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Navigating the Process of Merchant Cash Advance UCC Lien Removal

Getting a merchant cash advance can provide much-needed working capital for a small business. However, these advances come with strings attached – namely, a UCC lien that gives the funder significant power over the business if repayment issues arise. While certainly concerning, UCC liens are not necessarily permanent and can be removed through careful navigation of the legal process.

What Exactly is a UCC Lien?

Let’s start by making sure we all understand what a UCC (Uniform Commercial Code) lien actually is. Basically, it’s a legal claim on a business’s assets – which usually include inventory, accounts receivable, equipment, etc. This gives the funder (the ones who provided the merchant cash advance) priority over other creditors to get repaid from the sale of those assets if the business defaults.

- -

The UCC lien gets filed with the Secretary of State’s office when the advance is issued. The good news is these types of liens don’t allow the funder to immediately seize assets or control bank accounts. But it still gives them alarming power that most small business owners aren’t comfortable with.

When Can the UCC Lien Be Removed?

Now onto the big question: Under what circumstances can you get the UCC lien removed? There’s unfortunately no quick and easy way to make these liens disappear altogether. But here are the main scenarios where business owners have been successful:

  • The advance has been fully repaid – This one is straightforward. If you managed to pay back 100% of what you owe, the funder no longer has skin in the game and will readily remove the lien.
  • You refinance or replace the merchant cash advance – If you take out another business loan or advance and use part of those funds to pay off the original, the associated lien should get removed during that process.
  • You file for bankruptcy – While certainly not ideal, filing Ch. 7 or Ch. 11 bankruptcy requires any existing liens to be removed. A clean slate is one advantage of starting over through bankruptcy.
  • The funder goes out of business – Not the most common occurrence, but if the company that issued your advance shuts down operations, the lien will eventually have to be released.
  • You challenge the validity of the lien – More on this later, but sometimes legal errors were made or requirements not fully met in filing the lien. This can give grounds to invalidate it.

As you can see, outside of simply repaying what you owe, removing a UCC lien can be quite tricky. Don’t expect the funder to readily take action unless forced to by the circumstances above.

The Lien Removal Process Step-by-Step

If one of the scenarios above applies allowing for lien removal, what’s the actual process to make it happen? Here are the typical steps:

  1. Make a formal written request to the funder – Send a certified letter clearly stating why the UCC lien should be removed under the applicable legal grounds. Provide supporting documentation as needed.
  2. Allow 1-2 weeks for their response – Give the funder reasonable time to receive, review, and respond to your request. Follow up if no response after 2 weeks.
  3. Negotiate any disputes – If the funder pushes back or disagrees the lien can be removed, you may have to negotiate a settlement. Or build a stronger legal case for removal, which leads to…
  4. Involve an attorney to compel removal – If you have solid grounds for the release of lien, an attorney can force the issue through official channels. But legal costs must be considered.
  5. File the termination statement – Once the funder is in agreement to remove, they should file a UCC-3 form to terminate their financing statement related to the lien.
  6. Verify lien removal is complete – Make 100% sure that the lien removal has been fully processed with the state. Get written confirmation for your records.

While that summarizes the high-level process, actually completing these steps can get messy in practice. Don’t expect funders to cooperate without some arm twisting. Be ready to get legal support involved if needed.

Common Defenses Against UCC Lien Enforcement

If the funder refuses to remove the lien even when grounds to do so seem to exist, litigation may ultimately be needed. What legal defenses can be raised to fight back against unwarranted UCC lien enforcement? Here are some of the most common:

  • Improper filing – If procedural errors exist in how the lien was filed, that can invalidate it altogether. Things like missing signatures, incorrect names/dates, etc.
  • Unconscionability – The terms of the merchant cash advance agreement were so unjustly favorable to the funder that the lien can be struck down.
  • Duress or deception – Evidence showing the business owner was under duress or subject to deception when signing the agreement.
  • Improper service of process – The funder did not properly serve notice before enforcing the lien, limiting due process.

An experienced commercial litigation attorney can help assess if any of these defenses seem applicable. The goal is showing the lien either should not have been filed in the first place, or that the funder failed to execute proper procedures when trying to enforce it.

Using Bankruptcy to Eliminate UCC Liens

Earlier we mentioned bankruptcy as one way to make merchant cash advance UCC liens disappear. This tactic deserves a deeper look – when does it make sense to use bankruptcy as a removal tool? And what specific steps are involved?

Filing Chapter 7 or Chapter 11 bankruptcy instantly triggers an “automatic stay” that halts any collection activities by creditors. This stops UCC lien enforcement dead in its tracks. Those liens then get removed after discharging debts through liquidation (Ch. 7) or reorganization (Ch. 11).

The key question becomes whether the business is actually viable for continuing operations under a bankruptcy. There’s no point eliminating the lien if there won’t be a business left standing after. The legal and administrative costs of bankruptcy also have to be considered.

But if the business is fundamentally sound and the lien is the only real obstacle to continued success, using bankruptcy to erase it while discharging all other debts can be smart. An experienced bankruptcy lawyer is absolutely vital here – the complex documentation and legal process can get tricky.

The basic steps would include:

  1. Filing bankruptcy petition and related paperwork
  2. Court approves automatic stay halting collections
  3. Secured creditors like UCC lien holders file claims
  4. Negotiations around treatment of secured debt in reorganization plan
  5. Plan confirmed and existing liens removed upon discharge
  6. Fresh start for business with debts eliminated!

While not an easy path, using bankruptcy to invalidate oppressive UCC liens can be a lifesaver for companies with strong underlying operations. Don’t be afraid to at least explore this option with an attorney if you get stuck fighting an unreasonable funder.

Avoiding UCC Pitfalls When Seeking Financing

We’ve covered a lot regarding the UCC lien removal process. But prevention is the best medicine as the saying goes. What can business owners do on the front end when seeking financing to avoid issues down the road?

First and foremost, carefully vet any funders before agreeing to merchant cash advance terms. Get references, look up complaints online, and scour agreements for red flags. Transparency around costs and processes for removing liens down the road is key.

Also consider alternatives like SBA loans that may not require personal guarantees or liens. Even if more paperwork is involved on the front end, easier exit terms are often worth it.

And if you do opt for a merchant cash advance, retain legal counsel to review the agreement. Get clarity around what conditions would allow the future removal of any UCC liens filed. Confirm proper procedures must be followed before any enforcement actions.

While not always avoidable, being informed going in helps minimize surprises later if trying to get out from under a UCC lien.

In Closing

Navigating the merchant cash advance UCC lien removal process takes patience and perseverance. Funders won’t relinquish their legal rights easily. Prepare for some fights along the way.

But standing firm if you have proper legal grounds on your side does pay off for many business owners. And partners like experienced attorneys can help turn the tide when funders play hardball.

With a bit of grit and determination, these liens can be eliminated. Don’t let them derail an otherwise promising small business! Carefully weigh the options we covered and push ahead – a fresh start awaits.

Citations

How to Remove a UCC Lien

Defenses to a Merchant Cash Advance Lawsuit

Using Bankruptcy to Eliminate Liens

Navigating the Process of Merchant Cash Advance UCC Lien Removal

Getting a merchant cash advance can provide much-needed working capital for a small business. However, these advances come with strings attached – namely, a UCC lien that gives the funder significant power over the business if repayment issues arise. While certainly concerning, UCC liens are not necessarily permanent and can be removed through careful navigation of the legal process.

What Exactly is a UCC Lien?

Let’s start by making sure we all understand what a UCC (Uniform Commercial Code) lien actually is. Basically, it’s a legal claim on a business’s assets – which usually include inventory, accounts receivable, equipment, etc. This gives the funder (the ones who provided the merchant cash advance) priority over other creditors to get repaid from the sale of those assets if the business defaults.

- -

The UCC lien gets filed with the Secretary of State’s office when the advance is issued. The good news is these types of liens don’t allow the funder to immediately seize assets or control bank accounts. But it still gives them alarming power that most small business owners aren’t comfortable with.

When Can the UCC Lien Be Removed?

Now onto the big question: Under what circumstances can you get the UCC lien removed? There’s unfortunately no quick and easy way to make these liens disappear altogether. But here are the main scenarios where business owners have been successful:

  • The advance has been fully repaid – This one is straightforward. If you managed to pay back 100% of what you owe, the funder no longer has skin in the game and will readily remove the lien.
  • You refinance or replace the merchant cash advance – If you take out another business loan or advance and use part of those funds to pay off the original, the associated lien should get removed during that process.
  • You file for bankruptcy – While certainly not ideal, filing Ch. 7 or Ch. 11 bankruptcy requires any existing liens to be removed. A clean slate is one advantage of starting over through bankruptcy.
  • The funder goes out of business – Not the most common occurrence, but if the company that issued your advance shuts down operations, the lien will eventually have to be released.
  • You challenge the validity of the lien – More on this later, but sometimes legal errors were made or requirements not fully met in filing the lien. This can give grounds to invalidate it.

As you can see, outside of simply repaying what you owe, removing a UCC lien can be quite tricky. Don’t expect the funder to readily take action unless forced to by the circumstances above.

The Lien Removal Process Step-by-Step

If one of the scenarios above applies allowing for lien removal, what’s the actual process to make it happen? Here are the typical steps:

  1. Make a formal written request to the funder – Send a certified letter clearly stating why the UCC lien should be removed under the applicable legal grounds. Provide supporting documentation as needed.
  2. Allow 1-2 weeks for their response – Give the funder reasonable time to receive, review, and respond to your request. Follow up if no response after 2 weeks.
  3. Negotiate any disputes – If the funder pushes back or disagrees the lien can be removed, you may have to negotiate a settlement. Or build a stronger legal case for removal, which leads to…
  4. Involve an attorney to compel removal – If you have solid grounds for the release of lien, an attorney can force the issue through official channels. But legal costs must be considered.
  5. File the termination statement – Once the funder is in agreement to remove, they should file a UCC-3 form to terminate their financing statement related to the lien.
  6. Verify lien removal is complete – Make 100% sure that the lien removal has been fully processed with the state. Get written confirmation for your records.

While that summarizes the high-level process, actually completing these steps can get messy in practice. Don’t expect funders to cooperate without some arm twisting. Be ready to get legal support involved if needed.

Common Defenses Against UCC Lien Enforcement

If the funder refuses to remove the lien even when grounds to do so seem to exist, litigation may ultimately be needed. What legal defenses can be raised to fight back against unwarranted UCC lien enforcement? Here are some of the most common:

  • Improper filing – If procedural errors exist in how the lien was filed, that can invalidate it altogether. Things like missing signatures, incorrect names/dates, etc.
  • Unconscionability – The terms of the merchant cash advance agreement were so unjustly favorable to the funder that the lien can be struck down.
  • Duress or deception – Evidence showing the business owner was under duress or subject to deception when signing the agreement.
  • Improper service of process – The funder did not properly serve notice before enforcing the lien, limiting due process.

An experienced commercial litigation attorney can help assess if any of these defenses seem applicable. The goal is showing the lien either should not have been filed in the first place, or that the funder failed to execute proper procedures when trying to enforce it.

Using Bankruptcy to Eliminate UCC Liens

Earlier we mentioned bankruptcy as one way to make merchant cash advance UCC liens disappear. This tactic deserves a deeper look – when does it make sense to use bankruptcy as a removal tool? And what specific steps are involved?

Filing Chapter 7 or Chapter 11 bankruptcy instantly triggers an “automatic stay” that halts any collection activities by creditors. This stops UCC lien enforcement dead in its tracks. Those liens then get removed after discharging debts through liquidation (Ch. 7) or reorganization (Ch. 11).

The key question becomes whether the business is actually viable for continuing operations under a bankruptcy. There’s no point eliminating the lien if there won’t be a business left standing after. The legal and administrative costs of bankruptcy also have to be considered.

But if the business is fundamentally sound and the lien is the only real obstacle to continued success, using bankruptcy to erase it while discharging all other debts can be smart. An experienced bankruptcy lawyer is absolutely vital here – the complex documentation and legal process can get tricky.

The basic steps would include:

  1. Filing bankruptcy petition and related paperwork
  2. Court approves automatic stay halting collections
  3. Secured creditors like UCC lien holders file claims
  4. Negotiations around treatment of secured debt in reorganization plan
  5. Plan confirmed and existing liens removed upon discharge
  6. Fresh start for business with debts eliminated!

While not an easy path, using bankruptcy to invalidate oppressive UCC liens can be a lifesaver for companies with strong underlying operations. Don’t be afraid to at least explore this option with an attorney if you get stuck fighting an unreasonable funder.

Avoiding UCC Pitfalls When Seeking Financing

We’ve covered a lot regarding the UCC lien removal process. But prevention is the best medicine as the saying goes. What can business owners do on the front end when seeking financing to avoid issues down the road?

First and foremost, carefully vet any funders before agreeing to merchant cash advance terms. Get references, look up complaints online, and scour agreements for red flags. Transparency around costs and processes for removing liens down the road is key.

Also consider alternatives like SBA loans that may not require personal guarantees or liens. Even if more paperwork is involved on the front end, easier exit terms are often worth it.

And if you do opt for a merchant cash advance, retain legal counsel to review the agreement. Get clarity around what conditions would allow the future removal of any UCC liens filed. Confirm proper procedures must be followed before any enforcement actions.

While not always avoidable, being informed going in helps minimize surprises later if trying to get out from under a UCC lien.

In Closing

Navigating the merchant cash advance UCC lien removal process takes patience and perseverance. Funders won’t relinquish their legal rights easily. Prepare for some fights along the way.

But standing firm if you have proper legal grounds on your side does pay off for many business owners. And partners like experienced attorneys can help turn the tide when funders play hardball.

With a bit of grit and determination, these liens can be eliminated. Don’t let them derail an otherwise promising small business! Carefully weigh the options we covered and push ahead – a fresh start awaits.

Citations

How to Remove a UCC Lien

Defenses to a Merchant Cash Advance Lawsuit

Using Bankruptcy to Eliminate Liens

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