I defaulted on my MCA — what happens now?

Full answer

MCA default looks different from traditional loan default because the contract structure is different. MCAs are technically purchases of future receivables, not loans, which lets funders use enforcement tools that traditional lenders cannot. Understanding the sequence helps you act before the worst happens.

Step 1 — Confession of Judgment (COJ): Many MCA contracts (especially pre-2019 and out-of-NY contracts) include a Confession of Judgment clause. On default, the funder files the COJ in court and obtains a judgment without you appearing or defending. From signed COJ to enforceable judgment can be 24-72 hours. NY banned COJs for out-of-state defendants in 2019, but other states still honor them.

Step 2 — Bank account levy: With a judgment in hand, the funder serves a restraining notice on your bank — your operating account is frozen, sometimes within 24 hours of the levy. You can't pay payroll, vendors, or rent until the levy is resolved. This is the moment most merchants realize the situation is serious.

Step 3 — UCC-1 enforcement: The funder almost certainly filed a UCC-1 lien against your receivables at funding. On default, they can notify your customers/processors to redirect payments. This destroys customer relationships and operational cash flow simultaneously.

Step 4 — Personal guarantee enforcement: Almost every MCA contract includes a personal guarantee from the business owner(s). Default lets the funder pursue personal assets — bank accounts, sometimes homes (depending on state homestead protections), wages. Multi-owner deals can target each guarantor jointly and severally.

What to do immediately: (1) Engage an MCA-experienced attorney before any further moves — generic business attorneys often miss MCA-specific defenses. (2) Document all communication with the funder in writing. (3) Don't move money in ways that look like fraudulent transfer — courts can claw back. (4) Identify which contracts have COJs and which don't — COJs accelerate everything by weeks. (5) Open a settlement dialogue — many defaults settle for 40-60 cents on the dollar because funders prefer cash now over years of collection.

Defenses that sometimes work: (1) Usury arguments if the effective rate exceeds state caps and the deal is recharacterized as a loan. (2) Lack of reconciliation when contractually required. (3) Broker misrepresentation. (4) Improper COJ filings in jurisdictions that ban them. None of these are guaranteed — they're leverage for settlement negotiations.

Bottom line: MCA default is faster and more aggressive than traditional loan default, but it's almost always settleable with the right legal help and a credible offer. Move fast and engage counsel before the levy hits.

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