wage Garnishment: For individuals who signed personal guarantees, the judgment creditor can obtain an income execution to garnish up to 10% of your gross income or 25% of your disposable earnings (whichever is less) under CPLR §5231. This continues until the judgment is paid in full or vacated.
Future Financing: A default judgment makes it virtually impossible to get any form of business financing. Banks, SBA lenders, equipment financing companies — even vendors who extend trade credit — will see the judgment on a background check and decline. There is no workaround. Vacating the judgment is the only way to restore your borrowing capacity.
Yes, fighting costs money. But here is what you need to understand — the math almost always favors fighting.
Court Filing Fees: The fee for filing an Order to Show Cause in New York Supreme Court is approximately $45–$95 depending on the county and the type of motion. In New York City Civil Court, filing fees are lower. These are minimal compared to the cost of leaving the judgment in place.
Attorney Fees: Most MCA defense attorneys who handle default judgment vacatur work on a contingency or flat-fee basis. Typical flat fees for a motion to vacate range from $2,500 to $7,500 depending on complexity. Some firms — like Delancey Street — roll the cost of the motion into a broader MCA defense engagement with no upfront fees. You pay only when results are delivered.
Process Server Investigator: If you are challenging sewer service, you will likely need a licensed private investigator to gather evidence — security footage, witness statements, process server history. This typically costs $500–$2,000.
Return on Investment: Do the math. You have a $75,000 default judgment. Your attorney vacates it and negotiates a settlement at 40 cents on the dollar — $30,000. You just saved $45,000 minus attorney fees. The numbers speak for themselves.
Most MCA default judgments are filed in New York state courts. But some land in federal court under diversity jurisdiction — when the parties are from different states and the amount exceeds $75,000. The vacatur process in federal court is different — and you need to know the distinction.
In federal court, Federal Rule of Civil Procedure 55(c) allows the court to set aside a default judgment in accordance with Rule 60(b). The most commonly invoked grounds are Rule 60(b)(1) (excusable neglect or good cause), Rule 60(b)(4) (void judgment due to lack of jurisdiction), and Rule 60(b)(6) (any other reason justifying relief). Federal courts generally follow the same liberal policy favoring determination on the merits.
The Second Circuit (which covers New York, Connecticut, and Vermont) applies a three-factor test for vacating default judgments: (1) whether the default was willful, (2) whether the defendant has a meritorious defense, and (3) whether the plaintiff would be prejudiced by vacatur. This test is broadly similar to the New York state court analysis but uses different terminology and case law. An experienced MCA defense attorney will know which court system applies to your case and the specific standards in that jurisdiction.
Once the default judgment is vacated, you are not limited to playing defense. This is where you go on offense. Your attorney fires counterclaims against the MCA funder — counterclaims that put money back in your pocket. Here is what that looks like:
Fraud: If the funder or broker made material misrepresentations about the MCA terms — the factor rate, total repayment amount, reconciliation process, or consequences of default — you have a fraud counterclaim. Damages include compensatory damages, consequential damages, and in egregious cases, punitive damages.
Unjust Enrichment: If the MCA is reclassified as a usurious loan, any payments you made above the principal amount may be recoverable as unjust enrichment. For a $50,000 advance where you already paid $40,000 before the default, reclassification could mean the funder owes you the excess.
UDAP Violations: Most states have unfair and deceptive acts and practices (UDAP) statutes that provide treble damages and attorney fees for deceptive business practices. An MCA funder who uses sewer service, files improper COJs, or threatens collection actions they know are illegal is liable under your state’s UDAP statute.
GBL §349: In New York, General Business Law §349 prohibits deceptive consumer-oriented conduct. If the MCA funder’s conduct constitutes a deceptive practice, this statute provides for treble damages up to $1,000 and attorney fees. While the “consumer-oriented” requirement limits its applicability in some MCA cases, courts have applied it to small business financing disputes.
These counterclaims do two things at once — they put money back in your pocket and they dramatically increase the funder’s litigation risk. That combination forces settlement on your terms. This is how you win.
While your attorney fights to vacate the default judgment, you cannot just sit there. You need to protect your business right now — today.
Open a New Bank Account: If your primary bank account has been frozen or levied, open a new account at a different bank immediately. Direct all incoming payments — customer checks, credit card deposits, wire transfers — to the new account. The judgment creditor will eventually discover this account, but it buys you the time needed for the OTSC to be filed and the stay to be granted.
Notify Critical Vendors: If the judgment creditor has sent restraining notices to your customers or vendors under CPLR §5222, notify those parties that you are moving to vacate the judgment and request that they continue business relationships pending the outcome. Many vendors will work with you if you communicate proactively.
Preserve All Evidence: Gather and preserve everything related to the MCA, the default, and the judgment — the original MCA agreement, all correspondence with the funder, bank statements showing all payments made, the judgment itself, any enforcement papers served on you or third parties, and evidence of how you discovered the judgment. Do not destroy any documents. Even documents that seem harmful to your case are relevant to your defenses.
Do Not Ignore New Lawsuits: Some funders file additional lawsuits while the vacatur motion is pending. If you receive any new legal papers, forward them to your attorney immediately. Ignoring new lawsuits while fighting an old default judgment will only create additional problems.
Document Damages: Keep records of every business opportunity lost, every loan denied, every customer or vendor who walked away because of the judgment. These records support both the urgency of the vacatur motion and any counterclaims or damages claims you may assert against the funder.
The New York Attorney General’s $1 billion settlement with Yellowstone Capital changed everything for MCA default judgments. The investigation revealed systemic abuse — funders filing thousands of COJs against out-of-state borrowers, using sewer service to obtain default judgments, and employing aggressive collection tactics against businesses and individuals who never received notice of the lawsuits.
Post-Yellowstone, the tide turned. Courts are more skeptical of MCA funders and more sympathetic to borrowers fighting to vacate default judgments. Judges in New York City — where most MCA cases are filed — are now alert to the patterns of abuse. This shift makes motions to vacate more likely to succeed and settlement negotiations more favorable for you.
The Yellowstone precedent also created additional grounds for challenging MCA contracts on the merits. If your MCA was originated by a funder that participated in the practices documented in the Yellowstone investigation — or that uses similar practices — your attorney can cite the investigation as evidence of industry-wide deceptive conduct. This strengthens both the vacatur motion (by establishing the funder’s pattern of misconduct) and the underlying defense (by supporting reclassification and fraud claims).
And the 2019 CPLR §3218 amendment that banned out-of-state COJs was a direct result of the Yellowstone investigation. If your default judgment was based on a COJ filed against an out-of-state borrower after August 2019, it is automatically voidable — and the post-Yellowstone regulatory environment means courts are actively enforcing this prohibition.
Knowing what not to do is just as important as knowing the right steps. These mistakes will kill your motion to vacate:
Waiting Too Long: Time limits for CPLR 317 and 5015(a)(1) are strict. Every day you delay after discovering the judgment reduces your window. If you learn about the judgment, contact an attorney immediately — even if it is a weekend or holiday.
Making Partial Payments: Some business owners try to negotiate with the judgment creditor by making partial payments. This is a mistake. It can be interpreted as an acknowledgment of the judgment’s validity and will weaken your motion to vacate. Do not make any payments without consulting an attorney first.
Contacting the Funder Directly: Anything you say to the funder can and will be used against you. If you admit you received the summons, apologize for not responding, or acknowledge the debt amount — those statements will undermine your CPLR 317 (lack of notice) or 5015(a)(1) (excusable default) arguments. Let your attorney handle all communications.
Filing a Pro Se Motion: You have the right to represent yourself. But motions to vacate default judgments require specific legal knowledge, proper formatting, supporting affidavits, and compliance with court rules. A poorly drafted motion gets denied — and that denial will likely preclude a second attempt. The stakes are too high. Do not try this alone.
Ignoring the Underlying Defense: A motion to vacate requires demonstrating a “meritorious defense.” Some business owners focus entirely on the procedural arguments (lack of notice, improper service) and neglect to articulate their substantive defense. Your attorney must present both — the reason you did not appear and the defense you would have raised had you known about the lawsuit.
Failing to Request a Stay: The OTSC should always include a request for a temporary stay of enforcement. Without it, the judgment creditor can continue freezing accounts, garnishing wages, and seizing assets while your motion is pending. An experienced attorney will ensure the stay request is properly included and supported.
MCA default judgments can be filed in several different court systems, each with its own procedures and rules:
New York Supreme Court: The primary venue for MCA judgments exceeding $25,000. Motions to vacate are filed by Order to Show Cause. The judge reviews the OTSC on an ex parte basis and typically signs it with a temporary stay within 1–2 business days. The opposing party then has a set period (usually 7–14 days) to submit opposition papers, followed by a hearing.
New York City Civil Court: Handles claims up to $25,000. Similar procedures but typically faster. Civil Court judges see a high volume of debt collection cases and are generally familiar with MCA-specific issues.
Small Claims Court: Some smaller MCA claims may end up in small claims court. Procedures are simplified, attorneys are often not required, and the rules of evidence are relaxed. But default judgments from small claims court are still enforceable and must be vacated through formal motion practice.
Other State Courts: While New York is the primary venue, MCA default judgments can be filed in any state where the funder can establish jurisdiction. Each state has its own version of the motion to vacate (many are based on the same Uniform rules), with different time limits and standards. Your attorney must be familiar with the specific court system where the judgment was entered.
Vacating the default judgment is only step one. Now you need to clean up the wreckage — your credit, your banking relationships, your reputation. Once the judgment is vacated, here is exactly what to do:
Obtain the Order: Get certified copies of the court order vacating the judgment. You will need these for credit reporting disputes and for any third parties who became aware of the judgment.
File a Satisfaction or Vacatur Notice: Ensure the vacatur is properly reflected in the county clerk’s records. Your attorney should file the order with the clerk’s office so that any public record search shows the judgment as vacated.
Dispute Credit Report Entries: Send copies of the vacatur order to all three personal credit bureaus (Equifax, Experian, TransUnion) and all business credit bureaus with a dispute letter requesting removal of the judgment entry. Under the Fair Credit Reporting Act (FCRA), credit bureaus must investigate and remove inaccurate information within 30 days.
Notify Banks and Vendors: If the judgment caused bank account closures, vendor credit denials, or other business disruptions, send copies of the vacatur order to affected parties and request reinstatement of your accounts and credit terms.
Monitor Ongoing: Check your personal and business credit reports monthly for 6–12 months after vacatur to ensure the judgment does not reappear. Some creditors or collection agencies may attempt to re-report a vacated judgment, which is a violation of the FCRA.
You just found a judgment you never knew existed. You need someone who fights this battle every day. Only Delancey Street provides dedicated MCA defense — emergency OTSC filings, sewer service challenges, CPLR 317/5015 motions. This is what they do. The other two handle broader categories of business debt and can complement a dedicated MCA defense strategy.
The only firm on this list that files emergency Orders to Show Cause, challenges sewer service, and coordinates full CPLR 317/5015 motions through a nationwide attorney network. When you discover an MCA default judgment you never knew about, Delancey Street moves within days — staying enforcement, challenging the judgment, and building your defense on the merits. Over $100M in MCA and business debt settled. No upfront fees. All 50 states.
Their attorney network has deep expertise in New York court practice — where the vast majority of MCA default judgments are filed. That includes challenging COJs filed against out-of-state borrowers in violation of the 2019 CPLR §3218 reform and exposing sewer service through forensic evidence gathering.
Here is what makes them different — they understand that time is the enemy when you discover an unknown default judgment. Their attorneys prepare and file an OTSC within 48 hours of engagement, and they coordinate all aspects of the defense simultaneously: obtaining the stay, gathering sewer service evidence, preparing the merits defense, and beginning settlement negotiations. This parallel approach produces faster results than the sequential approach used by general practice attorneys unfamiliar with MCA cases.
Not an MCA defense specialist. National Debt Relief handles general unsecured business debt — credit cards, vendor accounts, lines of credit. They do not file motions to vacate default judgments, challenge sewer service, or handle CPLR proceedings.
But if your debt extends beyond MCAs — credit card balances, vendor debts, lines of credit — National Debt Relief can address the non-MCA portion alongside a dedicated MCA defense firm like Delancey Street. Their A+ BBB rating and 550,000+ client track record speak for themselves.
Not an MCA defense specialist. CuraDebt handles business debt and IRS/state tax resolution. They do not file motions to vacate judgments or handle court proceedings.
But here is where they fit in — if the default judgment has led to IRS complications or tax liens (for example, the frozen bank account prevented you from making payroll tax deposits), CuraDebt can address the tax side while Delancey Street handles the MCA judgment vacatur and defense. Their 25+ years of experience in tax resolution make them a strong complement to specialized MCA defense.
If you are fighting an unknown MCA default judgment, these related guides cover issues that frequently come up alongside your case:
Fighting a Personal Guarantee on an MCA — If the default judgment is based on a personal guarantee, understanding guarantee scope, defenses, and limits can change the calculus of your case.
Challenging an MCA With No Reconciliation — The strongest meritorious defense in many MCA cases is reclassification as a usurious loan based on the absence of genuine reconciliation.
MCA Funder Won’t Release UCC Lien — If the funder holds both a default judgment and an unreleased UCC lien, both must be addressed as part of a full defense strategy.
Stopping MCA Wage Garnishment — If the default judgment has led to wage garnishment, vacating the judgment stops the garnishment and may require return of amounts already garnished.
Every day without action means continued enforcement — frozen accounts, garnished wages, damaged credit. The clock is ticking.
Delancey Street’s attorney network files emergency motions to vacate MCA default judgments, challenges sewer service, and negotiates settlements for 30–60% off. Over $100M settled. Free consultation. Call now.
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