MCA Settlement: Debts Over 6 Months in Default

The conventional wisdom is that older debt is worse debt. With merchant cash advances, the opposite is often true on the settlement side. Debt that has aged past six months in default frequently settles at significantly lower percentages than debt that is sixty or ninety days delinquent. The reason is not generosity. It is portfolio accounting.

How Funders Account for Aged Debt

MCA funders are not banks, but they apply similar reserve and write-down logic to their portfolios. When an account goes delinquent, the funder books a partial reserve against the balance. As the account ages, the reserve increases. By month six, many funders have reserved fifty to seventy percent of the balance against probable loss.

This means the funder’s internal carrying value of your debt is already much lower than the face amount on the demand letter. A $200,000 balance may be carried on the funder’s books at $60,000 to $80,000. A settlement at forty-five cents, or $90,000, is actually a gain against the carrying value, not a loss.

The Portfolio Sale Trigger

Most MCA funders sell aged defaulted portfolios in bulk to debt buyers. The sale typically happens at six, nine, or twelve months past default depending on the funder’s accounting cycle. Sale prices range from five to fifteen cents on the dollar.

This creates two windows for the borrower. The first is the pre-sale window, where the original funder may settle aggressively to take a recovery higher than the portfolio sale would yield. A funder that expects to sell at eight cents might settle directly at thirty-five cents because thirty-five is greater than eight.

The second window is post-sale, where the debt buyer holds a file purchased at deep discount. The buyer’s economics are dramatically different. A buyer who paid $16,000 for your $200,000 balance can settle at $50,000 and quadruple its money. Buyers settle at lower percentages because the math works at lower percentages.

Why Time Helps the Borrower

Several factors compound as the debt ages:

• Funder reserves increase, lowering the floor settlement number
• Collection costs accumulate, increasing the funder’s net loss expectation
• Personnel turnover at the funder means the original underwriter is gone
• The file gets transferred multiple times, with each transfer reducing institutional knowledge
• The funder’s interest shifts from full recovery to portfolio closure
• Statute of limitations risk grows for the funder, especially across state lines

By month nine or month twelve, the funder’s internal sense of the file is fundamentally different from month two. The borrower who waits, when waiting is strategically sound, often gets a better number.

When Waiting Does Not Work

The aged-debt advantage assumes the funder has not already taken enforcement action. If a judgment has been entered, especially via COJ, the dynamic changes. The funder holds a judgment, which has its own value and recovery mechanics. The judgment can be enforced for ten or twenty years depending on the state, with renewal options.

In post-judgment settlements, the discount is still real, often thirty to fifty cents on the dollar, but the leverage shifts. The funder now has tools it did not have pre-judgment, including bank levies and wage garnishment. Settlement comes faster but at a slightly higher number.

The Practical Settlement Process for Aged Debt

Negotiating an aged MCA debt looks different from negotiating a current one:

1. Identify who currently holds the file. The original funder may have sold it.
2. Demand a full chain of title if a debt buyer is involved. Many cannot produce it.
3. Request an itemized accounting. Aged files often have accounting errors that reduce the actual balance.
4. Present a documented hardship package, including personal financials.
5. Open with a lump sum offer at twenty-five to thirty cents. Settlements often close at thirty-five to fifty.

What This Means For You

If you are in month two of default and the funder is calling daily, the temptation is to settle now to make it stop. The math often supports waiting, building your position, and settling at a lower number once the file has aged into the funder’s loss-recognition window.

This is not about ignoring the funder. It is about negotiating from a position of accumulated leverage. Senior advisors run this calculation file by file, weighing the cost of waiting against the savings on the settlement number.

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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