Los Angeles, California Business Debt Settlement Lawyers
Businesses in Los Angeles often rely on merchant cash advances for working capital.
One merchant cash advance can lead to another. Pretty soon your cash flow is crushed. The practice of stacking merchant cash advance loans can quickly sink a business. The monthly payments can quickly drown you in debt! If you’ve taken advances from OnDeck, Kabbage, or PayPal Working Capital—and now you’re struggling to keep up—you’re not alone. At DelanceyStreet Debt Relief, we focus on helping you handle what has now become toxic, and it’s impossible to keep up. Our goal is to create a path to avoid going out of business.
One scenario: you run a small import/export company near the Port of Los Angeles. First, you took a merchant cash advance to buy inventory. Then you got another MCA to cover payroll, hoping your future receivables would catch up. Now both lenders deduct daily amounts from your bank account. You missed a few payments, and you’re getting default notices. One MCA provider might threaten a lawsuit under the California Code of Civil Procedure, alleging breach of contract. Another lender may wave around a Confession of Judgment (COJ) and warn you they can enforce it. California courts usually don’t honor COJs like some other states, but that doesn’t mean you’re free from legal trouble. If you have personal guarantees, it might be likely the lender will use that guarantee – which could result in huge financial issues for you business wise, and personally.
Another scenario: you have stacked multiple MCAs on top of existing vendor debts and equipment leases. The merchant cash advance agreements claim they aren’t loans and therefore aren’t subject to California usury limits. But if the MCA functions like a high-interest loan—fixed repayment rather than true receivables factoring—you might argue it’s a disguised loan. If that’s the case, the interest rate could violate the California Constitution (Article XV) and Civil Code §§ 1916-1 et seq. With the right defense, you may have the leverage to get a reduction in what you owe.
Some MCA lenders also file a UCC-1 on your receivables.
The practice of stacking merchant cash advance loans can quickly sink a business. Others push you toward default by denying any modification of the daily ACH draws. If you can’t pay, they might get a judgment against you in Los Angeles County Superior Court, garnish your business bank account, or place liens on your essential equipment. If you personally guaranteed the MCA, they can pursue your personal assets too. The good news: No lender wants you to file bankruptcy. They’d rather find a way to work with you than see you avoid going out of business.
Below is a reference on different debt settlement strategies:
| Strategy | Possible Outcome | Consideration |
|---|---|---|
| Negotiate Lump-Sum Settlement | Could reduce principal owed if you make a partial payment | Forgiven debt can trigger a 1099-C, leading to a potential tax burden |
| Longer Repayment Terms | Lowers periodic costs, or perhaps they needed a life line | May mean higher total interest costs; lender cooperation is essential |
| Arguing It’s a Disguised Loan (Usury) | Could invalidate or reduce interest if it’s truly a loan | Courts vary on whether MCAs qualify as loans under California law |
| Debt Consolidation (Term Loan, LOC, etc.) | Combine multiple MCAs into one payment | Requires decent credit or collateral; might require paying off MCA lump |
| Bankruptcy (Chapter 7 or 11) | Automatic stay can halt lawsuits and garnishments | Personal guarantees can still create exposure; reorganization is complex |
Tax Implications
When you settle a debt for less than what you owe, the forgiven portion might be considered taxable income. The lender can send you a 1099-C, and the IRS might view that forgiven amount as income. If your business is insolvent, you could reduce the tax impact using IRS Form 982, but it’s vital you speak to a tax professional before finalizing any settlement.
Many people overlook this step, which is how many of our clients first realized they were in distress because they failed to make their minimum payments, and now there was a chronic pattern of late payments.
Proactive Communication
At DelanceyStreet Debt Relief, we firmly believe that open communication is one of the main reasons creditors are often willing to listen to you. We reach out to them immediately, explain your cash flow problems, and back it up with up-to-date balance sheets, your cash flow statements, and P/L statements. No lender wants zero repayment. They prefer an adjusted schedule or partial payoff rather than forcing you to close your doors. If a lawsuit is pending, we coordinate with our sister law firm to prepare your defense, including arguments that the MCA might be subject to usury laws.
We Save You the Time of Dealing with Creditor Calls and Paperwork
When you enlist our help, we gather copies of your MCA contracts—often sent via Docusign—and the last 6 months of your business bank statements. Our goal is to create a data-backed proposal for the lender. We’ll demonstrate how the daily or weekly withdrawals can quickly drown you in debt! By showing the creditor that forcing you into default yields them nothing, we can usually negotiate new terms.
What If Bankruptcy Is the Only Option?
Sometimes, the debt is too high, even with negotiation. Chapter 11 might give you a path to reorganize under court supervision and keep your business alive. Chapter 7 could mean liquidation, which might not be what you want. In either situation, if you have a COJ – confession of judgement – it might be likely the lender will use the COJ – which could result in huge financial issues for you business wise, and personally. Our team can help you weigh the pros and cons, but we always explore simpler fixes first because no lender wants you to file bankruptcy.
Bottom Line
At DelanceyStreet Debt Relief, we understand that business debt can be fixed. You might be juggling multiple MCAs, vendor bills, or leases that feel impossible to pay all at once. By negotiating directly with lenders, consolidating debt into one more manageable payment, or even factoring invoices to raise cash, you might find a path that helps you stay operational.
If you’ve already been sued for the debt, you might face an opposing counsel and will need your own attorney. If you aren’t represented by an attorney, you are in serious trouble potentially. Take action now to protect your business, reduce your debt, and avoid going out of business. We’re here to help you create a strategy that works for your unique needs.