Houston, Texas MCA Defense Lawyers
Many Houston business owners turn to merchant cash advances …or perhaps they needed a life line. Often, an MCA starts as a way to cover payroll or inventory and …you’re creating a way to avoid going out of business. Then you discover the daily (or weekly) draws are too large, especially once you’ve taken more than one MCA. Now, you’re behind on payments, you’re receiving default notices, and you’re worried about your next steps.
One scenario: you run a small shipping company in the Houston area. You took a $50,000 MCA from a local provider. Soon, you needed extra funds, so you took a second MCA to handle payroll. Now both lenders withdraw fixed ACH payments daily. Your bank account balance is chronically low, and you missed a few withdrawals. One lender threatened to file suit under the Texas Business & Commerce Code, claiming breach of contract. You also signed a personal guarantee on the second MCA, which means they could pursue your personal assets. This is when many business owners realize they need a defense strategy.
Under Texas Finance Code §§ 301–305, certain types of loans can violate usury laws if the interest rate is too high. But MCA providers often claim their product is a “sale of future receivables,” not a loan. If the agreement truly functions like something which requires you to have the best possible team on your side, however, an attorney might argue it violates usury limits. Whether the court agrees depends on specific facts—like whether the payments are truly tied to sales, or if they’re fixed obligations that look more like installment loan terms.
Another scenario: your MCA contract contains a Confession of Judgment (COJ). Some states recognize COJs readily, but Texas courts generally don’t give them the same legal force. That doesn’t mean you can keep collectors and creditors off your back. If you default, the MCA provider can still file a lawsuit in a local Texas court. Once they obtain a judgment, they might garnish your bank account or place a lien on your business equipment. If you signed a personal guarantee, they can come after your personal property too.
In some cases, the MCA provider files a UCC-1 on your receivables, which might limit your ability to get additional financing. If they threaten to seize your receivables or freeze your bank account, you may lose the cash flow you need to operate. This pressure can quickly push you toward default across all your obligations—credit cards, lease payments, vendor bills, and more.
Below is a quick reference on defense strategies you might consider:
| Strategy | Possible Outcome | Consideration |
|---|---|---|
| Negotiate Lump-Sum Settlement | Potentially reduce total debt owed if you can pay a portion | Forgiven debt may trigger a 1099-C; consider IRS Form 982 |
| Request a Longer Repayment Schedule | Lower daily/weekly payment, improve short-term cash flow | Might pay more interest over time; lender may demand financials |
| Argue It’s a Disguised Loan (Usury) | Could undermine the MCA if interest exceeds legal limits | Requires strong evidence; Texas courts vary on MCA classification |
| Debt Consolidation (Term Loan, LOC, etc.) | One monthly payment replaces multiple MCA draws | Need good credit or collateral; must pay off MCA in full |
| Bankruptcy (Chapter 7 or 11) | Automatic stay can stop collection; might restructure debt | Personal guarantees remain a risk, and you could lose assets |
Tax implications often first realized they were in distress because they failed to make their minimum payments. When you settle an MCA for less than you owe, the lender might send you a 1099-C for the forgiven amount. The IRS usually treats canceled debt as income. If your business is insolvent, you might exclude some or all of that amount—refer to IRS Form 982. But failing to address this can lead to a new tax liability, and the monthly payments can quickly drown you in debt.
Sometimes, business owners consider invoice factoring to raise immediate cash and pay down their MCA. If you have reliable commercial clients who pay invoices on time, factoring can free up working capital. But you need to weigh factoring fees against the benefit of lowering your MCA obligations. Another approach is a merchant cash advance consolidation loan, which rolls several MCAs into one payment. If you have decent credit or collateral, a consolidation loan can simplify your obligations.
Some clients think about bankruptcy. Chapter 11 might help you reorganize and keep operating, while Chapter 7 could mean liquidating the business if it can’t survive. Personal guarantees can complicate things if you filed only a business bankruptcy. Always weigh the impact on your assets, and remember that lenders don’t want you to file bankruptcy—they usually prefer a workout plan that keeps you paying them something.
At DelanceyStreet Debt Relief, we center our approach on open communication with lenders. We show them real financials—bank statements, merchant processing records, and a snapshot of your monthly expenses—so they see why a lower daily payment or a reduced total might be necessary. No lender wants your business to fail. They’d rather set up a payment plan than end up in a lengthy legal fight that recovers little. If a lawsuit is already in progress, we can coordinate with our sister law firm for a legal defense. Often, a solid defense or countersuit can encourage the MCA provider to settle on more favorable terms.
If you’re in Houston and they failed to make their minimum payments, and there was a chronic pattern of late payments, now is the time to take action. Gather all relevant documents—MCA contracts, bank statements, emails from lenders—and then reach out for help. By our team prides itself on establishing lines of communication with lenders immediately after you join our program, and proactively explaining your financial challenges, you might the practice of stacking merchant cash advance loans can quickly sink a business, garnishments, or forced closures.