Kansas MCA Debt Relief Lawyers: 5 Priorities for an Operating Business

A business facing MCA debt has a stressful mix of high urgency and all-too-common legal vulnerabilities. A business owner with merchant cash advance debt often tries to act quickly, and hire counsel right away. The first priority is to know which phase the debt is in: Perhaps the firm is just making its usual ACH payments; Or in default, getting phone calls; Or, there may be a pending suit or judgment; Or in the worst case, a pending levy. Other priorities include keeping operating cash safe, without moving funds in panic; gathering the agreement and payment records; testing the legal defenses; and choosing counsel and seeing the whole picture.

What Stage of the Process Is My Debt In

The different windows come up fast, starting after the daily withdrawals stop and the funder declares a default. The next phase might be a lawsuit and judgment if the company does not pay. The problem with a judgment is it lets the funder levy the bank accounts without notice. That means the account can freeze overnight, or be empty without warning. This surprise can shutter a business fast if vendors cannot be paid. But each window closes with a big step forward, one where the business must be paying attention. So the highest priority is always “what stage of the process is my debt in.”

The harm from a levy is most often the way it cuts cash flow, by freezing it in time. That blocks cash moving in any direction. So a business can lose payroll, leasing and utilities first. Business owners might feel a sense of panic, and their first instinct might be to “do something.” Their first instinct is not to run the business. It is to move funds to avoid a legal levy. But this instinct is wrong. This panic can lead to a new legal risk, of fraudulent transfer.

The Paperwork

Collecting the paperwork will help piece together the past, and make more sense of the present. Funding companies will talk as if they have power no one else has, and yet they must act within legal limits. Being organized lets you spot when these limits come up, and may lessen the chance of making a mistake. The funder records will show the exact daily amount of the ACH payments. Compare with the original documents, to see if there are grounds to dispute the debt balance. Get together all the lawsuit threats, emails, letters and demands.

Kansas law may also be of some help, as the state has the Kansas Commercial Financing Disclosure Act. This law, which came into effect on July 1, 2024, pertains to merchant cash advances of $500,000 or less. It requires providers to disclose the total cost of financing, the total amount of payments, and how the payments work. Failure to comply with these disclosure requirements can lead to civil penalties of $500 per violation, not exceeding $20,000 in total fines. Despite not being enforceable by the business owner, the law empowers the Kansas Attorney General to hold lenders accountable for noncompliance. So while the Funder might face a possible penalty by the State, the business owner may not be able to avoid a loss, or an escalation of the debt.

Testing the most fundamental points helps narrow down the business options. They help see how many critical elements a debt collector might lack. This may test legal defenses such as whether the debt “holds water,” or may be discarded due to a legal defect. Asking a court to review any one of these issues could help. Since August 2019, New York courts generally cannot enter a confession of judgment against an out-of-state company. For a newer claim, past this date, an out-of-state business owner may benefit from this rule. In Kansas, the statute of limitations for written contracts is generally five years, but the agreement’s choice-of-law clause may invoke another state’s law.

A merchant cash advance is, to many, only a disguise for a loan. See if daily payments and recourse may move it to “debt” from “revenue.” Look for grounds to argue the funder refused reasonable reconciliation, but be ready to show evidence. But a legal defense is not always clear. There is no right to always win and an MCA defense may or may not lead to a legal payoff.

Kansas Licensed, Experienced Business Lawyer

Seek a Kansas licensed, experienced business lawyer. Ask if they handle cases like your own. Get a written fee agreement or estimate from any lawyer you speak with, and get it in writing before making any payments. Don’t let the pressure drive you to act before you are ready. An experienced lawyer can assess legal exposure to propose a pathway to resolve the debt. The stages from pending default, through judgment and levy, are each different, and the analysis may vary. Any legal plan can take on new angles as the business owner provides the facts. Once seen as a whole, the picture may even hint at legal defenses, or potential ways to settle for a lesser cost.

The levy is usually just one of many risks a merchant cash advance can bring. Funding companies will often file a UCC-1 lien on accounts receivables. This might form a claim on invoices a business is expecting to get paid on. This leaves a deep question mark over whether the business can keep its money, or if the funder might be able to seize payments from clients. Additionally, if a business has multiple stacked funders involved in the merchant cash advance agreement, each one might take separate action to recover their investment. Focus on taking a close look at the whole risk, and resolve as much as possible at the same time.

If you settle a merchant cash advance debt for less than you owe, the forgiven debt may be taxable income. The IRS generally treats forgiven debt as income. Two things may reduce this risk: insolvency at the time of the debt forgiveness or going through a bankruptcy case. Form 982 lets you exclude some or all of the debt from your gross income if the business is insolvent when the debt is forgiven. But you will still usually take an offset from tax attributes.