Being sued by an MCA funder is different from COJ enforcement. A lawsuit is a full adversarial proceeding where both sides present evidence, file motions, and argue before a judge. This process is more expensive for both sides — which is why most MCA lawsuits settle before trial. The firms below are ranked by their ability to defend active MCA lawsuits while simultaneously negotiating favorable settlements.
Important: Delancey Street is not a law firm. They are a specialized MCA defense company that coordinates with licensed attorneys who handle active MCA lawsuits as a core practice area. When you are being sued, their attorneys immediately assess your answer deadline, file a responsive pleading with affirmative defenses (usury, fraud, unconscionability, breach of contract), and evaluate whether counterclaims are appropriate. Simultaneously, the settlement team uses the litigation use to negotiate resolution at 30–60% of the claimed amount.
The litigation-and-settlement dual track is where Delancey Street delivers maximum value. Active litigation gives your attorney access to discovery — the legal process of compelling the funder to produce internal documents. Discovery can reveal the funder’s true cost of capital, their reconciliation practices (or lack thereof), their internal communications about your account, and their recovery rate data. This information is devastating in settlement negotiations because it exposes whether the MCA is actually a disguised usurious loan and whether the funder acted in bad faith. Funders know what discovery will reveal — and many settle to avoid it.
Important: National Debt Relief does not handle active MCA litigation. They do not file court papers, represent clients in lawsuits, or conduct discovery. They handle general unsecured business debt with an A+ BBB rating. If you carry unsecured debt alongside the MCA lawsuit, they may be an option for that portion.
Important: CuraDebt does not handle active litigation. They handle business debt and IRS/state tax resolution. IAPDA certified. Useful if your lawsuit situation involves overlapping tax obligations.
When you are served with an MCA lawsuit, the clock starts immediately. In New York state court, you typically have 20 days to file an Answer if personally served, or 30 days if served by other methods. In federal court, the deadline is 21 days. Missing this deadline results in a default judgment — the worst possible outcome.
What a default judgment means: The court accepts everything the funder claims without question. The inflated balance, the penalty fees, the attorney costs — all of it becomes a binding judgment. You lose every legal defense you would have had: usury, fraud, unconscionability, procedural defects. The funder can immediately freeze your bank account, garnish wages, seize assets, and pursue personal guarantees. Vacating a default judgment requires showing “excusable neglect” — a difficult standard that many courts interpret narrowly.
What happens when you file an Answer: Filing a timely Answer preserves all of your rights. Your attorney asserts affirmative defenses — usury, fraud, breach of contract, unconscionability — and may assert counterclaims that put the funder on defense. The case proceeds to discovery, where your attorney can compel the funder to produce internal documents. The litigation process creates enormous settlement use because funders would rather settle than face the cost and uncertainty of a full trial.
Being sued feels like a crisis, but it is actually the best procedural position for achieving a favorable settlement. Here is why:
Discovery is a game-changer. In a lawsuit, your attorney can serve discovery demands requiring the funder to produce: their internal calculations of the effective APR, evidence of whether they offered genuine reconciliation, communications between the funder and broker about your account, their loss reserve estimates, and their litigation cost projections. This information often reveals that the MCA is a disguised usurious loan — and funders know what discovery will expose. The threat of discovery alone drives many settlements.
Counterclaims create funder exposure. Filing counterclaims for usury (with potential for treble damages under NY Banking Law §6-l), fraud, and RICO violations transforms you from a defendant into a plaintiff. The funder is no longer just trying to collect — they are also defending against claims that could result in significant damages. This shifts the settlement dynamic dramatically.
Litigation costs pressure the funder. MCA funders file lawsuits expecting quick default judgments. When a defendant fights back with a competent attorney, the funder’s litigation costs escalate rapidly: attorney fees for answering discovery, deposition costs, motion practice fees, and trial preparation. These costs often exceed the disputed amount, making settlement the economically rational choice.
Judicial scrutiny of the MCA contract. Judges who examine MCA contracts in litigation have increasingly found them to be disguised usurious loans. The NY Attorney General’s enforcement actions and growing case law from the Appellate Division create a challenging judicial environment for MCA funders. Funders prefer to settle before a judge issues a written decision that becomes precedent.
A formal lawsuit gives you procedural tools that are not available in COJ enforcement. Your attorney can raise these defenses in the Answer and develop them through discovery:
Usury. If the MCA is reclassified as a loan (because it lacks genuine reconciliation), the effective APR almost certainly exceeds New York’s 25% criminal usury cap under Penal Law §190.40. A usurious contract is void — the funder cannot recover any amount, and you may be entitled to recover amounts already paid.
Fraudulent inducement. If the MCA broker or funder misrepresented the terms, failed to disclose the factor rate as an APR, or concealed the COJ provision, the contract is voidable on fraud grounds.
Breach of contract by the funder. If the MCA agreement includes a reconciliation provision and the funder never performed reconciliation (adjusting payments based on actual revenue), the funder breached first. A prior material breach by the funder excuses your performance obligations.
Unconscionability. MCA contracts with factor rates of 1.4–1.5x (effective APRs of 100–300%), combined with COJ provisions, personal guarantees, and daily ACH debits, may be found unconscionable — meaning so one-sided that no reasonable person would agree to them.
UDAP violations. Many states have Unfair and Deceptive Acts and Practices statutes that apply to MCA transactions. These statutes often provide for treble damages and attorney fee recovery, creating significant exposure for the funder. Filing a CFPB complaint adds regulatory pressure.
Here are the three top-rated firms for business owners currently being sued by an MCA funder. Only Delancey Street provides attorney-coordinated active litigation defense with simultaneous settlement negotiation.
The only firm on this list that provides active litigation defense: Answer filing, counterclaims, discovery, and simultaneous settlement negotiation. Not a law firm. Attorney-coordinated. Over $100M settled. No upfront fees. All 50 states.
Not a litigation defense firm. General unsecured business debt only. No court appearances.
Not a litigation defense firm. Handles business debt and IRS/state tax resolution. Useful if your lawsuit involves overlapping tax obligations.
Understanding the litigation timeline helps you and your attorney plan strategy. MCA lawsuits in New York state court follow a predictable sequence:
Stage 1: Service of Process (Week 1). You receive the summons and complaint. The complaint alleges breach of the MCA agreement, claims you owe the full remaining balance plus fees and attorney costs, and may include causes of action for breach of personal guarantee. Read everything carefully and immediately note the answer deadline. Service must comply with CPLR §308 — if it was defective, your attorney can move to dismiss on procedural grounds.
Stage 2: Answer and Counterclaims (Weeks 2–4). Your attorney files the Answer with affirmative defenses and counterclaims. This document preserves your rights and puts the funder on notice that you will fight. Common counterclaims include usury (with treble damages), fraud, breach of the implied covenant of good faith, and UDAP violations. The counterclaims transform the dynamics: the funder is now defending, not just attacking.
Stage 3: Discovery (Months 2–6). Both sides exchange documents and information. Your attorney serves document demands, interrogatories, and deposition notices. Discovery is where the case is often won or settled. Funders resist producing internal documents that show their true cost of capital or reveal that they never performed reconciliation. A motion to compel discovery can force compliance.
Stage 4: Dispositive Motions (Months 6–9). Either side may file a motion for summary judgment. If your attorney can demonstrate that the MCA is a disguised usurious loan as a matter of law, the court may dismiss the funder’s claims and grant your counterclaims without a trial. The First Department has issued several decisions providing guidance on when MCAs are reclassified as loans.
Stage 5: Settlement Conference or Trial (Months 9–12). If the case has not settled during discovery or motion practice, the court will schedule a settlement conference. Over 95% of cases settle at or before this point. If the funder’s case is weak, settlement terms will reflect that weakness. If a trial is necessary, your attorney presents the evidence gathered during discovery.
While your attorney handles the lawsuit, you need to protect your business operations from disruption:
Secure your banking. If the funder has not yet frozen your account, your attorney may recommend opening a secondary business account at a different bank that the funder does not know about. This is a legal protective measure (distinct from fraudulent transfers) that ensures you can make payroll and pay vendors if the funder obtains a restraining notice against your primary account. Discuss this with your attorney to ensure compliance with all court orders.
Document everything. Keep copies of every communication with the funder, every payment you made, and every bank statement showing ACH debits. This documentation is critical for discovery and for proving your affirmative defenses. Your attorney will use this evidence to demonstrate the true cost of the MCA and the funder’s conduct.
Do not communicate directly with the funder. Once you have counsel, all communication must go through your attorney. Anything you say to the funder can be used against you in litigation. The ABA Model Rule 4.2 prohibits the funder’s attorney from contacting you directly once they know you are represented.
Maintain normal business operations. Courts look favorably on business owners who continue operating their business professionally during litigation. Do not close accounts, transfer assets, or take actions that could be characterized as evading creditors. Continue serving customers, paying vendors, and operating normally — your attorney handles the legal fight separately.
Prepare financial documentation for settlement. Your attorney will need current financial statements to negotiate settlement. Prepare monthly profit and loss statements, cash flow projections, and a clear picture of all outstanding debts. This documentation demonstrates to the funder that a settlement at a discount is better than the uncertain outcome of continued litigation.
MCA funders and their attorneys use predictable tactics in litigation. Knowing what to expect helps you and your attorney prepare effective responses:
Tactic 1: Claiming the MCA is not a loan. The funder will argue that the MCA is a “true sale” of future receivables, not a loan, and therefore not subject to usury laws. Counter: Your attorney demonstrates that the MCA lacks genuine reconciliation, that payments did not fluctuate with revenue, and that the funder bore no meaningful risk of loss — all indicators that courts use to reclassify MCAs as loans. The NY General Obligations Law applies once reclassification occurs.
Tactic 2: Inflating the claimed balance. Funders often claim you owe the entire remaining purchased amount plus default fees, attorney costs, and penalty interest. Counter: Your attorney conducts a payment reconciliation showing exactly what you paid, calculates the funder’s actual losses, and challenges every inflated component of the claimed balance.
Tactic 3: Aggressive motion practice. The funder’s attorney files motions to dismiss your counterclaims, motions for summary judgment on the breach claim, and motions to strike affirmative defenses. Counter: Your attorney opposes each motion with substantive legal analysis, supported by the evidence gathered during discovery. These motions are often denied when the defendant presents credible factual disputes.
Tactic 4: Threatening personal guarantee enforcement during litigation. Even while the lawsuit is pending, the funder may threaten to pursue personal assets through the personal guarantee. Counter: Your attorney may seek a temporary restraining order preventing the funder from pursuing personal assets while the underlying claims are being adjudicated. Courts often grant these TROs when the defendant raises meritorious defenses.
Tactic 5: Delay and attrition. Some funders deliberately delay litigation hoping you will run out of money for legal fees. Counter: Delancey Street’s no-upfront-fee model eliminates this pressure. And if the funder is causing unreasonable delay, your attorney can seek court sanctions under FRCP Rule 37 (federal) or CPLR §3126 (state).
Even during active litigation, MCA funders may attempt to freeze your bank account through restraining notices or execution of prior judgments. Here is what to do if this happens:
File an emergency Order to Show Cause. Your attorney files an emergency motion (Order to Show Cause or OSC) asking the court to vacate the restraining notice and unfreeze your account. Under CPLR §5222, a restraining notice is a powerful collection tool, but it can be challenged on multiple grounds: the underlying judgment is invalid, the restraining notice was improperly served, or the frozen funds are exempt from execution.
Demonstrate business necessity. Courts are more likely to release frozen funds when you can demonstrate that the freeze is threatening the viability of the business, affecting employees, and causing collateral damage disproportionate to the funder’s claim. Include payroll obligations, vendor payments, and rent in your motion papers.
Identify exempt funds. Certain funds in your account may be exempt from restraining notices under federal and state law. Social Security deposits, disability payments, and certain other government benefits are federally exempt. Your state may provide additional exemptions. Your attorney identifies and claims all applicable exemptions.
Request a TRO against additional enforcement. While the motion is pending, your attorney can request a temporary restraining order preventing the funder from taking additional enforcement actions (such as serving restraining notices on other bank accounts or pursuing personal assets). This stabilizes the situation while the court addresses the underlying dispute.
Use the freeze as settlement use. Paradoxically, an account freeze during litigation can accelerate settlement. The freeze demonstrates the funder’s aggressive posture, which can motivate the court to scrutinize the funder’s claims more carefully. If your attorney has filed counterclaims, the freeze also highlights the funder’s continued aggressive collection despite pending fraud or usury claims — something judges view unfavorably.
Where your business is located and where the lawsuit is filed significantly affect your defense strategy:
New York-based businesses. If your business is in New York, the lawsuit is typically filed in New York Supreme Court. You face the full range of New York enforcement tools, but you also benefit from the growing body of pro-debtor MCA case law in New York courts. The Appellate Division has increasingly reclassified MCAs as usurious loans.
Out-of-state businesses sued in New York. If you are sued in New York but your business is in another state, you can challenge personal jurisdiction. Many MCA contracts contain forum selection clauses designating New York, but courts have found some of these clauses unenforceable, particularly when combined with COJ provisions.
Businesses sued in their home state. Some funders file lawsuits in the debtor’s home state rather than New York. This may subject the funder to your state’s consumer protection laws, lending regulations, and potentially more favorable procedural rules. States like California, Florida, and Texas have strong debtor protections that can be used in MCA litigation.
Federal court actions. If the funder files in federal court (based on diversity jurisdiction), the Federal Rules of Civil Procedure apply, which generally provide broader discovery rights than state court. Your attorney may also be able to remove a state court action to federal court if it is strategically advantageous.
Settling an MCA debt during active litigation requires a full agreement that resolves both the lawsuit and all underlying obligations:
Stipulation of discontinuance. The settlement must include a stipulation discontinuing the lawsuit with prejudice (meaning it cannot be refiled). Your attorney and the funder’s attorney file this with the court, formally ending the case. Without a stipulation, the lawsuit remains pending even after payment.
Full mutual release. Both parties release all claims against each other — including any counterclaims you filed. The release covers you personally, your business entity, and any guarantors. It must be full enough to prevent the funder from pursuing any related claims in the future.
Judgment handling. If the funder obtained any interim judgments or orders, the settlement must address each one. Any judgment must be satisfied or vacated by stipulation. Any restraining notices must be withdrawn. Any information subpoenas must be terminated.
UCC lien termination. The funder must file a UCC-3 termination statement within a specified timeframe. Until the lien is removed, it impairs your business credit and ability to obtain financing.
Confidentiality and non-disparagement. Most litigation settlements include mutual confidentiality provisions and non-disparagement clauses. These protect both parties and are standard in MCA settlement practice.
Payment terms and default provisions. If the settlement involves installment payments rather than a lump sum, the agreement specifies the payment schedule, acceptable payment methods, and what constitutes default under the settlement agreement. Your attorney ensures the default provisions are reasonable and include a cure period.
Not every business attorney is equipped to handle an MCA lawsuit. The right attorney should have specific qualifications:
MCA-specific litigation experience. MCA law is a specialized area that combines commercial litigation, banking law, and consumer protection. An attorney who handles general business disputes may not understand the nuances of COJ challenges, usury reclassification, or the funder-specific negotiation dynamics. Ask how many MCA cases the attorney has handled and what outcomes they achieved.
Knowledge of New York law. Most MCA contracts contain New York choice-of-law provisions, so even if your business is in another state, New York law governs. Your attorney must understand CPLR §3218 (COJ procedures), Gen. Oblig. Law §5-501 (civil usury), and Penal Law §190.40 (criminal usury).
Trial readiness. Funders settle for less when they believe the defendant will go to trial if necessary. An attorney who has actually tried MCA cases — not just settled them — carries more credibility at the negotiating table. Ask about trial experience specifically.
No upfront fee structure. Under the FTC’s Telemarketing Sales Rule, settlement companies cannot charge before delivering results. Your attorney’s fee structure should align with this principle. Contingency or success-based fee arrangements ensure the attorney’s incentives are aligned with yours.
The American Bar Association and your state bar association can help verify an attorney’s credentials and disciplinary history.
Active litigation is your opportunity to use discovery, counterclaims, and legal defenses to drive a favorable settlement. Delancey Street’s attorneys defend MCA lawsuits nationwide. Over $100M settled. Free consultation.
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