When a merchant cash advance defaults, the funder’s playbook usually involves one of three things: a regular civil lawsuit, a filed Confession of Judgment (COJ), or a default judgment entered when you fail to respond. These look similar from a distance, but they create very different leverage situations. If you confuse them, you’ll either panic when you shouldn’t or stay calm when you really need to move fast.
The Three Collection Tracks Explained
A regular lawsuit is the slowest path. The funder files a complaint, you get served, and you have 20 to 30 days (depending on state) to answer. From filing to a final judgment, expect three to twelve months. During that window, nothing is frozen, nothing is seized, and you have full negotiating leverage.
A Confession of Judgment is different. It’s a signed document, usually buried in MCA paperwork, where you pre-agreed to a judgment without notice. The funder files it with an affidavit of default and a judgment can be entered within days. After New York’s February 2019 reform, out-of-state merchants can no longer be sued under New York COJs, but pre-2019 COJs and same-state ones still bite hard.
A default judgment happens when you were properly sued but ignored the complaint. The funder asks the court to enter judgment because you didn’t answer. Once entered, it has the same enforcement teeth as any judgment: bank levies, UCC liens, restraining notices, marshal seizures.
Your Leverage Window at Each Stage
Leverage shrinks as the funder moves through the timeline. Before a lawsuit is filed, settlements commonly land at 40 to 60 cents on the dollar over 12 to 24 months. After a lawsuit is filed but before judgment, 50 to 70 cents is realistic. Post-judgment with active enforcement, you’re often looking at 60 to 85 cents because the funder already holds the hammer.
The single biggest mistake we see: business owners who get served, panic, and ignore the complaint hoping it goes away. Twenty-eight days later, default judgment is entered and the bank account is frozen Friday afternoon. Don’t be that owner.
What Each Stage Means for Your Bank Accounts
Pre-judgment, your accounts are untouchable through legal process. The funder can still try processor interception via UCC § 9-406 notices to your credit card processor, but court-ordered freezes are not on the table. Post-judgment, restraining notices can lock accounts the same day they’re served on your bank.
If a COJ is filed in a state where it’s still enforceable against you, the timeline collapses. You can go from a missed payment Tuesday to a frozen operating account the following Monday. That’s why COJs deserve their own response track.
Practical Response Steps by Stage
- Pre-lawsuit demand letter: Engage promptly. This is the cheapest stage to settle. Senior advisors typically negotiate 45 to 55 cents on the dollar here.
- Lawsuit served: Do not miss the answer deadline. Independent counsel from our referral network can answer with affirmative defenses while we negotiate in parallel.
- COJ filed: Move within 72 hours. Counsel can move to vacate where grounds exist; we negotiate a hold on enforcement while that’s pending.
- Default judgment entered: Counsel can move to vacate if you have a reasonable excuse and meritorious defense, typically within one year. Settlement leverage is reduced but not zero.
- Active enforcement (frozen account): Emergency posture. Settlement plus a stipulation to release the levy is the standard path.
Why the Distinction Matters for Your Strategy
If you’re staring at a lawsuit, you have weeks to build a negotiating posture. If you’re staring at a filed COJ, you have days. If you’re staring at a default judgment, you have hours before the bank levy hits. Treating all three the same way is how merchants lose six-figure operating balances overnight.
The good news: at every stage there’s still a deal to be made. Funders prefer cash today over a slow enforcement grind. Senior advisors negotiate; when the legal track requires motion practice, we coordinate with independent counsel.
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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- Move quickly to stop daily ACH debits where reconciliation rights apply
- Vacate Confessions of Judgment in 72 hours
- Senior advisor, not a salesperson