If you’re a business owner in Philadelphia, Pennsylvania, and you’ve taken out one merchant cash advance after another, it’s possible your cash flow is crushed. Often, small businesses turn to MCAs because they need immediate funding and traditional lenders won’t help. Regardless of why you got an MCA, if you’re overwhelmed, you need to consider your options. Our team at DelanceyStreet Debt Relief can help you figure out the best strategy to address your MCA debt—especially if you’re dealing with a Confession of Judgment, which can result in immediate legal action that might freeze your bank accounts.
Philadelphia’s Unique Legal Landscape
Philadelphia courts routinely see MCA lenders enforcing Confessions of Judgment under 42 Pa. C.S. § 2950 et seq. This legal mechanism can cause huge financial issues if misused, because it bypasses the usual trial process. Many of our clients first realize there’s a problem when they discover their account is inaccessible, with little notice. If that’s happening to you, it’s important to act quickly. We regularly challenge the validity of these judgments by looking for defects in service requirements, the language in your agreement, or any procedural errors that might affect the COJ.
Why Challenging an MCA Is Possible
Some MCAs are drafted as “purchases of future receivables,” which is meant to sidestep usury laws. In reality, many are disguised high-interest loans that violate lending regulations. We often uncover hidden fees, unclear terms, or inflated factor rates. If your contract crosses the line, we can argue it’s a loan subject to Pennsylvania’s usury and consumer protection statutes. By proving it’s really a loan, you can negotiate the debt on better terms, potentially reduce the total balance, or restructure critical elements like repayment schedules.
Understanding Tax Implications
It’s not enough to just reduce your MCA balance. If you negotiate a settlement—for instance, you owe $100,000 and end up paying $60,000—your lender might issue a Form 1099-C for the forgiven $40,000. This can create tax implications, which is why it’s recommended you consider talking to a tax professional or an accountant early. In some cases, if your business is in dire straits, you might qualify for an insolvency exception. But that requires proper documentation showing the ratio of your liabilities to your assets.
Multiple Approaches: Roleplaying Different Scenarios
We believe in exploring a variety of solutions. Below are just a few strategies that might work, depending on your specific situation:
- Debt Settlement
- If you can make a lump sum payment, we might negotiate a reduction in overall debt. But be mindful that the forgiven debt could be treated as taxable income.
- Some clients might also prefer a structured payment plan, which we can present to the lender to help you keep up with your monthly expenses.
- Challenging the Agreement
- In certain cases, the MCA contract has defects. Perhaps the interest rate is effectively usurious, or the Confession of Judgment clause fails to meet Pennsylvania’s statutory requirements.
- If we find these flaws, we push to have the judgment opened or struck. This alone can cause the lender to reconsider negotiations.
- Debt Consolidation Loans
- Instead of juggling multiple MCAs with frequent withdrawals, you might qualify for a lower-interest consolidation loan.
- This transforms your debt into one single payment, which can help stabilize your cash flow if you’re eligible.
- Business Bankruptcy
- Some business owners opt for Chapter 11 if debts are too large to handle via negotiations. Chapter 11 allows you to keep operating while you reorganize.
- If you’re considering discontinuing operations, Chapter 7 might be an option, but it can mean liquidation of your assets. We review your overall financial picture to see if either approach makes sense.
Practical Actions You Should Consider
If you suspect your MCA provider will file a COJ or you’ve already received a default notice, collect all relevant documents right away. This includes the MCA agreement, any emails or messages with the lender, and your recent bank statements. At DelanceyStreet Debt Relief, we review your paperwork for legal missteps we can use to protect you. Lenders often rely on technicalities to obtain judgments quickly, but the same details can sometimes be challenged if there’s a procedural error or if the contract contains illegal provisions.
A Quick Reference Table: Key Defense Strategies in Philadelphia
| Strategy | What We Look For | Potential Outcome |
|---|---|---|
| Challenging Confession of Judgment | Contract language, compliance with service requirements | Judgment can be opened or struck, helping you avoid immediate collection |
| Debt Settlement | Lump sum offers, or payment plans | Potentially reduced balance, but the forgiven portion may lead to tax issues |
| Consolidation Loan | Lower-interest loan in place of multiple MCAs | Simplified monthly payment, though eligibility depends on credit/history |
| Bankruptcy (Ch. 7 or Ch. 11) | Court-supervised resolution | May protect business operations or allow closure if needed |
Handling Day-to-Day Operations
In Philadelphia, many business owners aren’t just dealing with MCAs; they might also have outstanding vendor debts, equipment leases, or tax liens. Because MCA lenders often require daily or weekly ACH withdrawals, you may not have enough left to meet these other obligations. If you’ve stacked multiple MCAs, the problem grows. In such cases, invoice factoring could be an option if you have commercial clients with good credit. You can get immediate cash in exchange for your invoices, which might help stabilize your operations without turning to yet another MCA.
Why Work with DelanceyStreet Debt Relief
We focus on negotiating with lenders, explaining your situation, and crafting a direct approach toward resolving your debts. Our aim is to help you avoid costly lawsuits and keep your business running. Many clients who have joined our program say it gave them relief from constant creditor calls. By analyzing your situation, we develop clear objectives—reducing your balance, lowering interest rates, or extending your payment schedule. Ultimately, we believe it’s important to engage with lenders sooner rather than later, so they understand why working with you is better than forcing you into default or bankruptcy.