I’m Facing a Merchant Cash Advance Lawsuit in New York. Now What?

merchant cash advance lawsuit

As a small business owner, maintaining cash flow can be challenging. For example, you might have relied on a merchant cash advance to cover your expenses. Except now, you’re behind on payments and facing an MCA lawsuit in New York.

You might be wondering, “now what?”

First, know that there’s no need to panic. Below, we walk you through what happens when facing a merchant cash advance lawsuit in New York, plus what to do next.

What is a Merchant Cash Advance?

A merchant cash advance (or MCA for short) is a type of alternative financing for small businesses. Some well-known merchant cash advance companies include Bitty, Everest, and Cloudfund. Technically, an MCA isn’t a loan. Instead, it’s a type of credit in which a business receives funding in exchange for a portion of its future sales. As such, merchant cash advances aren’t subject to the same regulations as loans.

Relying on merchant cash advance lenders can be expensive. The cost of doing business is the factor rate based on your risk as a borrower (the higher the risk, the higher the rate). Factoring in fees, the typical annual percentage rate on an MCA can equal 350% or more. When it comes time to repay the advance, the MCA company may automatically take a cut of sales until the debt is satisfied. Or the company might make daily or weekly withdrawals from the business bank account until the balance — plus fees — reaches $0. For these reasons, it’s easy for businesses to become trapped in a cycle of debt. And for small businesses that are still growing and might have unpredictable cash flow, defaulting on their payments can be a real danger. Moreover, the MCA company may sue when that happens.

What Happens With a Merchant Cash Advance Lawsuit?

Ideally, you should only take out an MCA if you’re confident that you can pay it back. Of course, owning a small business means income and expenses can be unpredictable. And you never know when extenuating circumstances (like a global pandemic) could harm your business.

If you fall behind on your MCA payments, the lender will likely work to recoup that money. They might even revise your payment plan. However, if you continue to miss payments, you could face a lawsuit for breach of contract. You could also have UCC notices sent to your payors. 

Merchant cash advance lawsuits are often filed with the state of New York. That’s because laws in this state tend to be more favorable for MCA lenders. In addition, many MCA companies include a stipulation in their contracts that allows them to file lawsuits in New York. This applies even if your business is not located there. 

Additionally, many MCA contracts include a “confession of judgment.” This clause states that if you stop making payments, the creditor can obtain a judgment against you. They can do so without ever notifying you or allowing you to represent yourself in the court proceedings. A judgment allows the creditor to collect your debt more aggressively by freezing your bank account, placing a lien on your property, and more. 

If you’re located outside of New York State

Say your contract does not include that clause, and the MCA lender decides to sue you. In that case, you will be served an official complaint letter and court summons. Often, the agreement you signed with the MCA creditor will alter the usual service of process in lawsuits. The typical process is to have the paperwork handed to you directly at home or work. This process is considered a “proper service.” However, some New York law firms representing MCA lenders may have these documents served through the US mail or email. So even if you operate out of state, you can be served in NY — but you might not know you have been sued if you miss the email or letter. This can be very dangerous.

Service may be considered effective if the summons date was emailed or dropped in the mail. So if you are located outside the state of New York, the time you have to respond to the lawsuit could be cut significantly by the time it reaches your hands (if it even reaches your hands). Depending on the contract you signed and other circumstances, it may be possible to contest this type of service as improper. The worst case is that you do not know about the suit, and they enter a judgment against you and your business. It is essential to work with an attorney to resolve these matters.

What to do if You’re Facing an MCA Lawsuit

If you are sued by an MCA lender, it’s important to respond right away. Your summons will include a

If an MCA lender sues you, it’s important to respond right away through a New York licensed MCA attorney. Your summons will include a deadline — often 30 days — by which you need to file a formal defense. If you don’t, the MCA company can eventually file a motion for a default judgment. At that point, you could have your accounts frozen, liens placed against your property, business cash flow seriously interrupted, etc. 

Hiring an attorney with experience defending against merchant cash advance lawsuits should be your next course of action.

How a Seasoned MCA attorney can help:

A seasoned MCA debt settlement attorney can:

  • Evaluate whether the creditor followed the law. There are certain rights you have as a borrower. Violating any of those rights could cause the case to be dismissed. A lawyer knows the ins and outs of debt collection laws and can identify when an MCA lender breaks them or if the contract has questionable terms that can be a basis for a defense in an action.
  • Determine if the breach of contract lawsuit is valid. For example, your lawyer can require the creditor to prove that you owe the debt and that it is legally owed to the MCA company. If there was a confession of judgment clause and you already have a judgment against you, an attorney can review the contract and see whether it was valid.
  • Look at whether you were served properly. In some cases, your court documents and summons may have been served improperly. Your attorney can assess your situation and determine whether the case should be dismissed based on how you were served. 
  • Help you settle your debt. You may be able to avoid going to court entirely by working out a settlement with the MCA lender through the attorney. This involves paying less than you owe and requires careful negotiation. An experienced MCA debt settlement attorney can negotiate on your behalf and get you the best deal possible.
  • Help you overturn a judgment or win the lawsuit. If you already have a judgment against you, your attorney may be able to have it dismissed. If you were sued in error, your lawyer could help get the judgment vacated or help win the suit where the matter is dismissed.

The Bottom Line

Tayne Law Group, a New York-based business debt relief firm, has been focusing on merchant cash advances and other types of business debt for more than 20 years. If you’re being sued by an MCA lender or think you will be, we can help you put together a strategy to resolve your business debt and keep your business running. 

Though it’s possible to handle an MCA matter or even a lawsuit on your own, it’s risky. Working with our experienced MCA relief attorneys can save you hours and the stress spent researching and communicating with creditors. Plus, you don’t have to deal with harassment from constant phone calls and emails. We have the expertise to navigate debt collection laws and help you devise a custom plan.You don’t have to commit right away to the process. Find out your options and what we can do to help. The consultation is free so that you can learn about our process and the best strategy available to you. At the very least, you’ll have a better idea of how the process works and the position your business is in before, during, and after it’s over. You’ll know your choices for how to proceed. Give us a call at (866) 890-7337 or fill out our short contact form. We never share your information, so you can ensure all information and discussions are confidential.

Related Posts

debt settlement attorney

Do You Need a Debt Settlement Attorney? 4 Cases When You Do

Unfortunately, debt is a way of life for most Americans. In 2021, total outstanding consumer debt reached a record $15.6 trillion, according to new data from the Federal Reserve Bank of New York. A large chunk of that debt came from mortgages, as well as credit card balances, which increased by $52 billion in the […]

Read Now
credit card processing loans

What Are Credit Card Processing Loans?

If you’re looking for financing options for your small business, you might have come across something called “credit card processing loans.” They could help you get the funds you need to keep your business functioning. But there are also some big risks you should know about before borrowing any money.  So before you agree to […]

Read Now

What is debt relief?

Debt relief is an umbrella term representing many solutions that may lower your debt. What kind of debt do you have?

black woman cartoon next to question mark

Need other debt help?

If you’re dealing with a lawsuit, judgment, frozen bank account, notice of wage garnishment, lien, or simply feel out of control of your debt–you are not alone. Give us a call or schedule a free consultation. We’ll help you understand what’s going on and find the best possible debt solution.

Why people choose Tayne Law

A debt relief law firm

Personalized Program

Every situation is unique. We’ll work with you to find a solution that resolves your debt and frees up your cash flow.

No-billing
Policy

You make one low monthly payment and will never get an unexpected bill.

Experienced NY Debt Attorneys

We have more than 20+ years of experience providing clients with debt relief.

Confidential & Trusted

As a law firm, our attorneys follow strict client confidentiality. Our services are discrete and effective.

Work with Creditors

We work with all creditors, whether you’re dealing with a collections firm, a national bank, credit union, or another lender.

cartoon man with envelope

Money moves to help you stay on track

Sign up for monthly updates, articles, money advice, and timely topics to keep your finances on track.

Request a Free Consultation

Your initial phone consultation is free and requires no committment!
A team member will respond within 1 business day.

tayne icon on cartoon letter in enveloper

Message Sent!

A Tayne Law team member will respond within
1 business day.