Why Closing Your Bank Account Won’t Stop Your MCA — And It Could Make Things Worse

If you’re dealing with a merchant cash advance (MCA) that’s draining your bank account, it can feel tempting to simply close your account to cut off your funder’s access. However, that’s only a short-term solution that could actually make things worse in the long run. Closing your account doesn’t end your MCA, but it could cause your provider to take legal action against you.

What Happens When You Close Your Bank Account on an MCA?

Closing your business bank account may stop the automatic debits on your MCA, but it doesn’t eliminate the debt. 

MCA companies use ACH (short for Automated Clearing House) authorization in your contract to pull funds directly from your bank account. When you close the account, while the provider won’t be able to pull debits from your account, you’ll still have the contractual obligation to repay the debt.

When the MCA provider’s first debit fails after you close the account, they’ll consider it a missed payment, and your account may go into default. Many MCA companies are quick to take legal action after a missed payment, and the situation could escalate quickly.

Is It Legal to Close Your Account to Stop MCA Payments?

There’s nothing inherently illegal about closing your business bank account, but that doesn’t mean there won’t be legal implications that follow.

MCA agreements usually require you to maintain an active bank account with debit access. Some contracts even require you to notify the provider if you change your accounts or to maintain a minimum balance to ensure you can make each payment in full.

While you aren’t necessarily breaking the law by closing your account, you could be breaching your MCA contract by cutting off the company’s access to payments. If it seems that you intentionally closed the account to stop withdrawals, the company could treat it as a bad-faith act.

What Are the Legal Risks of Closing Your Account?

There are several possible legal repercussions from closing an account your MCA provider uses to process your daily or weekly debits.

• Breach of contract: If your MCA company determines you’ve intentionally closed your account to stop payments, it might consider it a breach of contract and your debt in default. Many contracts state that the entire balance becomes due if you default, not just the missed payments.
• Lawsuit and bank levy: If you default on your MCA, even if it’s unintentional, your funder may sue you and levy your bank account. They could pursue, among other things, a levy on your business and personal bank accounts to repay your debt.
• Confession of judgment (COJ): A COJ clause, which is common in MCA contracts, allows a funder to obtain a default judgment against you without going through the traditional court process. You may not even find out until the judgment has already been issued.
• Personal guarantee: Most MCA contracts include personal guarantees, under which you agree to be personally liable for the debt if your business can’t repay it. A personal guarantee allows an MCA company to come after your personal assets in a lawsuit.

What Does This Do to Your Business?

Closing your business bank account doesn’t just affect your MCA; it also interrupts your other payments. Your payroll and auto-payments, including vendors, insurance premiums, and subscription services tied to the account, are disrupted.

Depending on how quickly you can set up alternative payment methods, you could hurt your other vendor relationships or lose employees who aren’t paid on time.

There may also be longer-term banking consequences. When your accounts are closed under problematic circumstances, that information may be reported to ChexSystems, which could make it difficult to open a new business bank account.

Finally, if the MCA company determines you’ve defaulted and obtains a judgment against you, you could struggle to access additional credit and financing in the future.

What Should You Do Instead?

Closing your bank account could result in long-term damage to your business’s finances, especially if you’re doing it to try to get out of making your MCA payments.

If you’re struggling to repay your MCA debt, your first course of action should be to look for a reconciliation clause that allows you to lower your payments. You can consider negotiating directly with the MCA company for modified terms or a hardship arrangement but once you miss a payment they can still come after you legally. Make sure to do this before you miss any payments, as your options may become limited after that.

Another option is to explore MCA debt settlement. If you truly can’t pay the full balance, settlement could allow you to pay a sum that’s less than your full balance. The provider gets the assurance of some payment, while you get out of the contract for less money.

No matter what route you decide to go, it’s important to work with an experienced MCA business debt relief attorney who knows the ins and outs of MCAs. It’s best to speak to an MCA attorney to discuss options that will actually address the debt rather than short-term solutions like refinancing or consolidation, which simply restructure the debt without minimizing it.

How Tayne Law Group Can Help

Tayne Law Group focuses in MCA defense and business debt relief, and has over 25 years of experience helping struggling business owners. Our expert team of attorneys can review your contracts, identify potential defenses, and negotiate with your creditors on your behalf.

Early intervention is key — make sure to reach out before you’ve defaulted on your debt or had a judgment entered against you. To learn more, contact us today by calling (866) 890-7337 or filling out our short contact form to schedule a free phone consultation. We never share or sell your information, and all conversations are confidential.

Frequently Asked Questions

Can an MCA company collect after I close my bank account?

Yes. While an MCA company won’t be able to run ACH debits through closed accounts, they can still pursue collection through other means, including obtaining a court judgment against you or levying your other accounts.

Can they take money from my personal account?

If you signed a personal guarantee, you agreed to be personally liable for your MCA debt if your business couldn’t pay it. In that case, the company could go after your personal accounts for payment. They wouldn’t be able to take the money on their own — they would need a judgment that allowed them to do so.

What if the MCA is already suing me?

If your MCA company is already suing you or there’s been a default judgment issued against you, speak to an attorney immediately. You’ll have fewer options than if you had addressed the issue before default, but there are still some possible remedies.

Will closing my account hurt my credit?

Closing your account won’t directly hurt your credit, but that could be the end result. Any defaults or judgments issued against you will become a part of your credit history and will make it more difficult to access new credit in the future. The ChexSystems issue can also affect your ability to open new bank accounts.

Is bankruptcy an option for MCA debt?

Bankruptcy could be an option to discharge or restructure your business debt, including the money you owe to MCA funders, but it depends on the type of filing and your specific circumstances. If you’re considering bankruptcy to address your MCA debt, it’s important to consult a business debt relief attorney before taking any next steps.