Funders use a standard playbook when an MCA goes into default. The playbook is a sequence of pressure tactics, some legally enforceable and some negotiable or beatable. Knowing which is which is the difference between accepting whatever the funder says and getting a real outcome.
Inflated balance challenges reduce 10-25% before settlement.
Procedural grounds a licensed attorney may review: execution, statute, fraud, affidavit, amount.
Improper or inaccurate notices may raise legal questions for a licensed attorney.
Over-freeze capped at 2x judgment. Exempt funds protected.
25% federal cap; state exemptions often more generous.
Homestead exemption protects equity; lien reducible via settlement.
FCRA disputes correct inaccurate reporting after settlement.
1. Personal Guarantee Enforcement
Almost every MCA contract includes a personal guarantee. When the business stops paying, the funder pivots to the guarantor. The fight is not whether you signed it, but the terms of resolution, the actual balance after fees, and whether the funder can substantiate the accounting.
What you can fight: the inflated balance. Funders often add default fees and recovery fees not supported by the contract. An itemized accounting demand frequently reduces the claimed balance by ten to twenty-five percent before settlement discussion begins.
2. Confession of Judgment Filing
If your contract included a COJ and was governed by a jurisdiction that accepts them, the funder can file judgment directly without serving you. The judgment is then domesticated in your home state. Bank levies follow within weeks.
Since 2019, New York has restricted COJs against out-of-state debtors. Whether that change affects a particular confession of judgment, and what to do about it, is something a licensed attorney you retain can assess.
Where the confession of judgment is concerned, the questions a licensed attorney you retain would review include:
- Improper execution or notarization
- Statutory restrictions on out-of-state debtors
- Fraud in the inducement
- Material misrepresentations in the supporting affidavit
- COJ amount exceeding what was actually owed
3. UCC Notification to Your Customers
The MCA is typically secured by a blanket UCC-1 on receivables. After default, the funder may send notification letters to your customers instructing them to pay the funder directly. This can collapse customer relationships overnight.
On the notification side: UCC notifications have specific procedural requirements. Whether a particular notification was proper, including notifications outside the receivables scope or based on incorrect customer lists, is a legal question for a licensed attorney you retain.
4. Account Freezes
Once a judgment is entered, the funder can serve a restraining notice on any bank where you hold accounts. The bank freezes funds, sometimes exceeding the judgment amount.
On the over-freeze: many states cap the freeze at twice the judgment amount, and some funds, including Social Security, disability, and child support, are commonly treated as exempt. Whether and how to claim an exemption is a legal step a licensed attorney you retain handles.
5. Wage Garnishment of the Guarantor
If you have W-2 income, the judgment creditor can garnish wages, usually capped at twenty-five percent of disposable earnings under federal law. Many garnishments are improperly calculated using gross instead of disposable income, or fail to account for state exemptions more generous than federal.
6. Liens on Personal Property
The judgment can be docketed as a lien against any real estate you own personally. The lien sits until you sell, refinance, or settle. State homestead exemptions can protect significant portions of primary residence equity, and the lien may be reducible through settlement after the funder’s portfolio team writes down the file.
7. Credit Reporting
Some funders report defaults to commercial credit bureaus and, on the guarantor, to personal bureaus. Inaccurate reporting, disputed accounts, and balances that do not match the ledger are correctable under the Fair Credit Reporting Act. After settlement, ensure the trade line shows settled or is removed.
Five of these seven consequences have meaningful counter-moves. Senior advisors at Delancey Street negotiate the financial outcome. When the response requires court filings, we refer you to an independent attorney from our network.
What This Means Strategically
Most defaulted MCAn engagements settle. The settlement number is a function of how much pressure the funder can apply versus how much resistance the borrower can mount. Each consequence is a pressure point, and each has a counter. The borrower who knows the counters settles at thirty-five cents. The borrower who does not settles at seventy.
Delancey Street is a business debt-relief company, not a law firm. When a matter requires legal work, we refer you to an independent attorney from our referral network; the attorney–client relationship is between you and that attorney.
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