Austin, Texas MCA Defense Lawyers
Are you an Austin, Texas, business owner who’s overwhelmed by Merchant Cash Advance debt, making it impossible to keep up? Does it feel like your daily payments are resulting in persistent cash flow issues? At DelanceyStreet Debt Relief, we know how quickly MCAs can become toxic—especially when creditors are sending default notices and threatening lawsuits. Below, we explore strategies and legal nuances that can help you defend yourself and find a way out.
Understanding the Texas MCA Landscape
Texas usury laws are sometimes circumvented by funders who label their agreements as “receivables purchases” instead of loans. The idea is that they’re buying your future receivables at a discount—not technically lending you money. But in many cases, these contracts closely resemble high-interest loans. When that happens, Texas Finance Code §§ 301.001–305.008 might come into play if the effective interest rate is excessive. This is where the right MCA defense lawyer can help you prove the transaction is actually a disguised loan.
Potential Penalties for Default
If you miss payments, an MCA funder might:
- Demand the total balance immediately
- File a lawsuit against you and, sometimes, against your personal guarantee
- Attempt to freeze your business bank accounts
- Add default fees or penalties, which can inflate what you owe
Remember, some MCA contracts include a Confession of Judgment (COJ) clause, which allows the lender to get a judgment without a standard hearing. While COJs are generally unenforceable in Texas, a lender can try to file the COJ in another state and then bring it back here for enforcement. It’s a legal loophole that can happen unexpectedly if you’re not prepared.
Key Defense Strategies
- Arguing Usury
If the MCA’s total payback exceeds Texas usury limits, you could fight it. You’ll likely need strong proof the deal is more akin to a loan than a receivables purchase. If you succeed, you might get the principal or interest reduced. - Breach of Contract
Sometimes lenders misrepresent their terms. If your contract includes contradictory clauses or if the funder collected more than they should, you might use that as leverage. - Negotiation or Settlement
Most lenders want to get paid, so they might agree to reduce the amount you owe or give you more time to pay. But you should be aware of tax implications—IRS Publication 4681 explains how forgiven debt can count as taxable income. - Bankruptcy
Filing Chapter 11 may help restructure your debts. Chapter 7 might wipe out certain obligations but could lead to liquidation. The impact on your business depends on your assets, how much you owe, and your overall finances.
Roleplaying Different Scenarios
Scenario A: You missed your first MCA payment. The funder immediately threatens a lawsuit. Your best move might be open communication with the lender—show them your recent cash flow statements and try to negotiate a modified plan. Lenders typically prefer ongoing payments over lengthy litigation.
Scenario B: You stacked multiple MCAs. One daily debit leads to another, and your business finds itself facing persistent cash flow issues. In this case, it might be time to consider a consolidated loan, or engage in multi-lender negotiations. The goal is to simplify everything into one manageable payment.
Scenario C: You’ve already been sued in another state. If you ignore the lawsuit, the lender may get a default judgment. We can help you challenge jurisdiction if you’re a Texas-based business. Or, we might look at a usury defense if the effective rate is beyond what Texas law permits.
Dealing with Tax Consequences
You should consider how MCA settlements might affect your taxes. If you owe $100,000 but settle for $30,000, the difference ($70,000) is often reported as “forgiven debt,” which can be considered income. That could result in a larger tax bill unless you qualify for certain exemptions. Always talk to a tax professional before finalizing a settlement.
Table: Overview of Defense Routes
| Strategy | Potential Effect | Risks |
|---|---|---|
| Usury Defense | Lower interest or total balance owed | May require proving disguised loan terms |
| Breach of Contract | Possible damages or offset | Need clear evidence lender violated contractual duties |
| Negotiated Settlement | Reduced lump sum or extended repayment plan | Forgiven debt = possible taxable income |
| Bankruptcy | Could halt collections, restructure, or wipe out debt | Legal fees, credit impact, risk of business liquidation |
| Debt Consolidation | One payment, potentially lower interest rate | Must qualify based on creditworthiness or collateral |
Why Working with DelanceyStreet Debt Relief Helps
We pride ourselves on open communication, thorough contract analysis, and a deep understanding of MCAs. Our team carefully reviews your agreements, your payment history, and your business finances. Whenever necessary, we consult our sister law firm, ensuring you have the proper legal representation if you end up in court. Our aim is always the same:
- Reduce your overall debt
- Prevent lawsuits from shutting down your operations
- Negotiate realistic repayment terms that your business can handle