8 Things MCA Funders Can and Can’t Do When You Stop Paying

Collection tactics rely on borrower uncertainty. The agent on the phone hints at outcomes that may or may not be available under the contract or state law. Knowing the difference between the threat and the actual enforcement path changes how you respond.

1. UCC Filings: Yes

Almost every MCA contract grants a security interest in receivables, perfected through a UCC-1 filing. The funder filed this on day one. Once you default, the funder can take steps to collect the secured collateral.

What they cannot do: claim assets outside the UCC scope. If the filing covers receivables only, the funder cannot seize equipment, inventory, or real estate without a judgment and writ of execution.

2. Confession of Judgment: Sometimes

If you signed a COJ and the governing law allows it, the funder can enter judgment without serving you. New York restricted this against out-of-state debtors in 2019. Other states never allowed COJs. Whether a funder’s COJ rights are enforceable in a given situation is a question a licensed attorney you retain can assess.

3. Account Freezes After Judgment: Yes

Once judgment is entered, the funder can serve a restraining notice on banks. The bank must freeze the account, often within days of judgment entry.

What they generally cannot do: freeze without a judgment. Pre-judgment freezes ordinarily require a separate attachment order. If a funder claims it can freeze accounts before getting a judgment, a licensed attorney you retain can confirm what is actually permitted in that situation.

4. Customer Notification: Yes, With Limits

The funder can notify your customers to pay it directly under UCC Article 9, as to receivables covered by the security agreement. What they cannot do: notify customers about debts not covered, send inaccurate notifications, or use notifications to interfere tortiously. Misuse exposes the funder to counterclaims.

5. Personal Guarantee Collection: Yes

If you signed a PG, the funder can pursue you individually, typically through a separate lawsuit or, if the PG includes a COJ, a direct judgment. What they cannot do: collect from a spouse who did not sign, from assets titled solely in the spouse’s name in non-community-property states, or from exempt funds.

6. Threaten Criminal Prosecution: No

MCA default is civil. The funder cannot have you arrested, cannot threaten criminal charges, and cannot suggest prosecution unless there is actual fraud evidence in the application or use of funds. Threats of criminal action to collect civil debt may violate state debt collection laws.

7. Contact You Constantly: Limited

Commercial debt collection is less regulated than consumer, but state laws on harassment and false statements still apply. Auto-dialer calls to your cell may trigger TCPA exposure. Funders can contact you during business hours and pursue legal remedies. They cannot threaten violence, use obscene language, or misrepresent the legal status of the debt.

8. Sell the Debt: Yes

MCA funders routinely sell defaulted portfolios to debt buyers at deep discounts, often five to fifteen cents on the dollar. Aged defaulted MCA debt often settles at lower rates because the buyer paid pennies for it.

• Original funder, current account: rare settlements, full balance
• Original funder, sixty days delinquent: forty to sixty cents
• Original funder, post-judgment: thirty to fifty cents
• Debt buyer holding aged portfolio: twenty to forty cents

Using the Asymmetry

Funders rely on borrowers not knowing the limits. The borrower who treats every threat as enforceable settles badly. The borrower who tests each threat against the contract and state law settles well.

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.

Get a free 30-minute call with a senior advisor →