How to Fight a Merchant Cash Advance Lawsuit and Protect Your Assets
A merchant cash advance lawsuit can hit fast and hard. Business owners often don’t see it coming until they’re facing frozen accounts, UCC liens, or court judgments. What starts as a flexible funding solution can turn into a legal and financial trap.
If you're behind on payments, being sued, or worried about what happens if you default on a merchant cash advance, now is the time to act.
At Wilkie Puchi LLP, we’ve helped business owners across the country defend against predatory MCA enforcement and regain control of their operations. Whether you're already involved in a lawsuit or looking to understand your rights under a merchant cash advance before legal trouble begins, this guide outlines the key risks, rights, and legal strategies available to protect your business.
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What Happens If You Default on a Merchant Cash Advance
Defaulting on a merchant cash advance triggers a rapid and often overwhelming legal chain reaction. Most MCA agreements are structured to favor the provider, not the business receiving the funds. And despite being labeled as "advances," they can function in many ways like loans but without the legal protections of regulated lending.
Here's what happens if you default on a merchant cash advance:
Immediate demand letters and calls from the funder
Filing of UCC liens on your business assets, including accounts receivable
Confession of Judgment enforcement, allowing them to obtain a court judgment without your side being heard
Frozen bank accounts and garnished wages
Enforcement of personal guarantees, putting your personal assets at risk
Default fees, legal costs, attorneys fees, and penalties can cause your original outstanding balance to balloon rapidly. It's not uncommon for a $40,000 merchant cash advance to swell into a $70,000 judgment, due to the aggressive fees and legal costs many MCA providers impose after an event of default. The financial impact isn’t just numerical, it also disrupts your ability to operate, meet payroll, or pay critical vendors. This is how many business owners become trapped in a vicious debt cycle where they start taking on more MCAs just to pay off the previous one (commonly referred to as “stacking”). To avoid the worst-case scenario, explore your options for MCA debt relief before court action accelerates.
Legal Strategies for Handling a Merchant Cash Advance Lawsuit
When you’re facing a merchant cash advance lawsuit, time is not on your side but you do have options. Here are proven legal strategies our firm has used to help clients defend their businesses:
Challenge the Contract’s Validity
Not all MCA agreements hold up under legal scrutiny. An experienced attorney can evaluate whether:
The contract violates state usury laws
The MCA is actually a disguised loan
The funder used deceptive or predatory practices
Some jurisdictions have ruled that certain MCAs cross the line into illegal lending and courts have invalidated them accordingly. A recent example is the $1 billion settlement secured by New York Attorney General Letitia James against Yellowstone Capital where the MCA providers were found to have engaged in predatory lending practices that targeted over 18,000 small businesses. This landmark case underscores the importance of scrutinizing MCA agreements and demonstrates the legal options available to challenge abusive or deceptive financing practices.
Negotiate a Settlement
Many MCA providers are open to settlement especially when litigation is costly or their case is weak. We attempt to negotiate:
Reduced balances
Payment plans
Release of personal guarantees
Explore Merchant Cash Advance Consolidation
For clients juggling multiple MCA accounts, consolidation can provide breathing room. By refinancing into one structured loan with lower payments, you may avoid default entirely and regain cash flow stability. Although approval can be difficult if you're already behind, it's worth exploring.
Your Legal Rights vs. MCA Lenders
A strong legal defense starts with understanding what merchant cash advance providers are allowed to do and where they often overstep. While MCA companies routinely pursue aggressive legal action after a missed payment, those lawsuits are not always as airtight as they appear. Many contracts contain questionable provisions, and enforcement tactics often push the boundaries of fair or legal business practices.
One common issue we see is the provider declaring a default without conducting a proper reconciliation. Since MCA agreements are based on purchasing a percentage of your future receivables, a decline in revenue should result in reduced payment obligations. When a provider ignores this provision and continues demanding fixed payments, they may be in breach of contract themselves. That failure can become valuable leverage in both courtroom challenges and out-of-court settlements.
Business owners often feel powerless when facing an MCA lawsuit, but you are not without options. With the right legal strategy, you can challenge predatory enforcement actions, expose contract flaws, and push back against unjust collection efforts. Understanding your rights is the first step in regaining control.
FAQs About Merchant Cash Advance Lawsuits
Are merchant cash advances illegal?
No, merchant cash advances are not illegal in themselves. However, if structured like a loan with interest rates that exceed state usury laws, or if the provider uses misleading practices, courts may deem them unenforceable or predatory.
Can a merchant cash advance company sue you?
Yes. Most merchant cash advance lawsuits claim breach of contract and breach of personal guaranty causes of action and may include a Confession of Judgment. These suits can lead to frozen bank accounts, asset seizure, and personal liability.
What happens if you don't pay a merchant cash advance back?
Your accounts may be frozen, your credit may be damaged, and the provider may file suit or enforce existing judgments. Business operations often grind to a halt if collection efforts escalate.
Can a merchant cash advance take me to court?
Yes. MCA providers often file lawsuits quickly after missed payments. They may also sue in a state other than where you reside depending on your contract’s jurisdiction clause which can make defense more difficult and expensive.
Are merchant cash advances predatory?
Many MCA agreements are considered predatory. Red flags include high repayment amounts, unclear terms, Confessions of Judgment, and coercive tactics. Not all MCAs are predatory, but many exploit regulatory loopholes that would never fly in traditional lending.
Take Action Before It’s Too Late
A merchant cash advance lawsuit doesn’t have to mean the end of your business. By understanding your rights, recognizing what happens if you default on a merchant cash advance, and pursuing legal strategies like settlement or merchant cash advance consolidation, you can regain control of your finances and protect what you’ve built.
Don’t wait for a judgment to hit your bank account. The sooner you act, the more options you’ll have. At Wilkie Puchi LLP, we offer flat-fee, transparent representation for businesses battling MCA lenders. Whether you’ve already been sued, you’re looking for how to get out of a merchant cash advance, or want to avoid court altogether, we’re ready to fight for your future.