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Defaulting on a Merchant Cash Advance (MCA) can be a terrifying experience for most businesses. MCA lenders take quick actions in response to defaults

Understanding the Implications of Defaulting on MCA Lenders

Defaulting on a Merchant Cash Advance (MCA) can be a terrifying experience for most businesses. MCA lenders take quick actions in response to defaults, often threatening legal actions with severe consequences. We’ll explore what happens when a business defaults, including legal aspects and actions taken by both borrowers and lenders.

1. If the MCA Lender Has a Confession of Judgment (CoJ) or Agreed Judgment (AJ) 

Suppose your MCA lender has a Confession of Judgment (CoJ) or Agreed Judgment (AJ). In that case, they will likely respond quickly to your default. CoJs aren’t illegal, but they have restrictions, particularly in places like New York. However, they can employ Cognovit Notes, Agreed Judgments or file a traditional collection lawsuit in response to a default.

Understanding Legal Instruments:

  • Confession of Judgment (CoJ):  legal document often hidden in the merchant cash advance agreements. It strips borrowers of their legal rights to a traditional legal defense in the event of default. It allows the MCA lender to start the judgment process and take assets before borrowers know about it.
  • Agreed Judgment (AJ): similar to a CoJ, it requires the borrower’s consent, and many business owners agree without realizing it during a change or deal-making.
  • Cognovit Notes: borrowers allow the lender to obtain a CoJ or AJ without notification upon default. Business owners are not aware of these agreements because most states prohibit them for personal loans but not for business.

2. In cases where the MCA lender lacks a Confession of Judgment

Suppose MCA lenders doesn’t have a CoJ. In that case, they can still act quickly against your business, often within weeks, using methods like UCC liens (a way for lenders to secure their repayment priority in case of bankruptcy).

MCA lenders use the access to your bank account to get information about your clients, vendors, and financial statements. With UCC liens in place, they contact popular merchant accounts and digital payment processors to freeze and seize funds. They may also contact your clients, vendors, or anyone with financial ties to your business to freeze and seize those assets.

Without a Confession of Judgment, can an MCA lender lock your bank account?

No, an MCA lender cannot immediately freeze your bank account without a CoJ or AJ. They need to file a lawsuit against you based on a breach of contract claim for missed payments and send you a notice of the lawsuit. The time you have to respond varies by jurisdiction, so it’s crucial to be aware of the specific deadlines in your case.

What Happens After an Merchant Cash Advance lender files a judgment against your business?

After your business gets a judgment filed against it, your MCA lender will try hard to collect the debt. This process involves freezing your bank account, getting in touch with you, reaching out to your customers, using social media, and even using scary tactics.

Seeking Professional Assistance

Suppose your business has missed an MCA payment, and you find yourself in a difficult situation. In that case, it’s essential to seek professional help. An MCA attorney can help you navigate the complexities of MCA debt, offering solutions to escape creditors.

Don’t hesitate to set up a free consultation with Coastal Debt Resolve attorneys. We can help you navigate the challenges of defaulting on an MCA and work towards getting your business back on track.

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