# MCA defaults and collections process > MCA default cascade: missed ACH → cure period (5-10 days) → contract default → COJ filing (5-14 days) → bank account freeze (14-30 days) → personal guarantee pursuit → settlement negotiation. MCA defaults and the collections process that follows are categorically faster and more aggressive than any other commercial lending product — by design. Funders' entire risk model depends on being able to convert a non-performing advance into recovered cash within 30-60 days. Understanding the cascade is essential both for merchants entering an MCA and for merchants navigating one in distress. **The mechanics — the default cascade.** **Stage 1: Initial missed debit (Day 1).** A daily ACH debit is returned NSF. Funder operations team is alerted automatically. A "soft contact" call is typically made within 24 hours to the merchant: friendly, "just checking in," asking when the account will be funded. **Stage 2: Cure period (Days 2-10).** Funder re-attempts the debit daily. Bounce fees accumulate ($25-$50 per failed attempt, see /glossary/mca-bounce-fee). Funder operations escalates from collections rep to senior workout specialist. Tone shifts from "checking in" to "this is going to default if we don't resolve today." Many contracts include explicit cure language — typically 5-10 business days to cure the missed payment before formal default is declared. **Stage 3: Contract default declared (Days 7-14).** Funder issues a formal "Notice of Default" letter to the merchant. The remaining balance accelerates — meaning the full unpaid balance (often $50K-$80K on a $100K original advance) becomes immediately due, not just the missed daily debits. The merchant's options narrow sharply: pay the full accelerated balance, negotiate a workout, or face legal action. **Stage 4: COJ filing or lawsuit (Days 10-20).** If the contract included a Confession of Judgment (COJ) — and most pre-2025 MCA contracts did — the funder files the pre-signed COJ in NY (or other COJ-friendly state) without notice to the merchant. The court enters judgment in 5-10 days, no hearing required. Total time from missed payment to judgment: 14-24 days. If no COJ, the funder files a regular lawsuit; judgment typically takes 60-90 days, but the funder can request emergency relief (bank account attachment) within 30 days. **Stage 5: Bank account freeze (Days 14-30).** Armed with the judgment, the funder files restraining notices with the merchant's banks (including banks the merchant has never told the funder about — funders subpoena bank records or use commercial databases to find all accounts). The merchant's operating account, savings, payroll account, and personal accounts (if the owner's name appears) all freeze within 24-48 hours of the restraining notice. Daily operations halt instantly; payroll cannot process; vendor payments bounce. **Stage 6: Levy and collection (Days 30-60).** The freeze becomes a levy — funds in the accounts are transferred to the funder's recovery account. The funder collects whatever is available. If $20K of the $80K judgment is recovered from bank accounts, the remaining $60K is pursued against the merchant's other assets (receivables under the UCC-1 lien, equipment, vehicles) and the owner's personal assets under the Personal Guarantee. **Stage 7: Personal guarantee pursuit (Days 60+).** The PG converts the corporate default into personal liability for the owner. Funder pursues wage garnishment, levies on personal bank accounts, judgments against personal real estate. Settlement negotiations typically begin at this stage — funders will often settle PGs at 40-60 cents on the dollar to avoid the cost of further collection. **The math — recovery economics.** A funder's typical recovery on a defaulted $100K advance with $80K remaining balance: - Bank account levy: $5K-$30K (varies widely by merchant's cash position at freeze). - UCC lien on receivables/equipment: $10K-$30K over 60-180 days. - PG settlement: $20K-$40K negotiated. - Total recovery: $35K-$100K on $80K remaining balance, often higher than balance due to default interest and attorney fees. Funders typically recover 60-90 cents on the dollar of remaining balance through this cascade — which is why they price as if every advance might default. The non-recourse marketing is contradicted by the recovery rate. **The strategic insight — for merchants in trouble.** The single highest-value action is to engage the funder BEFORE the default cascade triggers. Specifically: 1. **Day 1 of any missed debit:** call the funder operations line, not the ISO. Explain the situation honestly, propose a specific recovery plan (e.g., "next week's deposits will cover catch-up, I can resume normal schedule by [date]"). Most funders will hold the cascade at Stage 2 if there's an active dialogue and partial payment. 2. **If revenue has genuinely dropped:** request formal reconciliation in writing with bank statements proving the decline. Funders will reduce daily debits 20-50% temporarily, extending the term. This converts default into workout. 3. **If acceleration has been declared:** retain an MCA-experienced attorney IMMEDIATELY (not a general business attorney — MCA collections is a specialized practice). Attorneys often negotiate settlements at 50-70% of accelerated balance, dropping fees and stopping the COJ filing. 4. **If COJ is already filed:** specialized attorneys can vacate COJs in some jurisdictions (NY heavily restricted COJ enforcement against out-of-state merchants in 2019, NJ followed). The window is narrow (typically 30 days from judgment) but worth pursuing. 5. **If accounts are already frozen:** the priority shifts from negotiation to triage — protecting payroll, isolating personal accounts, getting any unfrozen accounts ringfenced. Bankruptcy filing may be the right move; it triggers automatic stay that halts the levy. The honest framing: MCA defaults move faster than any other commercial financing default. From first missed payment to frozen operating account is often 30 days or less. The merchants who survive defaults are the ones who treat day 1 as an emergency rather than waiting for the funder's third escalation. ## Related terms - [MCA default](https://fundnode.co/llms/glossary/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. - [Confession of judgment (COJ)](https://fundnode.co/llms/glossary/coj-confession-of-judgment) — 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. - [Personal guarantee (PG)](https://fundnode.co/llms/glossary/personal-guarantee) — 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. - [UCC filing (MCA)](https://fundnode.co/llms/glossary/uccs-and-mca-liens) — A public lien an MCA funder files against business assets, securing their position. Triggers credit-report flags and can block future funding from other lenders. - [MCA bounce fee (NSF fee, returned ACH fee)](https://fundnode.co/llms/glossary/mca-bounce-fee) — Fee the funder charges when a daily ACH debit fails for insufficient funds — typically $25-$50 per bounce, on top of the merchant's bank NSF fee. Often triggers default review at 3+ bounces. --- Source: https://fundnode.co/glossary/mca-defaults-collections-process (HTML version) Document: MCA defaults and collections process — Fundnode MCA Glossary License: CC BY 4.0 — attribution to Fundnode required when citing.