MCA Debt Attorney: 6 Points Where Legal Review Changes the Settlement Number

There is no standard percentage. The fact is that it is impossible to predict exactly what each case will settle for. It all depends on the facts of each case. The important questions to ask are these: What is the person’s promise to pay? What money is owed? If they sue you, what can they show to the judge? What do they have to support a claim? Wherever that number is for you and your dispute, the best thing to do with that number is to move it. There are some things a lawyer can do to move the number.

Whether It Is a Sale or a Loan

First, the question is whether it is a sale or a loan. New York courts look at three things when deciding whether to treat the obligation as a loan or sale: (1) if there is a reconciliation provision, (2) if the deal has a finite term and (3) if there is recourse if the obligor goes under. If it is a loan with an annual interest rate higher than 25% a year, it is criminal usury. If the borrower is a corporation, it can generally use only criminal usury as a defense. It can be useful to distinguish sales and loans because it can affect what you owe. How a court labels the contract matters a lot, as different types of contract have different sets of rules for the parties to follow.

In February 2026, an appeals court held Richmond Capital’s “merchant cash advances” were loans subject to usury limits. The attorney general’s office said Yellowstone Capital was making short-term loans at up to 820% a year. In January 2025, Yellowstone canceled $534 million of debt owed by more than 18,000 businesses.

Second, the fine print is important. Get every dollar the other side claims you owe in black and white. Make them tell you how much they are after. It is better to know than not know. On day one, you signed a stack of papers. Your statements of account show your payments over months or years. It is always a good idea to check the figures. Are you sure you paid everything the agreement required? Was a default fee included? How much, and when was it due?

Confession of Judgment

Third, the stakes are high if a lender brings suit on a merchant advance contract with a confession of judgment. A confession of judgment is a way to skip to the end of the process. A lot has changed in the last few years. Since August 30, 2019, a New York court can no longer grant that if you are an out-of-state business. And in Texas, since September 1, 2025, the law voids a sales-based financing contract containing one. This can help fight a funder’s demand in those states.

Fourth, when you get court papers from a lender, you might think that if you are close to a deal with the lender, you can sit back and ignore the deadlines to answer them in court. The law says otherwise. There is no rule that the clock stops ticking because you are exchanging emails or calls with the lender. In the worst case scenario, the funder can get a quick win without you having to say anything. If a funder’s threat includes a plan to have its lawyer send a demand to arbitration, just know the deck may be stacked against you. The Attorney General’s office wrote in its June 2026 complaint against Rapid Ruling that, in about 3,000 arbitrations, 97% of the cases went ahead with no business appearing.

Remember that there is nothing special about a dispute that happens after a lawsuit has been filed. If you reach a settlement agreement, there are ways a case can end besides with the lender getting a judgment against you.

Fifth, say the funder accepts your payoff number. A question remains. Is this the very last amount it says you owe? How is the payment to be made? In what form? When are you to make them? How much time, if any, is allowed to cure a default? If it is a default, what happens next? Will they keep debiting your account until the payoff? Will the UCC filing stay on file? Will the funder continue the lawsuit?

A signed release does not mean the funder stops taking payments until you put them in writing and the funder puts its signature on it. Read what a funder is asking you to sign to see if the release is clear and complete. That is why you may want to review the settlement paper with a lawyer before you sign it.

Figuring out how to resolve one debt problem is one thing. But what if you are making payments to a host of funders? This is not easy. Every funder has a different balance of what it says it is owed. They have different ways to collect. They are competing to get to you first. These are issues you may want to review with a lawyer.

The Effect on Your Taxes

Sixth, if you agree to settle your merchant advance obligations in court or before the case is filed, it is important to understand the effect on your taxes. If you repay the debt for less than the amount owed and the IRS considers it forgiven debt, the IRS generally treats that as income to the business. If the debt is discharged in bankruptcy, that generally negates the taxability of the cancellation of debt (COD). If you file the form 982 for insolvent debt, there may be no tax. If you have questions on the tax treatment of forgiven debt, talk with a tax advisor.

Finally, before you stop paying the funder, check your contract. If you stop paying, the agreement probably says this gives the funder the right to speed up payment of all amounts due under the contract. Your merchant advance agreement might call for another round of fees if you miss even one payment. Keep everything you get from the funder. All emails, texts and letters. Especially the agreement and monthly account statements. Keep everything.