MCA Company File A Lawsuit Against You?
What to Expect.
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Frequently asked questions
When a merchant cash advance or alternative loan company sues you it signifies that they are taking their debt collections to another level.
Litigation does the following:
Begins collections through the courts using a legal process.
Looks for you to get a judgement so they can collect the MCA company's funds legally.
Attempts to put the business owner who is in peril in a place of defenselessness because the lawsuit is usually filed in another state which causes a host of issues for the client.
Impacts the client's business credit, and in some cases personal credit.
Formally looks to hurt the reputation of the client.
The MCA company is suing you for several reasons.
Some of the major reasons are:
They want to recover the funds you sold them (purchase of future receivables) and did not deliver.
To get the small business owners to negotiate payback. (This is very successful and usually not good for the small business owner as they get taken to town more than they were taken to town when they took the MCA in the first place).
To placate their investors. MCA companies are not banks and not usually supported by bank lines. That is, people invest into a fund managed by people who claim to be underwriters, risk managers, or fund managers. When the investors who are used to getting paid back fast at high returns do not get paid, they stop investing. If the MCA company shows the investor they are tough and sue the client, they attempt to placate the investors.
Some MCA companies just want to hurt the small business owner for any of many reasons.
To ruin your personal and business credit until you pay the MCA company.
This is a good question.
MCA companies are slick in the way that they want you to personally guarantee the future sales you may have. Because they have sued your business, filing an answer by yourself if not allowed in NY courts. "Pursuant to CPLR §321(a) and applicable case law, a limited liability company is required to appear by counsel." So, you need an attorney to answer your lawsuit.
Most states require business owners to answer lawsuits using an attorney. So, do not try to answer the MCA lawsuit yourself.
For instance, like other states, New York law specifically says:
Pursuant to CPLR §321(a) and applicable case law, a limited liability company is required to appear by counsel
Section 321 - Attorneys
(a) Appearance in person or by attorney. A party, other than one specified in section 1201 of this chapter, may prosecute or defend a civil action in person or by attorney, except that a corporation or voluntary association shall appear by attorney, except as otherwise provided in sections 1809 and 1809-A of the New York city civil court act, sections 1809 and 1809-A of the uniform district court act and sections 1809 and 1809-A of the uniform city court act, and except as otherwise provided in section 501 and section 1809 of the uniform justice court act. If a party appears by attorney such party may not act in person in the action except by consent of the court.
(b) Change or withdrawal of attorney.1. Unless the party is a person specified in section 1201, an attorney of record may be changed by filing with the clerk a consent to the change signed by the retiring attorney and signed and acknowledged by the party. Notice of such change of attorney shall be given to the attorneys for all parties in the action or, if a party appears without an attorney, to the party.2. An attorney of record may withdraw or be changed by order of the court in which the action is pending, upon motion on such notice to the client of the withdrawing attorney, to the attorneys of all other parties in the action or, if a party appears without an attorney, to the party, and to any other person, as the court may direct.
(c) Death, removal or disability of attorney. If an attorney dies, becomes physically or mentally incapacitated, or is removed, suspended or otherwise becomes disabled at any time before judgment, no further proceeding shall be taken in the action against the party for whom he appeared, without leave of the court, until thirty days after notice to appoint another attorney has been served upon that party either personally or in such manner as the court directs.
(d) Limited scope appearance.1. An attorney may appear on behalf of a party in a civil action or proceeding for limited purposes. Whenever an attorney appears for limited purposes, a notice of limited scope appearance shall be filed in addition to any self-represented appearance that the party may have already filed with the court. The notice of limited scope appearance shall be signed by the attorney entering the limited scope appearance and shall define the purposes for which the attorney is appearing. Upon such filing, and unless otherwise directed by the court, the attorney shall be entitled to appear for the defined purposes.2. Unless otherwise directed by the court upon a finding of extraordinary circumstances and for good cause shown, upon completion of the purposes for which the attorney has filed a limited scope appearance, the attorney shall file a notice of completion of limited scope appearance which shall constitute the attorney's withdrawal from the action or proceeding.
N.Y. CPLR 321
Amended by New York Laws 2022 , ch. 710, Sec. 1, eff. 12/16/2022.
You may use an attorney if your lawsuit is filed in your home state.
Many times, we hear the client tell us that they have an attorney. Remember, anyone getting sued must retain an attorney to defend themselves who is admitted to practice law in the State where the lawsuit was filed. That is, if the lawsuit is in New York, you cannot use an attorney from Texas unless they are admitted to practice law in New York (State).
Companies like ours have attorneys for this work and it is highly that you utilize one of our attorneys through one of our programs. Our attorneys are experienced in MCA law and know exactly how to handle any situation.
Only if you want to pay unreasonable payback terms and get screwed.
Most MCA companies will take advantage of you and use litigation, or just harassment to push you into a corner.
Never trust the MCA company or it's collections firms. Especially once they sue you.
Instead hire a company like Beacon Client Solutions who has expertise, a trustworthy legal team, and the ability to help you.
Because you are being sued, it does not mean you are going to get arrested or thrown in jail for defaulting. In fact, a common tactic that some brokers, collections folks, or lenders will threaten clients with criminal action if they do not pay immediately.
Remember, these lawsuits are civil actions, not criminal. Outside of making your life miserable, a lot would have to happen before it ever became a criminal action.
In some cases, brokers or lenders have been found to threaten family members, clients, or the business owner directly with violence. Frankly, if this ever happens, contact the police immediately.
We hear this all the time. “I did not get served.” Many times, small business owners waive the right to being served when they sign their MCA agreements. The best thing to do is check each MCA agreement (towards the end) for a clause which will tell you how the MCA company plans to send notice that you are being sued. Most of the time, MCA companies will mail in regular mail, mail via certified mail, or e-mail your notice to the small business owner. It is critical that you do not play games as you do not want to not respond to the lawsuit and arrive at a judgement.
Simple answer. The MCA broker does not care if you pay back the MCA unless its within their clawback period where they might have to return their commission. The MCA company just wants your money - they do not care about you at all.
When an MCA company sues you, you need to know one thing: Nobody on the other side cares. This means that the MCA company, their attorney, and if they are working with a collections company want you to pay and that is it. Most of the people who are on their side have a bottom line: You pay back or use whatever legal means necessary to force you to pay them back.
We have seen the good, the bad, and ugly of the MCA collections business. In many cases, many of the MCA companies are placating their investors and use things like UCC freezes, judgements and more to recover what is due to them. Overall, these folks are very Machiavellian, and they will stop at nothing to get what is due to them, regardless of who the client is.
YES!
Expect (if you have not had this happen already) to get calls, emails, texts, etc.
Brokers and MCA companies want you to pay them, and they will say anything to get you to do so. We do not want to stereotype everyone we know and have worked with this label, but many times these people can be brutal. Be ready if you have not been harassed to be harassed, several times per day, at night, morning, etc.
One of the benefits of working with our team is that we get these people off your back immediately, without recourse. Once we have reached out to the creditors, usually within hours they stop calling, texting, or emailing you.
In most cases, once you are served with the MCA lawsuit you have 30 days to respond to the lawsuit. If you live in the state where the lawsuit was filed (such as New York), the state gives residents 20 days to respond to the lawsuit. The most important thing is that you want to respond to the lawsuit regardless of the timeline.
Once your time period goes beyond the period you have to answer the lawsuit, the MCA company will move to attain a judgement against you and your business.
Judgements are bad. They show up on your credit, business credit, prevent you from borrowing money, and more.
There are debt settlement companies who offer attorney networks. Many companies claim to have a network of attorneys nationwide…
For instance, in a previous article we wrote…
This is just foolish. No MCA Settlement (or any company) has hundreds of attorneys nationwide. And good attorneys are worth their weight in gold.
For example, Shore Financial Solutions has this on their website:
“What happens if a creditor files a lawsuit?
Shore Financial Soluitons (Typo on Shore’s website) has an Attorney Network of 500+ local attorneys that handle all legal motions, as well as aid in the negotiations of your debts.”
Most of these attorneys will file an answer for a lawsuit if the business owner is sued but it’s not going to do much. When a summary judgement or some motion is forced by the MCA company, or you need a negotiator, I would not want one of the network attorneys who just push paper at your service.
Most good attorneys charge $400-$500 per hour. Our attorneys work for less but not much less. Networks like the “Sunshine Network” have (in our opinion) copy and paste attorneys which you pay $100 per month.
To the layperson it seems like a good idea. However, given the serious nature of a lawsuit, I would not want one of these attorneys representing anyone. This is not to say that some attorneys in the network are not good. However, I am saying that no attorney would charge $100 per month to defend someone in any serious manner.
MCA companies file lawsuits in states and venues which have favorable laws to them, not you.
In states like New York, where a majority of the MCA lawsuits are filed, once a waiting period for answering the lawsuit has passed, MCA companies can then have a court clerk (not a judge) sign a judgement against you and your business, without notice.
Once you have a judgement, MCA companies can partake in domestication proceedings in your home state to begin to collect from your assets.
If you want to close your business to avoid the lawsuit or paying back the MCAs, think twice if any of these conditions apply to you:
*You stopped payments on the MCA company(ies);
**You opened a new business, new bank account, or procured a new credit card processor;
***You took out multiple advances, even if not necessarily at the same time (stacking);
****You paid less than what you were contractually required to pay (the percentage of receivables that you sold);
*****You are getting sued personally (Personal Guarantee) so they can collect on you personally as well.
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If you answered yes to any of the questions above, please contact us NOW and one of our advisors will learn about your business situation and customize a solution that meets your needs.