What Constitutes an MCA Default?
Unlike traditional loans, an MCA default can be triggered by more than just missing a payment. Common default triggers include:
- A returned ACH payment due to insufficient funds (even one NSF can trigger default in some contracts)
- Changing your business bank account without notifying the MCA company
- Your daily revenue dropping significantly below the projected amount in your agreement
- Taking out additional financing without the MCA company's approval (stacking clause)
- Filing for bankruptcy
- Closing your business or moving without notice
What Happens After an MCA Default?
Accelerated Repayment
Most MCA contracts include an acceleration clause — meaning the full remaining balance becomes immediately due and payable upon default.
Lawsuit or COJ
MCA companies can file a lawsuit or execute a pre-signed Confession of Judgment (COJ) to immediately obtain a court judgment against you.
Bank Account Freeze
With a judgment in hand, MCA companies can freeze or garnish your business bank accounts, sometimes with little warning.
UCC Lien Enforcement
The lender's UCC lien against your receivables gives them legal authority to pursue collection aggressively against your assets.
How to Handle an MCA Default
If you've defaulted — or are about to default — on an MCA, the single most important thing you can do is engage a specialized MCA attorney immediately. Here's why:
- 1
Stop the Escalation
An attorney's involvement immediately signals to the MCA company that you are taking the matter seriously and are represented by counsel. This often slows aggressive collection actions.
- 2
Evaluate Your Defenses
MCA agreements often contain provisions that are legally questionable. Your attorney will review your contracts for usury, disclosure violations, and other potential defenses.
- 3
Negotiate Resolution
Most MCA companies prefer a negotiated settlement over costly and uncertain litigation. An attorney can often reach a resolution that's far better than the worst-case scenario.
- 4
Protect Your Assets
Your attorney can advise on legal strategies to protect your personal and business assets during the dispute process.
Frequently Asked Questions
Can I be personally sued for an MCA default?
Many MCA agreements include a personal guarantee. If you signed one, you may be personally liable. An attorney can review your agreement and advise on your personal exposure.
What is a Confession of Judgment (COJ)?
A COJ is a legal document you may have signed as part of your MCA agreement that allows the lender to obtain a court judgment against you without filing a lawsuit first. Several states, including New York, have restricted the use of COJs against out-of-state defendants.
Can I negotiate after default?
Absolutely. In fact, once you're in default, MCA companies often become more willing to settle for a reduced amount rather than pursue expensive litigation. Your leverage may actually increase at this stage.
Is bankruptcy an option for MCA debt?
Bankruptcy can discharge or restructure MCA debt, but it has significant consequences. An MCA attorney can help you understand if bankruptcy is the right option or if other strategies would serve you better.