Many Phoenix-based business owners realize their merchant cash advance debt is toxic, and it’s impossible to keep up. You might have started with one MCA when you needed quick capital, then added multiple MCAs when revenue slowed in order to borrow your way out of the slow down. Now, the daily or weekly payments are too difficult to keep up with. At DelanceyStreet Debt Relief, we understand how this can happen, and we know strategies that may help.
Why MCAs Become Toxic
Phoenix is home to many business owners who were hoping to grow. Merchant cash advances often seem attractive because they’re faster to qualify for, and they don’t require perfect credit. Virtually anyone with revenue can get one. But once revenues slow, you can’t keep up, and your MCA provider might threaten legal action for missed payments.
Important to Know:
- Arizona law can enable creditors to obtain quick judgments if your MCA contract includes a personal guarantee or a Confession of Judgment.
- Once you default, the provider can accelerate the total balance, add fees, and attempt to use your personal assets.
Bottom line: The daily repayment structure, combined with high factor rates, can lead to multiple MCAs that crush your cash flow. That’s where our role—and an experienced attorney’s role—becomes crucial. At times like this, you need our MCA defense lawyers.
Potential Legal Repercussions for MCA Defaults
When you miss even one payment, the MCA provider often comes after the entire amount. They are quick to consider you a defaulted merchant, and take legal actions. Often, merchant cash advance lenders make more money if you default on your advance. If there’s a Confession of Judgment in your agreement, the lender can skip several legal steps and file for a judgment right away. Once a judgment is in place, the creditor can garnish bank accounts or place liens on your property. We see Phoenix business owners realize they are in trouble because they assumed the MCA applied only to the business, but the personal guarantee triggers deeper liability.
- Lenders prefer to collect without going to court, but they will take legal action if you ignore them. Often, they have built in provisions to do this.
- Arizona courts can process Confessions of Judgment swiftly, leaving you no time to respond.
Strategies for Business Debt Settlement in Phoenix
When you’re behind on merchant cash advances, there are multiple paths forward. No single strategy works for everyone. Below are common approaches:
- Direct Negotiation
- Contacting the MCA provider early can help you avoid lawsuits. In many cases, lenders will modify payment schedules if you can show legitimate cash flow problems. They might work with you for a period of time.
- Sharing your recent income statements and cash flow projections can help convince them to work with you. If you can show the downtrend in revenue, this helps.
- Lump Sum Settlement
- If you have enough liquidity, you might offer a lump sum that’s lower than the total owed. This can be a strategic conversation.
- Pay attention to potential tax liabilities: under IRS Publication 4681, forgiven debt is often taxable. Arizona tax rules usually mirror federal guidelines, so you might face state taxes as well.
- Extended Payment Plans
- Sometimes, the lender is ok with adjusting the factor rate or the overall term, so your daily payments become weekly or monthly.
- It could be expensive, with the fees you are charged by the MCA lender. Some MCAs might add restructuring fees, making your total debt higher in the long run.
- Debt Consolidation or Invoice Factoring
- If you can qualify for a lower-interest term loan, you could pay off your MCAs and combine them into one payment. But you need decent credit or collateral for that.
- Invoice factoring can be a quick fix if you have unpaid invoices from stable clients. By factoring, you get immediate cash to reduce your MCA debt.
- Bankruptcy (Chapters 7, 11)
- This is a last resort if you cannot resolve your debts by other means. Chapter 7 or Chapter 11 can halt MCA collections.
- Remember, bankruptcy has long-term credit implications. We recommend you weigh all alternatives first.
Quick Overview of MCA Debt Solutions
| Strategy | Primary Consideration |
|---|---|
| Direct Negotiation | Lenders may prefer a settlement over litigation. |
| Lump Sum Settlement | Can reduce overall debt, but watch out for 1099-C taxes. |
| Extended Payment Plans | Lowers daily cash outflow, yet might incur additional fees. |
| Debt Consolidation/Factoring | Potentially one lower-interest payment, if you qualify. |
| Bankruptcy | Drastic measure; can wipe out unsecured debts but hurts your credit. |
How We Handle Lawsuits
If your MCA provider sues you or files a Confession of Judgment, respond quickly to avoid a default judgment. We work with our sister law firm to analyze the MCA contract, dispute questionable fees, and protect you from immediate seizures or garnishments. Sometimes, the lender’s paperwork has flaws that give us leverage to negotiate.
Personal Guarantees: A Hidden Trap
MCAs often come with personal guarantees. Many Phoenix business owners don’t realize they signed one until a lawsuit is served. Once you default, the lender can pursue your personal bank account and property. We work to reduce the total amount owed or restructure the loan to protect your personal assets. In certain cases, we can negotiate with MCA providers to release the personal guarantee.