Settling an MCA Judgment: 6 Terms That Need a Written Answer

Even if you believe the MCA company has a winning judgment against you, you still might be able to negotiate a settlement. Settling a judgment will require both parties to sign an agreement, but there are several terms of this agreement that need to be resolved before you can reach a satisfying resolution. The terms of the agreement must also be clear and definitive. That’s the only way to know what the parties are agreeing to, so that, when they sign it, they will live with the consequences. Six terms have to be decided, written up, and signed by the parties. They are the amount of the settlement and schedule of payments; who is released; what happens if a payment is missed; the satisfaction of judgment; bank restraints and withdrawals; and the UCC filing and customer notices. The settlement payment amount is only a fraction of the agreement.

Is the MCA company agreeing to accept less than the amount it claims it won? Whatever that number may be, the amount of payment needs to be very clear. Does the number include interest on the judgment? Is interest accruing while you negotiate? What is the interest rate and when does it accrue? Is the interest rate accruing if you are paying in installments? If it is, how much is the monthly payment and how long will you be making payments? In New York, judgment interest accrues at 9% a year in most cases. Make sure you know all these numbers before you sign any agreement.

If you are paying something, what are you getting for it? An important question to ask is whether the MCA company is agreeing to release only a specific judgment. If you signed multiple Merchant Agreements, are they being released too? If you are being sued with other defendants, will you alone be released or will the other defendants be released too? Did you sign a personal guarantee along with the MCA agreement? If you signed one, you should make sure that you, as an individual, are being released in addition to the company. Make sure the agreement clearly states that the matter, and whatever is associated with it, is fully resolved and cannot be brought up again. You want to know that the party that brings the lawsuit against you and whoever it might later assign the agreement to will not be able to claim any further payment from you after the payment is completed.

If you are paying in installments and you miss one or more payments, what will be the consequences? Will the MCA be entitled to the total of all the payments that are owed to it? Will interest accrue on all of those payments? These are all questions you should have answers for before you agree to any settlement. The agreement may state that if you miss one payment, you will owe the entire judgment, plus the interest that has accrued. However, as with other contract terms, you might want to negotiate a moratorium period. This is an agreed-upon period of time, within which you can cure a missed payment.

One term to negotiate is whether the MCA company will file a satisfaction of judgment, and if so, when. Make sure you get a written commitment from the MCA company to file the satisfaction of judgment once you make the last payment. In New York, a creditor paid in full must file satisfaction of judgment within 20 days or pay a $500 penalty on a judgment of $5,000 or more. A copy must be mailed to you within 10 days of filing. The reason a satisfaction matters is that a judgment becomes a lien against real property in any county in which it is docketed for 10 years.

You will also want a clear statement that the MCA company will release all restraints on all your bank accounts. You will want to know when the withdrawal from your account will stop. If possible, ask that this happen right away. If they need more time to stop it, make sure you have a definite date by which it will happen. In New York, a restraining notice on your bank account can last up to one year, until the judgment is satisfied or vacated, whichever is first. So do not assume it just goes away. Make sure you get written confirmation that it is actually done.

You might also want to include terms that require the MCA company to terminate the UCC filing. Ask when and how that will happen. Make sure the MCA company will inform you about the specific dates on which they will happen. As with a bank restraint, the removal of a UCC and the notices to your customers do not just happen automatically after the judgment is satisfied. The rule under the UCC is that, once nothing more is owed, the secured party is required to file or send you a termination statement within 20 days after your written demand. So, keep records and send written demands for removal of the UCC.

You might also settle with one funder but find another one claiming it has the right to the payments. If you have more than one funder, each may require its own separate agreement. Settling with one funder does not automatically resolve another funder’s claims.

Tax Consequences

If the settlement requires you to pay less than the amount owed, it might have tax consequences. According to the IRS, any debt that is forgiven for less than the amount owed may count as taxable income. However, you may be able to exclude any canceled debt from your gross income in some circumstances. So check with a tax professional before you sign a settlement agreement.

Once you have negotiated a settlement agreement, do not assume that it is the end of your problems. Make sure you pay in a timely manner, because the MCA company may claim that you did not. So, if you pay by check, keep a copy of the canceled check as evidence that you made timely payment. Keep copies of all Merchant Agreements, notices, and agreements you sign as a result. Keep all communications.

Never assume that whatever the MCA company says will happen. Check the relevant law and write in the dates on which you want action to take place. If you agree to terms, make sure the dates on which the MCA company agrees to perform its obligations are on the agreement and signed. Make sure you read the fine print and check that the agreed-upon terms are actually put in place and work the way they are supposed to. Only then will you have resolution.