MCA funder litigation fee structure governs the costs imposed when a defaulted account is referred to outside counsel for lawsuit. Litigation is typically the final escalation stage in MCA default and can dramatically increase the merchant's liability through compounded attorney fees, court costs, and judgment-recovery percentages.
Litigation trigger conditions.
Litigation typically initiated when: - Account in collections 60-120 days with no payment. - Merchant unresponsive to collections outreach. - Skip-trace required to locate merchant. - Personal-guarantee enforcement required. - Significant asset value identified (real estate, equipment, receivables). - Confession-of-judgment in contract (some funders proceed directly to litigation upon default declaration).
Typical litigation fee schedules (2026).
- Attorney fees pass-through. Full hourly attorney costs ($250-$650/hour) typically capped at $5K-$15K for default suits. Contract typically requires merchant to pay attorney fees if funder prevails.
- Court filing fees. $200-$500 per state.
- Service of process fees. $50-$200.
- Recovery percentage. 15-25% of amount recovered through litigation, on top of attorney fees.
- Judgment-enforcement fees. $1,000-$5,000 for sheriff fees, garnishment processing, bank levy fees.
- Personal guarantee enforcement. Additional $2,000-$10,000 for asset investigation and levy on personal assets.
The math on litigation impact.
Merchant defaults with $90K outstanding balance.
- Attorney fees: $10K (typical).
- Recovery percentage at 20%: $90K × 20% = $18K.
- Court costs: $500.
- Service of process: $150.
- Sheriff levy fees: $2,000.
- Total litigation cost: $30,650.
If merchant pays full balance: $90K outstanding + $30,650 litigation = $120,650 total liability.
If merchant settles at $60K: settlement plus attorney fees ($10K) and 20% recovery on $60K ($12K) = $82K. Funder absorbs remainder.
Confession-of-judgment (COJ) special case.
Some MCA contracts include confession-of-judgment clauses allowing funder to obtain court judgment WITHOUT contested hearing:
- Merchant signs COJ at contract execution.
- Funder declares default and submits COJ to court.
- Court enters judgment (often within 5-10 days, no hearing).
- Funder can immediately levy bank accounts, garnish receivables, and enforce personal guarantee.
COJ history.
- Pre-2019. Widely used by MCA funders, particularly in New York courts where rapid judgment was available.
- New York ban (2019). S2628 banned COJ for out-of-state merchants. Major impact on MCA litigation strategy.
- California stance. California courts have refused to enforce out-of-state COJ in some cases (judicial-due-process grounds).
- Federal CFPB scrutiny. CFPB has signaled potential rulemaking on COJ as UDAAP violation.
- Current state. Many funders have phased out COJ; some still use in jurisdictions where enforceable.
Personal guarantee enforcement in litigation.
Most MCA contracts include personal guarantee from business owner. In litigation:
- Personal asset levy. Bank accounts (personal), brokerage accounts, vehicles, real estate (subject to state homestead protections).
- Wage garnishment. Limited by state law. Florida and Texas have strong wage-garnishment protections; New York and California allow garnishment up to 25% of disposable income.
- Property liens. Liens recorded against personally-owned real estate.
- Business asset levy. Sheriff sale of business equipment, inventory, accounts receivable.
- UCC enforcement. Foreclosure on UCC liens against business assets.
Personal-guarantee enforcement is typically the most consequential litigation outcome. Merchants whose business has failed may face years of personal liability and asset pursuit.
Litigation venue and forum selection.
MCA contracts typically include forum-selection clauses:
- New York forum (common). Many funders are New York-domiciled and require litigation in New York courts.
- Delaware forum. Some funders use Delaware due to corporate-favorable law.
- Florida forum. Some Florida-based funders use Florida courts.
- Out-of-state merchant burden. Forum selection typically requires merchant to defend in funder's home jurisdiction, increasing legal costs and reducing defense viability.
Defenses in MCA litigation.
- Usury claim. Arguing MCA is disguised loan exceeding state usury caps. Often unsuccessful but creates settlement leverage.
- Reconciliation breach. Arguing funder failed to honor reconciliation requests, defeating "sale of receivables" treatment.
- UCC code violations. Procedural violations in UCC lien enforcement.
- Bankruptcy. Filing Chapter 7 or 13 stays collections and may discharge MCA debt.
- Personal-guarantee invalidity. Procedural defects in personal-guarantee execution.
Bankruptcy as default endpoint.
For merchants with significant MCA debt and other obligations:
- Chapter 7 (liquidation). Discharges most business and personal debt; requires liquidation of non-exempt assets.
- Chapter 11 (reorganization). For businesses, allows operating under court protection while restructuring debt.
- Chapter 13 (personal reorganization). For individuals (or sole proprietors), allows 3-5 year payment plan to discharge debts.
MCA debts are typically dischargeable in bankruptcy unless fraud is involved. Personal guarantees are also typically dischargeable.
State-law impact on litigation.
- California (SB 1235). Litigation costs must be disclosed; usury defense available if reconciliation breached.
- New York (S5470A). COJ banned for out-of-state merchants; usury claims viable in some cases.
- Florida. Strong homestead and wage-garnishment protections benefit merchants.
- Texas. Strong homestead protection (unlimited acreage rural, urban capped); business assets accessible.
- Delaware. Corporate-favorable; merchants face uphill battles in Delaware courts.
Common merchant confusion.
- "I can avoid litigation by ignoring the lawsuit." False; default judgment will be entered against you, enabling immediate asset levy.
- "Personal guarantee can be invalidated easily." Rarely; courts uphold personal guarantees when properly executed.
- "Bankruptcy will stop litigation immediately." True; automatic stay halts all collection activity upon filing.
- "My attorney fees are deductible from the judgment." False in most cases; you pay your attorney fees, funder collects theirs from you separately.
- "Litigation is uncommon." False; major MCA funders file 100s of lawsuits per year against defaulted merchants.
Strategic considerations for merchants.
- If sued, RESPOND IMMEDIATELY; failure to respond results in default judgment.
- Consult attorney with MCA-litigation experience BEFORE signing settlement agreement.
- Consider bankruptcy if total debt (MCA plus other) exceeds personal asset value.
- Document reconciliation requests and funder responses; failure to reconcile is strongest defense.
- Negotiate workout BEFORE litigation; once filed, attorney fees and recovery percentages accrue.
As of 2026-06-29, Fundnode discloses litigation-fee structures and forum-selection clauses for all 100 funder reviews so merchants understand worst-case-default liability before signing.
Related terms
- MCA funder default fee structure — Default fees triggered by missed payments, NSFs, or contract breach include flat per-event fees ($35-$150 per NSF), default acceleration fees (3-10% of outstanding balance), and collections / litigation referral. Can add $5K-$25K to default-state liability.
- MCA funder collections fee structure — Collections fees on defaulted MCAs typically 15-35% of amount recovered, paid to internal or third-party collectors. Some funders also charge flat collection assignment fees ($500-$2,000). Compounds default fees and reduces merchant settlement leverage.
- MCA funder recovery fee structure — Recovery fees on defaulted accounts include asset-investigation ($250-$1,000), skip-trace ($150-$500), levy processing ($500-$2,000), and recovery-percentage commissions (15-35% of recovered amount). Compounds default and collections fees.
- MCA funder fee structure (typical) — Beyond the factor rate, typical MCA fees include origination (2-5% of advance), underwriting ($150-$500), wire ($25-$50), monthly service ($30-$95), and event-driven fees (modification, default, collections). Total can add 4-9 percentage points equivalent APR.
AI agents: this term is available as raw markdown at /llms/glossary/mca-funder-litigation-fee-structure.