When small business owners get overwhelmed with Merchant Cash Advance (MCA) debt and they cannot afford to pay back the MCA companies, the MCA companies, their collections firms, as well as their attorneys use several different tools to collect on the funds you owe. Three things that are commonly used are lawsuits, UCC liens, as well as domestication proceedings following a default judgement.
This article provides answers to common questions about Merchant Cash Advance lawsuits and defaults which our team answers each day. We discuss implications and tactics that small business owners should consider when the MCA companies are going after them.
By Thomas Tramaglini, Chief Operations Officer
Can they do that? The power of MCA companies.
Usually, when a merchant cash advance (MCA) company signifies a default has occurred, their playbook has already gone into motion. For instance, many MCA companies have contracts with collections firms and attorneys who help them recover funds from small business owners who have not paid back their advances of future receivables. The range of different tactics that MCA companies use start with harassment of your customers or vendors to filing lawsuits and filing liens (UCC).
Regardless, sometimes yes, the MCA companies can do what they are trying to do and sometimes, no. For instance, in the case of a lawsuit, once someone has retained an attorney, the MCA company should no longer be reaching out to the small business owner. The biggest issue is that most small business owners who default have no idea of what is allowed and what is not. That is why it is important to work with a reputable firm when you default on your MCAs. Firms who are schooled in MCA and MCA law will help defend you, your business, and your future.
Because MCA companies and the parties that they work with will take advantage of the small business owner, it is imperative to at least consult a firm who helps small business owners as knowledge and experience can make the difference between a small business owners successful future or failure.
But I never got served?
MCA companies commonly sue small business owners who have defaulted on their advances in states that are friendly to their cause, such as New York (research on MCA lawsuits here). In recent years, MCA companies become more prevalent in adding clauses to MCA agreements which allow for emails and common mailings of lawsuits for judgements. In some cases, our clients never see the lawsuit because it is in their spam folder. Some MCA companies do still serve their lawsuits using a process server but it is becoming less likely.
So, what if you never get served? Read your MCA agreement. The MCA company may not have to - remember, you only have a limited amount of time to answer the lawsuit and defend yourself before you receive a default judgement and ignoring the lawsuit because you did not get served can be a problem. Once you have a judgement
The big idea is DO NOT ignore your lawsuit as once you have a judgement you lose many of the tools you have to defend yourself.
Do you know if I have a UCC filed against me?
If you have defaulted or have had issues with your Merchant Cash Advance or business loan, you probably have a UCC lien filed against you in your state. You can find the UCC lien using our one of a kind UCC search tool.
The information in the lawsuit is not correct!
But the lawsuit or MCA agreement is not correct. Why should I have to pay?
If this is you, do not ignore the lawsuit because you may still get a judgement and realistically, the MCA company will be able to correct your lawsuit and continue to go after you.
If the MCA company's claims are incorrect, our attorneys can address those claims in counter-claims and motions to address those claims which we are quite successful in addressing. In some cases, we are able to get cases dismissed.
Should I just close my business so I no longer have to worry about paying the MCA company?
This is a common question we get - Many small business owners who we speak to just decide to shut their doors and that will protect them from the MCA companies. While it may be effective to close your doors to stop the bleeding from your current business situation, in most cases it only kicks the can down the road.
For sure, the MCA company will be suing you in a state friendly to the MCA company (New York, Texas, California, Virginia, Florida, Utah) and they will likely be suing your business (open or closed) as well as you personally. In many cases, the small business owner closes their doors, shuts down communications, and fails to defend themselves resulting in a judgement against their business and them personally.
Default Judgements will stay on your record and credit for 7-10 years depending on the state meaning that even if your business is closed, you will personally have a judgement against you. Therefore, the MCA company can attempt to collect from your future wages, seize your assets, bank accounts, and more. Further, a judgement will make it hard to borrow money personally (car, loan) because you will have a judgement which is on your record.
Should I just file for bankruptcy?
Filing for bankruptcy is an important question which many small business owners ask our advisors about. From our experience, this a very personal question and most people want to avoid filing for bankruptcy in any way.
However, bankruptcy is a tool that should be driven by a careful consultation and work with an experienced local attorney who can answer your questions. Depending on the type of business you have (LLC, corporation), the debt you have, as well as the amount you owe will drive which type of bankruptcy you will file.
The one point that we will emphasize is that filing bankruptcy will certainly give you some breathing room if needed. Yet, it will not satisfy your judgement on an MCA and in many cases, not only will the bankruptcy stay on your record from 7-10 years, so will the default judgement making it difficult to attain funding both for your current or new business, as well as you personally since most MCA companies sue your business and you personally.
So, the big idea is that while you may want to file for bankruptcy, it is not so simple, it takes time, and it takes money.
I will just open a new business so the MCA company cannot come after me?
This is a pretty common strategy that we get asked about.
Overall, there is nothing stopping anyone from starting a new business. However, even if you close your current business and start a new one the MCA company will likely find it. Sometimes, the small business owner can start a business and limited information would exist about their new business for the MCA company to find.
The most important warning we can give to small business owners is this: If you want to start a new business it does not relieve you of the MCA debt you have. If the MCA company sues your business or you individually, which is typical and you receive a judgement, the MCA company can file for domestication (process of bringing the judgement to your home state) in your state and collect their funds. The MCA company can garnish your future wages, take and liquidate your personal assets, as well as make your life miserable.
Can the MCA companies freeze or come after my business and personal assets?
Yes, MCA companies can and will freeze your business and personal assets. Look - you took a merchant cash advance and you did not pay the MCA back. The MCA company feels like you stole their money and they will relentlessly come after you any way they can until they are repaid.
Generally, the MCA company will use the Uniform Commercial Code (UCC) rules to send letters to your banks or vendors or customers legally freezing your accounts and assets and/or sue you ultimately getting a judgement and going after your funds through the courts.
Bottom line is avoid judgements.
Can the MCA companies get to my customers or factoring company and take my funds?
Yes, once an MCA company files a UCC lien against your business, the MCA company will send 406 letters to your banks, credit card processors, customers, factoring companies, or anyone who pays you, effectively freezing your funds and forcing you to halt operations and give into their demands, unless you can whether this storm.
Once your funds are frozen, the MCA company will begin to take those funds and most of the time you cannot do anything about it unless one of our attorneys can get a restraint on the process.
Do not take UCC lightly. Yes, MCA companies can take your money as you have agreed to it in your MCA agreement.
Can the MCA company garnish my personal funds or paychecks?
Yes, once you have a judgement, the MCA company can garnish your wages and most.
How Beacon Client Solutions Can Help.
Having to deal with MCA companies, collections firms, as well as their attorneys can he challenging. The Beacon team is a leading business consultancy skilled in helping small business owners deal with the challenges associated with UCC liens, lawsuits, and general MCA predators who aim at ruining your life. We have attorneys on staff who are experienced in addressing these lawsuits, as well as a longstanding body of work in restructuring business debt so you can survive and thrive again.
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 University, The State University of New Jersey.
Disclaimer: Beacon Client Solutions is not an accountancy, or a law firm. We are business consultants. While Beacon works with outstanding attorneys and accountants, we cannot and do not provide legal or tax advice. All our work is connected to those who are legally certified to give such advice. Beacon does have a longstanding body of work in MCA resolution and understands what small business owners deal with, specific to MCA. Beacon Client Solutions serves clients in all 50 states, Puerto Rico, Mexico and Canada.
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