Are you in Chicago, worrying about merchant cash advance debt and wondering if you’ll get sued? Are you struggling to keep your business afloat because of daily or weekly MCA payments? At DelanceyStreet Debt Relief, we understand these challenges. We want to share legal insights and potential strategies—so you can decide what’s best for your business. Below is a detailed explanation, mirroring the style of our writing sample, and focusing on what matters most: giving you nuanced, actionable information.
Understanding Merchant Cash Advance Debt in Chicago
Many business owners took out MCA funding to boost cash flow but ended up with unsustainable repayment schedules. Now, they’re behind on payments and facing collection notices. If you’re researching local laws, you’ll notice Illinois permits various collection strategies, some of which can escalate quickly. Confession of Judgment (COJ) clauses, for instance, are controversial. Lenders might try to enforce a COJ in a different state, then domesticate the resulting judgment in Illinois under the Uniform Enforcement of Foreign Judgments Act. Once a judgment is entered, it could result in huge financial issues for you, business wise, and personally, bank account levies, or liens on business assets.
Roleplaying Different Strategies and Tactics
Scenario 1: You’re getting daily calls from multiple MCA lenders. You haven’t made a payment in weeks. You check your contracts—some mention a “COJ.” If they file that, the monthly payments can quickly drown you in debt! In this case, you might consider a lump-sum settlement. If you can make a partial payment, lenders may accept less than you owe. They want to avoid you filing bankruptcy, because that might mean they get even less.
Scenario 2: Your business is still generating revenue, but your MCAs have stacked up. You have four separate daily withdrawals draining your account. If you don’t find a resolution, you could default on all of them. One strategy is merchant cash advance consolidation. This means obtaining one new loan (if you qualify) to pay off your MCAs. Then, you’d only have one payment to manage. Of course, the lender providing the consolidation will review your existing contracts, your recent bank statements, and your credit profile. If everything checks out, you might get an additional 1-3 years added to your term.
Scenario 3: You’ve lost a major client and your revenue dropped. Creditors are threatening legal action. You’re thinking about bankruptcy. Under the U.S. Bankruptcy Code (Title 11), you could pursue Chapter 7 to discharge your business debts. But that might mean liquidating assets, and you risk damaging the business’s reputation. Chapter 11 might let you restructure debts, but it involves a court-supervised process, higher legal costs, and monthly reporting requirements. If your situation is dire, though, it could be the path to create a way to avoid going out of business.
Key Legal Considerations (Illinois Focus)
In Illinois, creditors often rely on the Uniform Commercial Code (810 ILCS 5/) to secure an interest in your business assets. If you pledged collateral, you need to verify if a UCC-1 filing exists against your equipment or receivables. Lenders might also threaten to sue for breach of contract in the Circuit Court of Cook County. Even if you haven’t been sued yet, ignoring this possibility can be dangerous.
Also, when you settle a debt for less than what you owe, you might face tax implications under 26 U.S. Code § 61 and § 108. The IRS may view forgiven debt as taxable income unless your business is insolvent—which can reduce or eliminate that tax burden. Proper accounting and consultation with a CPA or tax attorney are critical here.
Potential Debt Relief Tactics
Below is a summary of options you can consider. Each has pros and cons, depending on your situation:
| Tactic | What It Entails | Things to Keep in Mind |
|---|---|---|
| Direct Negotiation | Talking to lenders to reduce the principal, interest, or extend terms. | Lenders might request proof of cash flow. Tax implications may apply. |
| Debt Consolidation | Getting one new loan to pay off multiple MCAs, so you have a single payment. | Approval often requires better credit. Can improve cash flow if interest is lower. |
| Invoice Factoring | Selling unpaid invoices to a factoring company for immediate cash, which you use to pay down MCAs. | Feasible only if you have strong receivables and creditworthy customers. |
| Bankruptcy (Ch. 7 / Ch. 11) | Court-based approach to discharge or restructure your debts. Offers an automatic stay against lawsuits. | Public process, possible liquidation, and potential long-term effect on business. |
| Assignment for Benefit of Creditors (ABC) | A state-governed liquidation alternative, handled privately and more quietly than bankruptcy. | Not as widely used, but can lead to structured payouts to creditors. |
Why DelanceyStreet Debt Relief Is Different
We focus on open communication from Day 1. Once you sign up, we contact your lenders and explain the specifics of your situation—like how your revenue dropped or how multiple MCA stacks mean your cash flow is crushed. We show them that accepting a renegotiated plan benefits everyone. We also partner with a sister law firm when needed, because sometimes you face immediate legal threats—like a lawsuit, a motion for summary judgment, or a COJ they’re trying to enforce.
Many programs aren’t real. Many have potential benefits, but also many have major downfalls. We look at your financials, go line by line through your contract, and figure out the best angle for negotiation. Sometimes that involves an immediate settlement, sometimes it involves pushing for extended repayment terms, and other times it might mean discussing possible litigation defenses if the lender didn’t follow certain legal procedures. Our main goal: give you a clear path to avoid going out of business.
Things to Consider Before Moving Forward
- Creditor Priorities: Not all lenders have equal leverage. A lender with a senior security interest may demand more, or may be more likely to sue.
- Tax Consequences: Make sure you consult a CPA if you’re planning to settle for less.
- Legal Defense: If your MCA agreement has questionable clauses, you might contest the debt. Sometimes, lenders incorrectly classify interest rates or mishandle COJs.
- Protecting Key Assets: If you rely on specific equipment or real estate, check whether any liens exist against them.
Why This Matters
If you’re reading this, you find yourself in a difficult position, and you’re having trouble paying the debt because of your merchant cash advance obligations. The last thing you need is to wonder if you’ve already been sued for the debt, you might face an opposing counsel and will need your own attorney, or a judgment. Thankfully, Delancey Street has a number of financial options to help you, lenders typically want to get repaid—they don’t want you to file bankruptcy. They often prefer a settlement or a workout plan. But they also have their own legal team. If you want to realize that this is a strategic conversation, which requires you to have the best possible team on your side, working with a business debt settlement company might be more beneficial, in order to reduce your overall debt.
Talk to DelanceyStreet Debt Relief
Our team prides itself on establishing lines of communication with lenders immediately after you join our program… we’ve successfully aided 100’s of businesses, crafting strategies that lead to substantial debt relief… once they’ve negotiated a realistic repayment structure. We know the law, and we also know how crucial it is for you to keep your business running. If you’re considering a Chicago-based strategy to handle your MCA debt, reach out to us. We’ll look at your contracts, discuss your finances, and craft a strategy that fits your specific case. The sooner we start, the sooner you can focus on creating a way to avoid going out of business—rather than worrying about daily withdrawals or threats of legal action.