MCA judgment creditor rights are the bundle of legal tools an MCA funder gains after obtaining a court judgment against a defaulted merchant. These rights are extensive and fast-moving — particularly when the judgment is obtained via confession of judgment (COJ) — and they are the primary reason MCA defaults can cause catastrophic damage to a merchant and personal guarantor far beyond the dollar amount of the original debt.
How the judgment is obtained. 1. Confession of judgment (COJ). Merchant pre-signed an affidavit at MCA signing authorizing entry of judgment on default; funder files affidavit with court (historically NY County, Erie County); judgment entered immediately without notice. New York's 2019 law restricts COJs against non-NY debtors; many funders now use alternative venues. As of 2026-06-28, COJs remain enforceable against NY domiciled merchants and in select other states. 2. Lawsuit and default judgment. Funder files breach-of-contract suit; merchant fails to answer; default judgment entered (typically 30–60 days from filing). 3. Lawsuit and litigated judgment. Merchant defends; case proceeds to summary judgment or trial; judgment entered after litigation.
The judgment-creditor rights bundle.
1. Bank account levy. Funder serves writ of execution on merchant's banks (and personal guarantor's banks if PG is on judgment). Bank freezes accounts up to judgment amount. Within 7–14 days, funds turned over to funder. Effects: - Operating account drained; payroll bounces. - Personal guarantor's checking/savings drained. - Multiple bank relationships affected if funder identifies them.
2. Wage garnishment of personal guarantor. If PG has a W-2 job (not just business income), funder serves wage garnishment on employer. Up to 25% of disposable income (federal floor) or state-specific cap garnished until judgment satisfied. Effects: - Personal financial stress on guarantor. - Employer notification often damages employment relationship. - Garnishment continues for years if judgment is large.
3. Property liens. Judgment automatically attaches as lien to real property owned by the judgment debtor in the county where judgment is recorded. Funder typically records judgment in counties where debtor owns real estate. Effects: - Property cannot be sold or refinanced without paying judgment. - Lien may have priority issues with existing mortgages but is enforceable. - Lien survives for years (10+ in many states, renewable).
4. Business asset seizure. Funder serves writ of execution on sheriff to seize business assets — vehicles, equipment, inventory, cash. Sheriff may physically remove property; alternative is judicial sale. Effects: - Operations halted by asset removal. - Often forces business closure. - UCC blanket security interest may have already perfected funder's first claim on these assets.
5. Examination deposition / debtor's examination. Funder subpoenas merchant principal for sworn examination about assets, income, bank accounts, transfers, and operations. Failure to appear can trigger contempt and arrest. Effects: - Forces disclosure of all assets and income sources. - Provides funder roadmap for further enforcement. - Often produces settlement leverage.
6. Information subpoenas to third parties. Funder subpoenas banks, payment processors, credit card companies, customers, and accountants for records of merchant transactions. Effects: - Identifies bank accounts merchant didn't disclose. - Reveals customer relationships for accounts-receivable seizure. - Maps full financial picture for additional enforcement.
7. Charging orders on LLC interests. If merchant principal owns interests in other LLCs, judgment creditor can obtain charging order — entitling funder to receive distributions that would otherwise go to the principal. Effects: - Reaches assets held in other business entities. - Particularly powerful against real-estate-holding LLCs.
8. Receiver appointment. In some jurisdictions, funder can petition court to appoint receiver to take control of business operations. Effects: - Court-appointed receiver runs the business for benefit of judgment creditor. - Often precedes business sale or liquidation.
9. Contempt and arrest for non-compliance. Failure to comply with subpoenas, examinations, or court orders can result in civil contempt. Effects: - Bench warrant for arrest. - Bond may be required for release.
10. Domestication in other states. Judgment obtained in one state can be "domesticated" (registered) in any other state where debtor has assets. Effects: - 50-state asset reach. - Particularly powerful when merchant or PG has multi-state real estate or bank relationships.
Speed of enforcement. - COJ-obtained judgment. Bank levy within 7–14 days of default. - Default judgment. 60–90 days from initial filing to active enforcement. - Litigated judgment. 6–18 months from filing to active enforcement (longer if appealed).
Mitigation strategies for merchants. 1. Pre-default — negotiate before judgment. Once judgment is entered, enforcement leverage shifts dramatically to funder. Pre-judgment settlements typically save 30–60% of total exposure. 2. Post-default but pre-judgment — defend the lawsuit. Many MCA defaults have defenses (usury recharacterization, breach of reconciliation, fraud, unconscionability) that delay or prevent judgment. 3. Post-judgment — bankruptcy. Chapter 7 discharges most MCA debt (personal guarantor); Chapter 11 restructures (business). Both stay enforcement immediately upon filing. 4. Post-judgment — settlement. Funders often accept 20–60% lump-sum settlements to avoid prolonged enforcement.
Common confusion. First, "the funder cannot reach personal assets" — personal guarantee + judgment + state PG enforcement = full access to personal assets. Second, "judgment expires after a few years" — judgments are renewable indefinitely in most states. Third, "I can hide assets from a judgment creditor" — fraudulent transfer doctrine reaches transfers up to 4–6 years before judgment; aggressive hiding leads to contempt and additional liability.
Related terms
- Confession of judgment (COJ) — A waiver where the merchant pre-agrees to a default judgment if they breach the MCA contract. Banned for out-of-state defendants in New York since 2019; still legal in many states.
- MCA default — Breach of MCA repayment terms — usually triggered by missed daily ACH debits, NSFs, or unauthorized stacking. Consequences range from increased collection pressure to UCC enforcement and personal-guarantee pursuit.
- Personal guarantee (PG) — A clause making the business owner personally liable if the MCA defaults. Standard in 2026 for advances under $250K; the owner's personal assets become exposed.
- Confession of judgment — state-by-state rules — A pre-signed judgment authorizing the creditor to obtain a court judgment without notice or trial; banned by New York for non-New York debtors (2019), prohibited or sharply restricted in CA, MI, NJ, NC, OH, PA, MA, and others, but still enforced in DE, NY (for NY debtors), and a shrinking minority of states.
- Personal guarantee vs corporate guarantee — A personal guarantee makes an individual personally liable for business debt (reaching personal assets including home equity, savings, future earnings); a corporate guarantee makes a separate corporate entity liable but does not reach individual owners — used in parent-subsidiary structures, holding company arrangements, and franchise lending.
Authoritative sources
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