Michigan MCA Defense Lawyer: 5 Questions About the Claim Against You

The Five Key Questions You Need to Ask

Merchant cash advance (MCA) companies come after businesses like yours for many reasons. Maybe your company missed some payments. For whatever reason, you’re being chased after by the funding company or possibly a separate collection agency for non-payment. These actions lead to legal actions that can be intimidating. If you’ve never experienced legal issues, it can be hard to know what to do or understand how a lawsuit can affect your business. If you’re looking at a legal action against your business, here are five questions you should ask yourself and have an attorney answer for you if you don’t know. The five key questions you need to ask:

• How long do you have to answer?
• Has a confession of judgment been signed?
• Is the debt even a loan?
• What happens after the judgment?
• And does this even look like an enforceable default?

Maybe the most important thing to know is how much time you have to answer, because running out of time is the fastest way to lose. In Michigan, a court case starts with a complaint and an answer. The complaint says what is claimed against you and your answer explains what happened from your point of view, and might say that the complaint is inaccurate or unfair. An answer is due twenty-one days after you are handed a complaint, and not filing a timely answer opens the door to a judgment against you without you getting a chance to defend. If the complaint was served by registered mail or outside Michigan, then you would have twenty-eight days from the day you were served.

A confession of judgment means you signed paperwork saying that, if the company gave you the money, you would accept that your company owed the money back and would accept certain consequences for not paying back the money. A confession of judgment means that a company can go to court and show the paperwork, and, in some cases, not even need to serve you the paperwork. Of course, not all confessions of judgment are valid. Michigan law, though, allows the court to enter the judgment only if the confession was a separate piece of paper and filed with the clerk. If you think that you signed a confession judgment, having a lawyer look it over could get you breathing room. A big point with Michigan businesses: New York is popular for these contracts. But since 2019, New York courts need you to live there before one can be filed.

Having an attorney look over the paperwork is your best option. They can look over the contract you signed and determine if it’s a loan or an advance. Courts usually balance three factors: whether payments are tied to real revenue, whether there was a set date to pay off, and whether the funder collects even if the business fails. These funding arrangements aim to look like a sale of future revenue, but courts look at these to decide whether the funding is a loan by another name.

Michigan sets a cap of 25%, and breaking that can get a lender prison time, as it comes under the criminal usury statute. If the contract looks like a loan, and if what was charged, including all those various fees, looks like an interest rate over 25% per year, the contract might go past legal. The catch comes if your business is a Michigan corporation, which agreed in writing to a higher interest rate than the law allows. Business Corporation Act rules block corporations from arguing that interest over twenty-five percent was usurious. This is one of the reasons that having a corporation sometimes creates problems. Some MCA loans, on purpose, try to get around the usury cap by not labeling their interest as interest. In 2023’s Soaring Pine, the Michigan Supreme Court had the last word, saying that calling fees something other than interest won’t protect the lender charging more than the legal limit. Just because your contract says New York law controls, that might not avoid Michigan’s cap on interest. That means you need to have an attorney look over the whole deal and not just the interest rate written in the contract.

Many MCA funders, in their contracts, require arbitration when there is a disagreement. But, to enforce an arbitration award, they still need to ask the court to confirm it, and once the court does, that becomes an enforceable judgment. Once the creditor files their out-of-state judgment with a Michigan clerk, it carries the same weight as a Michigan judgment. You can raise defenses against the validity of that judgment, try to reopen or vacate it, or apply for a stay. Enforcement is through court process, so do not ignore anything from the Michigan court where the judgment is filed. With a judgment for money, the funder can restrain or levy your business accounts. Even before that, you probably allowed the funder to UCC lien your business assets. And if you signed a personal guaranty, the funder can reach your own money and accounts.

If you missed the deadline, you might still be able to set aside the judgment. If the company served you personally, you get twenty-one days from the judgment to ask the court to set it aside. You need to have a good reason (improper service, for example) and you need to be able to make an honest argument that you had a defense. Your defense has to be in sworn writing.

The smart play is not to act on your own. Don’t try to stop ACH withdrawals or close your bank accounts, move assets you own, falsely dispute debits that happened, or sign new agreements with other funders, unless you have an attorney’s advice. These can create more problems and make it harder to settle with the company.

MCA Defense Lawyer

How do you choose the lawyer you need to fight this out? You should look for an attorney who has dealt with MCA lawsuits, arbitration, and enforcement of these contracts. If your case is filed far away, you want a lawyer who can appear there. Finally, make sure to have a written agreement about what you are paying and for what work.

What you need to do now is get all the paperwork together and get it to an MCA defense lawyer. You need your agreements, your bank statements, and any letters sent by the company. It doesn’t matter if you think they’re a waste of time, because your lawyer needs to see everything. And if you have not already started, get moving before your deadline to answer has gone by.