When a small business owner defaults on one or more merchant cash advance(s) (MCA) it is likely that the alternative lender will utilize the collections methods allowed under the Uniform Commercial Code (UCC) and file a lawsuit against you in a state which is beneficial to MCA companies. And, when small business owners are sued most do not know the gravity of what is happening. In fact, more than 9 in 10 small business owners who are sued never have their lawsuits answered and ultimately end up with a judgement. Once a judgement is achieved, the alternative lender will begin attempting to collect your debt by any means possible. This article presents several important aspects about judgements, what alternative lenders can and will do to you, and some things that you can do to avoid the perils of dealing with a judgement.
Thomas Tramaglini, Chief Operations Officer
Partner, Center for MCA Research
How most alternative lenders or MCA companies view you and your business if you default.
When a small business owner defaults on an alternative loan or merchant cash advance (MCAC), most MCA companies or alternative lenders view you as thieves. That is, you agreed to sell them your future receivables and did not deliver what they were supposed to receive in return. Therefore, to them you robbed them.
So, understand the following is absolutely true (by most alternative lenders).
They do not care if you are emotionally or financially ruined.
They will do whatever they can to take all any assets (some illegally) they can get their hands on from you.
They are not your friends do not care if you suffer.
What is a judgement from an alternative lender or MCA company?
A judgment is essentially a court decision in a legal case. If you fail to respond to a lawsuit, you may face a judgment that allows the MCA company to start garnishing your funds, seizing your assets, or liquidating your equipment. MCA companies typically bring lawsuits in jurisdictions outside the business owner's home state, making it necessary for the business owner to hire an attorney in that jurisdiction, which can be challenging. This is because the laws in those states generally favor MCA companies. For example, many MCA lawsuits are filed in locations such as New York due to the favorable laws for MCA companies there.
For example, in New York, if 30 days elapse after serving a lawsuit to an out-of-state business owner, a law firm clerk can visit the court and obtain a judgment order signed by a clerk (not a judge) without prior notice. Without hiring a lawyer, a small business owner who does not respond to the lawsuit risks facing a judgment, allowing MCA companies to pursue the business and personal assets of the small business owner.
You not only have a judgement against your business, you likely also have a judgement against you personally.
Most alternative lenders make you up front personally guarantee your loan or advance. This means that they will likely sue you personally (on top of your business).
When you have a judgement against you, it can affect you in several ways, including consistent harassment, negative effects on your personal credit, garnishment of future wages, difficulty acquiring funding for housing, cars, credit cards, and more.
People who have judgements should understand the importance of having one against you personally - for instance, you can shut down your business, but it is much different to deal with a judgement on the personal side.
What Happens After a Judgment is Filed Against Your Business by an alternative lender or MCA company?
After the judgment is submitted, the alternative lender will initiate efforts to recover your unpaid debt using all available methods.
Some of the efforts include
Filing domestication processes in your home state to seize available assets.
Emailing and harassing you.
Calling and harassing you.
Calling and harassing your customers and vendors.
Harassing you on social media.
Garnishing your wages.
Restraining and recovering money from:
Vendors.
Payroll providers.
Credit Card and ACH processors.
Bank Accounts.
Can I "undo" the judgement from the alternative lender or MCA company?
Once the alternative lender has received a judgment through the legal process, it is unlikely you can remove the judgement. However, there are some circumstances where the alternative lender will agree to vacate the judgement which removes the judgement but does not remove the active litigation. The team at Beacon and our attorneys have had success in this area.
Judgement Fees and Leverage - What you do not want.
When a small business owner is sued by an alternative lender, they are sued for a posed amount including damages and legal fees. When a person or small business answers their lawsuit, they can almost always avoid some or all of the damages, penalties, as well as some court and legal fees.
However, once you have a judgement, the cost is much higher and any legal defense or leverage you have will be gone.
So, when the question is to get an attorney to answer the lawsuit, the cost of an attorney or firm to work with you is most of the time much lower than not doing what most small business owners do, nothing.
Once I get a judgement, can I continue to fight the judgment in court?
After you get a judgement, there is little that you can do to defend yourself.
However, one thing that a professional consultancy who works with small business owners who have judgements can do is work with our legal team to find any way possible to re-open your case and fight what is in the record to vacate your judgement. Our team understands that it is an uphill battle but our legal team has had success in this area finding things that were done to you and your small business illegally during the process or address things that might cause the case to return to court. Obviously, every one of our attorneys reviews cases and if we can find a way to poke a hole in the case, we can and will do that.
Finding Brokers and those responsible for defaulting accountable.
In some cases, brokers who are unethical can be held partially or fully accountable for what they did which caused you to default. Neither you or the cash advance company likes brokers who cause you and your business to default. We have written extensively about the many unethical brokers who have caused massive problems.
Working out a settlement on your own - Probably not a good idea for most.
One thing you can do is contact the creditor to get on a payment plan, which typically stops the collections process. The issue with directly contacting the alternative loan company or their attorney is that they have a judgement against you and that means that they will likely offer you harsh terms that you cannot keep. Also it is important to note that the collections company and attorney get a 20-25% cut and the faster you pay them the faster they get paid.
Remember, collections companies, their attorneys, and for sure the alternative lenders DO NOT care about you or your business. They care about getting paid, as well as getting their investors paid (if they have them).
Once I get a judgement, can I get a discounted payback on what I owe?
After a person has a judgement, technically you are liable for the amount you owe in the judgement.
Some alternative lenders and their attorneys will work with you and lower the costs, however it is almost always better if you use an attorney or reputable consultant like Beacon Client Solutions as they already have a relationship with the creditors which can make a big difference when it comes to lowering the fees/damages and payback. No alternative lender who has a judgement has to reduce the judgement amount.
Bankruptcy.
Filing bankruptcy is something we consistently hear from clients who are under water from MCA companies. In some ways this is best for the client. In some ways it may not be.
So, if you decide to file bankruptcy, here are some things to consider:
If you file bankruptcy, most will need to file both business bankruptcy and personal bankruptcy.
Bankruptcy may relieve your debt, but it does not vacate judgements.
Depending on your state, judgements last 5 to 20 years. So, while you may think you are relieving your debt, you will still have to deal with having a judgement on your record.
Threatening bankruptcy may also be leverage for negotiation. However, filing bankruptcy is important from the standpoint that if you are going to threaten it, you better be ready to pull the trigger or it can backfire against you.
Addressing your Debt the Right Way.
If you want to address your debt, skilled consultants like Beacon and our legal team can and will work to ensure that you can meet your obligations in a way which is acceptable.
We want you to continue to run your business, enjoy your life, and part of doing so is addressing the alternative loan and advance debt you have in the most affordable, meaningful way possible..
Our goal is to help you get to your goals.
Contact Beacon Client Solutions to better understand your situation and how we can help you.
Dr. Thomas Tramaglini is the Director of Operations and Negotiation for Beacon Client Solutions, a company that supports small businesses on a host of fronts, especially MCA debt. Thomas has been a small business owner for many years, as well as held leadership positions in several organizations and companies. Thomas holds a B.A. in History, as well as Master’s and Doctorates in Organizational Leadership from Rutgers, The State University of New Jersey.
Disclaimer: Beacon Client Solutions is not an accounting firm or a law firm. We specialize in business consulting. Although we collaborate with exceptional lawyers and accountants, we are not authorized to offer legal or tax guidance. Our services are closely linked to professionals who hold the necessary legal certifications. With extensive experience in MCA resolution, Beacon Client Solutions comprehends the challenges faced by small business owners, particularly related to MCA. We cater to clients across all 50 states, Puerto Rico, Mexico, and Canada.
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