At DelanceyStreet Debt Relief, we focus on helping business owners who are overwhelmed by Merchant Cash Advance debt. Often, business owners accrue MCA debt because they were hoping to grow or perhaps they needed a life line. Either way, now – that debt is toxic, and it’s impossible to keep up. Regardless – we can help you. Our sister law firm, owned by attorney Steven Raiser, focuses on strategic conversations, which require you to have the best possible team on your side when MCA creditors threaten lawsuits, default rates, and personal guarantees. Below is our nuanced breakdown of how we handle MCA defense in San Jose, California, and why it matters to your business.
Understanding How MCA Debt Works in California
MCAs are commonly described as the “sale of future receivables.” But in practice, the daily or weekly deductions can resemble a traditional loan more than a revenue-based arrangement. When we review your MCA contract, we check if it violates California Constitution Article XV or Cal. Civ. Code § 1916-1 by charging interest at levels that are effectively usurious. At the same time, if the MCA provider used deceptive collection methods, California Business & Professions Code § 17200 might come into play for unfair or misleading business practices.
Many business owners enroll in an MCA because they were hoping to grow; or perhaps they needed a life line. Now, that debt is toxic, and it’s impossible to keep up. DelanceyStreet Debt Relief firmly believes that open communication is one of the main reasons creditors are often willing to listen to you. Our team prides itself on establishing lines of communication with lenders immediately after you join our program. By using your up-to-date balance sheets, your cash flow statements, and P/L statements, we have clear objectives, with an aim to reduce the total owed, get lower interest rates, and stretch out your payment schedule.
Dealing with Default & Personal Guarantees
When you default on an MCA, the debt can escalate quickly. Some MCA contracts contain personal guarantees, enabling creditors to pursue your personal assets if your business misses payments. They might also move for a writ of attachment (Cal. Code Civ. Proc. § 483.010) to freeze your accounts. If there’s a “confession of judgment” clause from another state, the MCA provider might try to enforce it in California—though local courts can scrutinize these clauses for due process and jurisdictional issues.
It’s important you negotiate with your creditors. Often, there are many tell tale signs that demonstrate you’re a candidate for business debt relief, such as persistent late payments, strained relationships with vendors, or notices of default from lenders. When you see these signs, it’s time to consider how to protect your personal assets. Our sister law firm focuses on how your personal guarantee was disclosed and whether the MCA was structured in a way that violates local or federal lending laws.
Exploring Different Defense Scenarios
Defending against MCA claims can involve multiple strategies. Below is a quick reference table that shows a few scenarios we regularly encounter in San Jose:
| Scenario | Legal / Negotiation Strategy |
|---|---|
| Contract Is a Disguised Loan | Cite usury provisions in CA law and argue the MCA violates interest rate limits |
| Aggressive or Unfair Collection Tactics | Potentially file counterclaims under Cal. Bus. & Prof. Code § 17200 |
| Enforcement of Personal Guarantees | Examine disclosure, challenge enforceability, negotiate for removal |
| Confession of Judgment from Another State | Argue it’s unenforceable in California due to jurisdiction and due process |
At DelanceyStreet Debt Relief, we know every business has its own unique circumstances. Many business owners accrue business debt, because they were hoping to grow; or perhaps they needed a life line. Either way, now – that debt is toxic, and it’s impossible to keep up. We focus on securing a workable outcome, which might mean negotiating a monthly payment plan or contesting the entire agreement.
Tax Consequences & Debt Relief
Settling an MCA debt can sometimes trigger tax implications. If your creditor agrees to forgive part of what you owe, the IRS may consider this cancellation of debt income (see IRS Publication 544). Depending on whether you’re “insolvent” under IRS rules, you might be able to exclude some or all of that forgiven amount from your taxable income. We know these nuances matter. Whenever we negotiate a settlement, we want you to be prepared for the tax side of the equation. We often recommend consulting a qualified tax professional once we see the projected settlement terms.
Negotiation vs. Litigation
Negotiation is one of the most important things if you’re dealing with creditors. We focus on showing creditors your current cash flow constraints, referencing your financial statements, and laying out a clear plan for partial repayment. When that fails—maybe because the MCA provider is uncooperative or demanding too much—we look at whether litigation is viable. Litigation can be time-consuming and expensive, but in some cases, it’s the only way to force a reduction in principal or challenge questionable contract terms.
Common Situations:
- You receive an immediate threat of lawsuit from the MCA provider.
- The MCA provider attempts to seize funds from your account or garnish receivables.
- You’ve discovered the MCA terms may be unenforceable because they surpass legal interest limits.
Deeper Strategies for MCA Debt Relief
It’s not just about negotiating or suing. Below are other considerations:
- Bankruptcy: Filing Chapter 7 or Chapter 11 in California can halt collection attempts through the automatic stay. However, it can also impact your credit and your ongoing business operations. We consider whether bankruptcy is the best option for you, or if there’s a more direct approach.
- Debt Restructuring: One option is negotiating with creditors to extend your repayment period, get a lower interest rate, or reduce your principal. We’ve seen how open communication can help you get a workable plan.
- Refinancing: In some cases, a new financing option might pay off the MCA debt and consolidate your obligations, giving you a lower overall interest rate.
- Cutting Costs / Asset Liquidation: No one wants to cut costs, but sometimes, it’s the best route. Selling non-essential business assets or reducing overhead can free up cash to tackle your MCA obligations.
Why DelanceyStreet Debt Relief is Different
We’re a dedicated company, and we focus on helping businesses like yours avoid going out of business. Our team understands the laws that affect MCA agreements in California. We also rely on a sister law firm for legal analysis. Because we combine negotiation skills with legal expertise, we can address each point of contention—whether it’s an inflated interest rate or an improperly disclosed personal guarantee. We don’t just save you the time of dealing with creditor calls and paperwork. We tailor our approach based on your specific challenges, whether you’re dealing with a large corporate creditor or a small MCA outfit.
- Over 80% of our clients enter into a monthly payment plan.
- Over 80% of our clients get an additional 1-3 years on their term.
- Over 80% see a substantial reduction in their overall balance.