New Jersey MCA Debt Relief Lawyers: 5 Issues to Resolve Before Negotiating

If you’re a New Jersey business owner who took out a merchant cash advance (MCA), you may have been reeled in by the promise that if business was slow, payments would be slow. Now you find the opposite is true: Business is slow, but the funder is demanding full payments regardless. Worse, they want more money to extend the deal, and they might sue you personally. What do you do? Before you or your lawyer tries to negotiate out of merchant cash advance debt, get a grip on the facts that decide the strength of your position. What is the risk that you are already the defendant in a lawsuit? Is the confession of judgment unenforceable, or is that just a hope? Is the MCA contract a loan, and if it is not, which state’s law applies? What is the hidden cost of the personal guaranty in the contract? Is bankruptcy a good idea after all? The answers give you leverage to deal with the funders.

The Courts in New Jersey and New York

Don’t assume you have time to sit on the problem. Check whether you have already been sued, in New York, too. They don’t have to wait to sue you in New Jersey. A funder can get a judgment in New York and then have it “domesticated” by the New Jersey court, to give it the same enforceability as a judgment of the New Jersey court. Do a quick check on all of the courts in New Jersey and New York. Better still, ask your lawyer to do it.

If the funder already has a judgment, New Jersey requires that they wait 14 days before they can enforce it, by having the local officer levy your accounts. The officer is required to mail notice to you on the day the levy happens. No funds are turned over to the funder until 20 days after the levy. Business accounts are generally not eligible for exemption. A New Jersey court generally won’t reopen a valid New York judgment. The argument that the New York judgment was wrongly decided usually belongs in the New York court. The 20 day time window while a judgment is being enforced is when you would usually try for a stay, make a deal to get the levy lifted, or file bankruptcy. That’s a good reason to talk to an experienced lawyer soon.

The funder wants to take the shortest path to getting a judgment on the debt. If there’s a confession of judgment, that can be all they need to make it happen. In April 2020 New Jersey law made a confession of judgment in business financing, naming cash advances, invalid and unenforceable against New Jersey businesses. The funder will generally have to sue to try and prove its claim. The law does not cancel the debt, but only the funder’s right to take judgment on the claim without a trial. In New York since 2019 a confession of judgment may only be filed in the county where the business has a place of business, so a New Jersey business with no New York location is generally safe from one. But older confessions still turn up, and whether the 2020 ban covers contracts signed before it is a question for your attorney.

Usury Law

Does usury law help? There’s a proviso: if a court finds that the MCA was really a loan, and not the purchase of receivables, it will take a hard look at whether it violates the usury law. In New Jersey, corporations, LLCs and LLPs can’t raise usury as a defense, and loans of $50,000 or more are exempt from the 16% civil cap. In New Jersey, criminal usury law starts at over 50% annual interest for corporations and LLCs, and 30% for other business forms. Whether that gives a business a legal defense to collectibility of the debt is unsettled. Your lawyer can help figure that out. But most cash advances put New York law on the contract. New York law, though, also allows a business to use criminal usury (over 25% a year) to defeat the debt, if a court agrees that the contract is a loan, and not a sale. None of that makes an MCA a loan in the eyes of the law. New York appeals courts regularly enforce advance agreements that have genuine reconciliation as purchases of receivables. It depends on the contract and the facts, so have a lawyer read yours.

New Jersey’s Attorney General has gone after an MCA funder under the Consumer Fraud Act. In January 2023 the AG settled with Yellowstone Capital, alleging usurious loans disguised as purchases of receivables. Yellowstone agreed to write off about $21.75 million owed by its New Jersey customers, part of a $27.375 million settlement. If a funder misrepresented its terms you can complain to the Division of Consumer Affairs.

The Personal Guaranty

You may look at the personal guaranty you signed and decide to pay the MCA rather than risk losing your personal assets. Many personal guaranties are triggered by breaches like stacking or blocking the funder’s access to receipts, not by slow sales. A judgment against you can reach personal bank accounts and wages; wage execution is generally capped at 10%. Courts usually bar a guarantor from raising usury, too. But as an individual, you can claim exemptions the business cannot.

Another issue: what any deal really costs. Since April 2025 a New Jersey lawyer must give you the basis or rate of the fee in writing at the start. But there’s a tax trap to watch: a forgiven balance is usually taxable income. Any lender that cancels $600 or more may have to file a 1099-C with the IRS. Use Form 982 for the insolvency exclusion for canceled debt.

Before paying more on a judgment or advancing further on a loan, get a sense of the bankruptcy option. Filing bankruptcy will start an automatic stay, and in most cases will stop collections, levies and lawsuits against the business, but usually not against guarantors. Subchapter V is available to businesses owing no more than $3,424,000 in debt.

Don’t move money to a new company or account to dodge collection; such transfers can be undone and create personal liability. Don’t ignore a filed judgment.