NYC Merchant Cash Advance Defense Lawyers
Many business owners take out Merchant Cash Advances (MCA) in New York City, or perhaps they needed a life line. Either way, now – that debt is toxic, and it’s impossible to keep up. Whether you needed capital to grow or to cover short-term expenses, an MCA can seem like an ideal solution—until daily or weekly repayments become impossible to manage. At DelanceyStreet Debt Relief, we understand the frustration and stress that come when MCA debt.
Understanding the Merchant Cash Advance Landscape
MCAs differ from traditional loans. The MCA provider claims to buy your future receivables, rather than lend you money at a standard interest rate. Nevertheless, these agreements can often impose steep factor rates that may exceed New York’s legal interest rate limits. This causes many business owners to struggle with unmanageable payments.
Furthermore, many MCA contracts include something called a Confession of Judgment (COJ), which falls under NY CPLR § 3218. A COJ gives creditors the ability to obtain a judgment against your business—or even you personally—without a typical lawsuit. That means you could wake up one morning to find your bank accounts frozen, all because the lender filed a COJ behind the scenes.
Potential Red Flags
- If your business can’t keep up with the MCA’s repayment schedule and you’re falling behind on other essential bills, that’s a major sign of distress.
- Some creditors, like key suppliers, or equipment financing companies, can have more leverage than others.
Some lenders “stack” MCAs, meaning you might have multiple daily repayment obligations at once if your business often has persistent cash flow issues … your business debt is overwhelming you and you need a way out. - Personal Guarantees
Many MCA contracts demand a personal guarantee. This means your personal assets could be leveraged if the business defaults. - Exorbitant Interest Rates
Even though the MCA is structured as a sale of receivables, the real cost can mimic or exceed the state’s usury limits under NY Gen. Oblig. Law §§ 5-501, 5-511.
How We Defend You Against MCA Debt
At DelanceyStreet Debt Relief, we specialize in helping businesses [Our team focuses on all types of unsecured business debt]. Our sister law firm can become involved as needed, giving you a two-pronged approach that leverages both negotiation and legal strategies.
1. Challenging Confessions of Judgment
- Scenario: A COJ has been filed, or you’re worried a lender might file one soon.
- Action: We examine the contract language and the terms of the MCA. If we find that the agreement is potentially usurious or there was misrepresentation, we may be able to file a motion to vacate the COJ.
- Outcome: Vacating the COJ can freeze or stop the lender’s enforcement actions, preventing bank account seizures or immediate business shutdown.
2. Negotiating Debt Relief
- Scenario: You’re worried about defaulting, but would prefer to avoid lengthy litigation.
- Action: We assess your business finances—reviewing balance sheets, cash flow statements, and P/L statements. We negotiate directly with MCA lenders to reduce your overall balance, secure lower interest rates, or extend repayment schedules.
- Outcome: Many of our clients see a meaningful reduction in monthly payments and regain control of their finances without going out of business.
3. Challenging Usurious Rates
- Scenario: The MCA’s factor rate is effectively sky-high interest.
- Action: When an MCA is structured in a way that disguises a standard loan, we may be able to argue it’s subject to New York’s usury laws.
- Outcome: If successful, lenders often settle favorably to avoid the risk of having their entire contract invalidated.
4. Exploring Bankruptcy Options
- Scenario: You have multiple debts—MCAs, business credit cards, term loans—that make continued operations nearly impossible.
- Action: We discuss Chapter 11 or Chapter 7. Chapter 11 can offer a chance to reorganize business debts under court protection, whereas Chapter 7 may allow you to liquidate and discharge certain obligations.
- Outcome: A fresh start for some, or a restructured payment plan that grants breathing room.
Potential Consequences of Defaulting on an MCA
If you fall behind, lenders often move quickly. Accounts get frozen, suppliers receive notices, and your personal credit might take a hit if the MCA contract includes a personal guarantee. In some instances, you’ll start getting repeated calls from collectors or see your business account forcibly debited. Below is a quick snapshot of key issues and defenses:
| Issue | Potential Defense |
|---|---|
| Confession of Judgment (COJ) | Motion to vacate; proving MCA is really a usurious loan |
| Threatening Letters / Collections | Negotiation or legal response pointing out questionable terms |
| Frozen Bank Accounts | Court intervention to reverse or limit the scope of the freeze |
| Excessive Default Fees and Penalties | Arguing unconscionable terms or violations of New York law |
Tax Implications After Settlement
One thing many business owners don’t realize is that if you settle your MCA for less than you owe, the forgiven debt could be considered taxable income. The lender might send you a 1099-C. If that happens, you should talk to a tax professional, because this can lead to an unexpected tax bill. Proper planning is critical.
Real-World Examples
We’ve had clients come to us after they unknowingly signed multiple MCAs—often stacked by different lenders—and couldn’t keep up with overlapping repayments. When defaults started, two lenders filed COJs almost immediately. In those cases, we:
- Challenged the confessions of judgment on the grounds that the agreements might be usurious.
- Negotiated a consolidated payment plan with a third MCA lender, who preferred to avoid legal expenses.
- Connected the client with a CPA to navigate potential tax ramifications tied to debt reduction.
By addressing each MCA individually, and creating an overarching strategy, we helped our client stabilize cash flow, keep the business running, and reduce the risk of personal liability.
Practical Tips
- Keep All Paperwork: Emails, texts, and original loan documents can highlight potential lender misconduct.
- Don’t Wait: If you’re already missing payments, it’s crucial to act before your accounts are frozen.
- Review Personal Guarantees: Check if your contract extends liability to you personally, and consider challenging it if there’s ambiguity in the contract wording.
At DelanceyStreet Debt Relief, our sole focus is. Regardless – we can help you. Our experience—paired with our sister law firm—lets us [Our team prides itself on establishing lines of communication … and proactively explaining your financial challenges], allowing us to find a strategy that works for your unique situation.
Reach out to us today, gather your last few months of bank statements and contracts, and When you enroll in a business debt settlement program, like the one offered by Delancey Street – you’re creating a way to avoid going out of business. It’s possible to protect your business, and we’re here to show you how.
DelanceyStreet Debt Relief
104 W 40th St, New York, NY 10018
Phone: 212-461-1779
Email: max@delanceystreet.com
Visit Our Website
Quoted in major media outlets, we specialize in business debt relief and MCA defense.