Many business owners in Los Angeles come to DelanceyStreet Debt Relief in distress because they’ve taken multiple Merchant Cash Advances (MCAs), and the daily or weekly payments have made it impossible to keep up. When you’re trying to juggle payroll, rent, and vendor obligations—along with an MCA that won’t quit—if you feel like you’re about to go out of business, Bottom line, there are legal tactics that can help you, but it starts with understanding the Business Debt Landscape and exploring strategies that can either reduce your total debt, or protect you from If you aren’t represented by an attorney, you are in serious trouble potentially.
One thing to keep in mind is that MCAs aren’t considered standard “loans” under California law. Instead, they’re typically seen as a purchase of future receivables, which can mean that some of California’s strict lending rules don’t apply in the same way. Yet, if the MCA contract looks more like a disguised loan—especially if the effective interest rate is 20% or higher—certain usury or consumer protection laws may still come into play (Cal. Const. art. XV, § 1; California Civil Code § 1670.5). This can become a central issue when you’re trying to challenge an MCA’s terms in court.
Many Los Angeles business owners panic when the lender starts sending default notices. This often leads to a chronic pattern of late payments – or notices of default from lenders, especially if you signed a personal guarantee or a Confession of Judgment (COJ). Under California law, COJs aren’t enforced the same way they might be in states like New York, but that doesn’t mean lenders won’t attempt to seize your bank accounts or file suit in another jurisdiction. It’s important to respond quickly if you sense a lawsuit is coming, or if you see any language about a “COJ” in your agreement. Speaking to an MCA defense lawyer right away is crucial, because ignoring these notices could lead to a default judgment, which means the MCA lender might garnish your accounts or place liens on your assets.
Below is a quick table summarizing some defense strategies and the possible outcomes:
| Defense Strategy | Possible Outcome |
|---|---|
| Challenging Unconscionable MCA Terms | Potentially reduces or voids the debt |
| Asserting Usury or Violation of Lending Laws | Could invalidate portions of the agreement |
| Negotiating a Lump-Sum Settlement | Might lower your total debt and end daily ACHs |
| Filing Chapter 11 or Chapter 7 Bankruptcy | Can discharge/restructure debt but has downsides |
When we work with Los Angeles clients, we usually start by understanding the business debt landscape of their MCA contracts. We look at the total amount advanced, the factor rate, the fees, and the term structure. We check whether the agreement follows California’s commercial finance disclosure rules (SB 1235). If there’s ambiguity in the repayment schedule or the collection methods, that can give us leverage to negotiate a more favorable settlement. A lender that knows it might lose a court battle is often more open to lowering the payoff amount or extending the payment term—especially if you show proof of financial hardship.
Another major issue is the tax impact. If you settle your MCA debt for less than you owe, the amount forgiven could be considered taxable income by the IRS (IRC § 61(a)(12)). We recommend discussing this point with a tax advisor before you finalize any settlement. Also, if you consider bankruptcy—especially Chapter 7 or Chapter 11—you’ll want to weigh how that affects your ability to keep running your business. Chapter 11 can give you a structured way to repay some debts while getting rid of others. Chapter 7 might wipe the slate clean, but it can also mean closing up shop.
We frequently see clients who have multiple MCAs. The practice of stacking merchant cash advances can quickly sink a business, all pulling daily payments from their accounts. At a certain point, there’s not enough cash flow left to operate. This is where a debt consolidation or restructuring loan could help, provided you can qualify for it and the interest rates aren’t excessive. Alternatively, invoice factoring might be an option if you have outstanding receivables. By factoring invoices, you can free up immediate cash to manage your current debt payments. The downside is that factoring companies charge fees, and another option is to get a loan to pay off all of your existing debt. However, if it lets you avoid a lawsuit or prevents additional MCA defaults, it may be worth considering.
One scenario we see a lot is a lender threatening to file suit immediately if you miss a payment. In that case, your lawyer can reach out to the lender’s counsel and highlight the risks of going to court. For instance, if the MCA’s interest rate is toxic or if the contract language contradicts local statutes, the lender requires immense knowledge of the law, great negotiation skills, and the ability to fend off potential lawsuits. Lenders ultimately want to get paid back. They don’t want to spend money on lengthy litigation, and they don’t want a judge to potentially rewrite the contract. By demonstrating your financial reality—through bank statements, P&L statements, and a clear plan for moving forward—you can often negotiate. Sometimes, you can get more time (an extra 1-2 years to pay), a lower total amount due, or both.
If you feel like you’re about to go out of business, if the MCA lender already filed suit in an out-of-state court, you may need to challenge venue or jurisdiction. If the contract requires arbitration, you may need to push for an arbitrator in California or argue the arbitration clause is unenforceable if it’s unfairly one-sided. These nuances can be pivotal in your defense. That’s why it’s crucial to have experienced MCA lawyers—backed by a dedicated team that understands every step of this process.
At DelanceyStreet Debt Relief, we often mention that no lender wants you to file bankruptcy, because they’d likely walk away with far less. The key is open communication. When a business has failed to make its minimum payments, and there was a chronic pattern of late payments, it’s better for all parties to restructure rather than shut down. We collaborate with our sister law firm, owned by an attorney, to ensure you get both top-tier negotiation tactics and legal representation if the matter escalates. We always ask for basic financials—like your last 6 months of business bank statements—to fully understand where you stand and build a strategic plan that might include extended repayment terms, a lump-sum settlement, or possible debt consolidation.
If you feel like your MCA debt is overwhelming you, you’re not alone. LA is filled with small businesses who turned to MCAs for quick capital, only to discover the high daily payments quickly become unmanageable. The main point is to act If you find yourself in a difficult position. Whether it’s negotiating directly, challenging the agreement’s legality, or restructuring your debt through a formal proceeding, you do have options. And if you take a proactive approach—documenting your financial constraints, gathering all relevant contracts, and reaching out to an experienced team—there’s a path to avoiding the worst outcomes, including bankruptcy or a default judgment.