If you’ve taken out a merchant cash advance (MCA) for your business and are struggling to repay it, you risk your lender taking legal action against you. Unfortunately, one of the potential outcomes of defaulting on your MCA is having your bank account frozen to repay your debt. If you’re struggling to repay your MCA and are concerned about adverse consequences, be sure to read this guide about when your lender can freeze your bank account, what steps to take if it happens, and proactive steps you can take to avoid it altogether.
Circumstances Leading to an MCA Freezing a Bank Account
While it’s not necessarily common for MCAs to be able to freeze borrowers’ bank accounts, it is possible. There are two primary situations where an MCA may be able to freeze your account.
Default on Payment
The most common reason your bank account would be frozen as the result of an MCA is if you default on your payments or otherwise breach your loan agreement.
To freeze your bank account, your MCA provider would need to file a lawsuit against you for breach of contract. Many MCA contracts include a confession of judgment, which is a clause that gives your lender the right to freeze or access your bank account if you default on your payments. Unfortunately, it allows your lender to bypass a Court trial altogether, meaning you don’t have the chance to defend yourself in court.
Even without a confession of judgment, the lender could still access your bank account by suing you and getting a default judgment, assuming you are sued and then don’t appear in court to argue your case.
Fraudulent Activities
Alternatively, it’s possible that it was your bank rather than your MCA provider that froze your bank account. A bank can freeze — or even close — your bank account at any time. Your bank may close your account if it’s become inactive, or has racked up too many fees.
However, it may also freeze your account if it suspects fraudulent activity. This may be the case if the bank believes you’re either the victim or the perpetrator of the fraud.
For example, suppose you take out an MCA that turns out to be fraudulent. If the company continues to withdraw money from your account illegally, your bank could freeze the account. Don’t worry, though — you should be able to recover your funds once the issue is cleared up.
How to Identify if Your Bank Account Has Been Frozen
Chances are that you’ll notice if your bank account has become frozen or otherwise inaccessible. You’ll likely get a notice from the bank. Still, it’s important to know what signs to look for and how to determine for sure whether your account is frozen.
Signs of a Frozen Account
First, there will be some signs that your bank account is frozen, some of which may be more noticeable than others. For example, you may find that:
- You can’t access your money
- You can’t log into your account
- You can’t transfer funds
- You can’t get money from an ATM
- Your deposits won’t clear
In other words, if you notice that your transactions won’t go through or you can’t access your money, it’s possible your account has been frozen (though you should verify that’s the case).
Communication from MCA Provider
It’s possible you’ll find out directly from your MCA provider if they’ve frozen or levied your bank account. This could happen by phone, email or text.
If they sue you then the MCA attorney is required to notify you if they sued you for breach of contract. You should receive a summons and complaint and may in fact be served either in person or by email. In fact, if you don’t receive notification of the suit, you could use that as a defense in court. It’s common in MCA agreements to waive many of your rights to service of a lawsuit so be aware someone may not show up at your door to serve you.
Additionally, your MCA provider may also reach out after the fact if they’re successful in freezing your bank account and advise you so that they can discuss how you want to pay them the rest of the money they claim you owe them.
Checking with Your Bank
Your bank account should notify you if they’ve frozen your bank account, whether it’s because of a creditor lawsuit or for any other purpose. However, if the bank doesn’t notify you or you miss the communication from the bank, you can simply contact them to check. They’ll confirm whether your account has, in fact, been frozen and by whom.
Steps to Take If Your Account is Frozen
If your bank account is frozen, it’s natural for your first step to be to panic. However, it’s important to remain calm so you can take the appropriate steps to resolve the issue.
Contact the MCA Provider
If you’re having any issues with your MCA, including a frozen bank account, start by contacting an experienced MCA debt relief attorney to discuss your rights. Don’t just haul off and call the creditor because you could be giving up some rights. If you’re truly behind on your debt and unable to pay, there may not be much they can do to help you but you won’t know that if you don’t contact a debt relief attorney who specializes in business debt like MCA. However, you can see if there’s any possible resolution that doesn’t involve freezing or garnishing your bank account. For example, you may attempt to negotiate a settlement.
Review Your MCA Contract
Ideally, you would have already read the fine print of your MCA agreement when you initially borrowed the funds. Either way, this is a good time for a refresher. Make sure you understand exactly what’s expected of you as the borrower, as well as what rights and recourse the contract gives the lender if you default on the loan. Notably, keep an eye out for a confession of judgment, which could be how the provider was able to freeze your account.
Consult a Legal Professional
If you’ve defaulted on your MCA and have lost access to your bank account, it’s probably time to get a legal professional involved. An experienced MCA attorney has likely helped plenty of people in exactly your situation. They know the ins and outs of MCA agreements, including common issues with them, how to navigate confession of judgment clauses, and more.
If you’re on the fence about hiring an MCA attorney, set up a consultation. Many attorneys offer free initial consultations where you can discuss your case, get their initial feedback, and determine whether working together is the right choice for you.
You’ll especially want legal representation if you plan to negotiate a settlement with your MCA provider or need to defend yourself in court to have your bank account unfrozen. Remember, your chances of a successful outcome are far greater with an experienced professional by your side.
Resolving the Dispute
The final step after your bank account has been frozen is resolving the dispute. This resolution could come in a few different forms.
First, you may try to negotiate a settlement with your MCA provider. When you settle your debt, you often work with your lender to find a lower amount you can both agree to. You may also negotiate to have certain interest and fees waived. Alternatively, you could restructure the debt to make it easier to repay.
If you’re unable to negotiate a settlement, you may need to appear in court. Unfortunately, if your MCA has a confession of judgment clause, they may be able to freeze your bank account without going to trial, but you may have the option of going to trial later on.
If you aren’t able to resolve the issue another way, you can explore other options, such as debt consolidation (meaning taking out a new loan to pay off the outstanding MCA debt). However, if you can’t qualify for a debt consolidation loan and have exhausted your other options, you may be left with either repaying the debt or resorting to more drastic measures like bankruptcy.
Preventive Measures to Avoid Account Freezing
If you’re a small business owner and want to ensure you don’t end up with a frozen bank account, there are some proactive steps you can take.
Read Your MCA Fine Print
One of the most important steps you can take comes before you even take out an MCA and that’s reading the fine print on the agreement. Unfortunately, many of the issues with MCA stems from the fact that borrowers don’t entirely understand the terms.
It’s important to know all of your legal rights and responsibilities as the borrower, as well as what recourse your lender has if you stop making your payments or breach the contract in another way. It’s especially worth looking out for a confession of judgment clause, which is what allows lenders to so easily freeze or levy borrowers’ bank accounts.
Keep Up with Payments
This may seem obvious, but you can avoid a frozen bank account and other issues by staying on top of your payments. MCAs often automatically withdraw your payments directly from your bank account, per your agreement. However, it’s important to make sure those payments continue to happen. Falling behind on your payments is the fastest way to find yourself in a legal battle with your MCA provider.
Monitor Your Financial Health
Even if you’re able to easily make your MCA payments today, circumstances can change quickly. The best way to avoid a situation where you can’t make your payments is to proactively stay on top of your financial health. Monitor your business’s revenue and spending frequently so you’ll immediately be aware of any small issues that could turn into larger ones down the road.
Address Issues Early On
If you reach a point where you may not be able to make your payments, it’s time to act. Don’t wait until your MCA provider is suing you. If you contact your provider as soon as trouble arises, they may be more willing to work with you and restructure your debt to make it easier for you to repay. This can help you avoid a confession of judgment.
How an MCA Attorney Can Help
If you’ve had your bank account frozen by your MCA provider or are concerned you may in the future, consider hiring an MCA attorney to help. At Tayne Law Group, we have a team of experienced attorneys with expertise in this area who have helped plenty of other business owners through what you’re going through.Â
To learn more, schedule a free phone consultation today to discuss the services we provide and find out if we’re the right fit. Call us today toll-free at (866) 890-7337 or fill out our short contact form to schedule yours. There’s no obligation, and we never share or sell your information.
