Are you a merchant cash advance borrower who is facing legal action from an MCA provider? This can be a scary and stressful situation. The good news is there are measures you can take to safeguard yourself and your rights. Read on to learn the options available for a merchant cash advance defense when facing a lawsuit.
What are my Rights as a Merchant Cash Advance Borrower?
Understanding your rights is key if you have a merchant cash advance, especially if you’re facing a lawsuit from a merchant cash advance company.
A merchant cash advance (MCA) is a type of financing that allows small business owners to access funds quickly. However, it often comes with high fees and confusing terms. MCAs are not considered loans, so they aren’t subject to most of the laws that apply to traditional business loans. In fact, MCAs are largely unregulated. The regulations that do exist usually vary by state.
That’s why critics say MCA lenders often lack transparency. Many small business owners don’t fully understand the terms of the agreement before signing, which can lead to confusion and financial problems later on. Some critics even argue that MCA providers engage in predatory lending practices by targeting businesses with poor credit histories and offering them loans they can’t afford to pay back. This can lead to a cycle of debt and financial instability for the business.
Further, some MCA contracts include provisions that make it difficult for business owners to defend themselves if they are sued. For example, a confession of judgment (COJ) is a clause that essentially says you allow the creditor to obtain a judgment against you in court without any notice or hearing if you fail to make payments according to the terms of the contract. You also waive your right to defend yourself in court.
Additionally, you may have been required to sign a personal guarantee. This means you are personally liable for repaying an MCA if your business cannot do so.
This is to say that if you’re facing a merchant cash advance lawsuit, it’s imperative that you contact a reputable law firm experienced in dealing with matters involving merchant cash advances immediately.
Merchant Cash Advance Defense: What to Do if You’re Sued
First, don’t panic. Following the steps below will allow you to get the situation under control.
Review your MCA agreement
The contract you initially signed when you took out your MCA will detail the consequences of a breach of contract. Review your contract to understand what actions the MCA provider may take next so you can begin to protect your business.
Consult with a merchant cash advance lawyer
Carefully review your contract and lawsuit with an MCA debt relief attorney with extensive experience defending clients with MCAs. They can help you understand your options and provide guidance on how to proceed while protecting yourself and the business.
Respond to the lawsuit
Never ignore a lawsuit. It’s important to respond to the lawsuit as soon as possible. If you don’t submit your answer within the time limit specified in the legal documents (usually 20-30 days), the MCA provider may obtain a default judgment against you. This means that you automatically lose the lawsuit, and the merchant cash advance lender can take more aggressive steps to collect the debt. That may include freezing your bank accounts and seizing business assets. Your attorney can help you draft a response to the lawsuit with defenses that address the claims made.
Also, keep in mind that just because you didn’t receive the papers from a process server directly doesn’t mean you weren’t served.
Pursue a counterclaim
If the MCA provider violated any laws or interfered with your business, you may want to file a counterclaim. You must include any counterclaims in your response at the time the answer is filed. Again, this should be done by an experienced MCA attorney to avoid your answer being ignored or stricken by the court.
Gather evidence
Next, you should collect any evidence that can help support your case. This includes payment records, receipts, and communication with the MCA company.
Try to negotiate out of court
Your attorney may recommend negotiating a settlement or alternative repayment plan with the creditor before the case goes to court. This is often the preferred outcome, as it costs both parties time and money to go through a lawsuit.
Debt settlement allows the MCA provider to recover a portion of their debt without wasting resources in court. Plus, you may be able to resolve your debt for much less than what you originally owed.
However, this can be tricky, especially with MCA debt collection or MCA attorneys. They will require you to sign a new agreement, and the terms of that agreement could include a COJ or other restrictive language. You should consult an experienced MCA attorney to review any agreement before signing it. Never sign if you feel pressured or have not read the terms of any agreement.
Your attorney will have the negotiation skills and MCA knowledge to negotiate an agreement that satisfies the MCA provider and works within your budget.
Attend court hearings
If the case goes to court, attend all hearings and follow any orders issued by the judge. Only an attorney licensed in the state where you are sued should appear for you, as they know the laws and court processes that work to your benefit. This attorney can represent you in court and advocate for your interests.
Remember, being sued for merchant cash advance debt can be stressful, but it’s important to take prompt action and seek legal advice to protect your rights and interests.
Get Help From a Merchant Cash Advance Attorney
Unfortunately, many MCA funders have been accused of taking advantage of small business owners through predatory lending practices. If you’re sued for MCA debt, it’s important to work with an MCA attorney who understands the industry and will protect your rights.
Working with a reputable debt relief lawyer can help ensure you have the best merchant cash advance defense possible. With an experienced professional, you can protect yourself against any legal action related to MCA debt, including wage garnishment, liens, and more. You can’t afford to make errors working with the wrong people and make matters worse for you and your business.
Tayne Law Group is a New York-based law firm that has been helping clients resolve debt for more than 20 years. If you’re struggling with MCA or other business debt, contact our law office for a free, no-obligation phone consultation. Call today and speak to a team member from Tayne Law Group (and not a call center) at (866) 890-7337. Or fill out our short contact form, and we’ll reach out ASAP. All conversations are confidential, and we never share or sell your information.
