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Merchant Cash Advance Nightmares: A Survival Guide

You Defaulted on Your MCA – Now What?

Merchant cash advances: they seemed like such a good idea at the time, right? Quick cash to help grow your business – what could go wrong? Well, plenty, as you’ve discovered. That daily ACH debit is crippling your cash flow, and you’re drowning in fees and interest that make a loan shark look generous.Don’t panic, but do take action – because that MCA company won’t think twice about ruining you if you let them. Here’s what you need to know about formally disputing your merchant cash advance and emerging victorious.

The Ugly Truth About MCAs

First, let‘s get real: merchant cash advance providers are masters of deception. They market their product as a “lump sum purchase of future receivables,” not a loan. This allows them to bypass usury laws and charge outrageous interest rates – often over 100% APR.Their contracts are equally shady, packed with one-sided terms like:

  • Personal guarantees making you personally liable
  • Confessions of judgment letting them win lawsuits automatically
  • Blanket UCC liens on all your assets and future income

Worst of all, they can directly debit your bank accounts and merchant accounts for “estimated receivables” – even when sales are down and you can’t afford it.So when cash flow dries up and you inevitably can’t make those wildly overestimated daily payments, you‘re instantly in default. Then the fun really begins…

When the Wolves Start Circling

Once you‘re in default, get ready for some bare-knuckle debt collection tactics, like:

  • Freezing your bank accounts and merchant accounts
  • Filing a confession of judgment for the full remaining balance
  • Garnishing money straight from your customers’ payments to you
  • Placing liens on your home, business assets, inventory, and more
  • Harassing you and your customers/vendors with letters and calls
See also  West Virginia MCA Defense Lawyers

And if you think declaring bankruptcy will make it all go away – think again. Thanks to that personal guarantee, your MCA debt is non-dischargeable. It will follow you forever unless you take action.

Your Rights and Options

Fortunately, you do have rights – and options to fight back. Merchant cash advance contracts are rife with potential violations that can get the agreement rescinded or re-negotiated if properly disputed:

  • Usury violations for excessive interest rates
  • Fraudulent misrepresentation of the true costs and risks
  • Unconscionable terms so unfair as to be unenforceable
  • Improper licensing or lack of required disclosures
  • Illegal blanket liens or personal property exemptions

A skilled MCA defense lawyer can scrutinize your contract for any such violations, then:

  • File an injunction to stop collections and freeze the case
  • Dispute any judgments or liens already filed against you
  • Negotiate a settlement for a fraction of the amount claimed
  • In some cases, even sue the MCA company for damages

But you have to act fast before they bleed you dry. Timing is everything when it comes to defending against these predatory MCA agreements.

Hypothetical Scenarios: Could This Happen to You?

Still not convinced this MCA debacle could happen to you? Let’s walk through a hypothetical:You own a restaurant that was struggling during COVID, so you took a $150,000 merchant cash advance with a 1.4 factor rate – meaning you owe $210,000 total. Seemed manageable based on your pre-pandemic sales.But then another wave hit, and your sales plummeted again. Yet the MCA company kept taking 18% of your daily batches – over $1,000 on good days – straight from your merchant account.Within months, you’re tens of thousands behind, maxed out on credit, and watching your life’s work circle the drain. The MCA company got a confession of judgment and has now cleaned out your bank accounts.They’re even going after your home after slapping a lien on it. All for an advance you took with the best intentions of keeping your business afloat.If this sounds like a nightmare you want to avoid – or escape from – read on for specific steps to fight back.

See also  Business Debt Settlement: Was It Worth It For My Company?

Your Roadmap to MCA Freedom

Okay, it‘s time to get tactical. If you’ve defaulted on a merchant cash advance, take these steps immediately:

  1. Consult with a qualified MCA defense attorney ASAP. Don’t try handling this alone – these companies have lawyers too, and they play for keeps. You need expertise on your side.
  2. Provide your attorney with the full MCA contract and any judgments/liens filed. They’ll analyze it for any violations to use as leverage.
  3. If no judgments yet, your attorney can file an injunction to pause collections. This buys time to negotiate without your assets being seized.
  4. If judgments were already entered, appeal or vacate them if possible. Grounds could include violations in the contract, improper service, or other defects.
  5. Leverage any violations to negotiate a settlement for a fraction of the debt. With the right pressure, MCA companies will often take 20-40 cents on the dollar.
  6. If settlement fails, litigate and countersue if the MCA company violated any laws. This includes usury, fraudulent practices, improper licensing, and more.
  7. Implement asset protection and negotiate payment plans you can actually afford. Bankruptcy may be an option, but a good lawyer can keep you in business.

The key is taking swift legal action before the MCA company bleeds you dry. With the right representation, you can escape these predatory debt traps.

A Cautionary Tale: John’s MCA Disaster

To illustrate just how quickly an MCA can turn into a nightmare, let’s look at what happened to John, a client of ours:John owned a successful construction company pulling in over $5 million per year. When COVID hit, he took out $500,000 in merchant cash advances from three separate companies to keep paying employees and suppliers.But as projects dried up, John quickly fell behind on the combined $35,000 per month he owed those MCA companies. They immediately froze his bank accounts and filed multiple confessions of judgment.Within weeks, the sheriff arrived with orders to seize equipment, inventory, and other assets. Letters soon followed demanding John’s customers pay their outstanding bills directly to the MCA companies.His 20-year-old business was suddenly on the brink of collapse – all for cash advances John took in desperation to keep it alive just months earlier. He faced personal bankruptcy as well thanks to those personal guarantees.Thankfully, John hired our firm to fight back. We succeeded in getting the confessions of judgment vacated due to usury violations in the contracts. We then negotiated to settle the $1.6 million in claimed MCA debt for just $375,000 – payable over five years at 3% interest.John avoided bankruptcy, kept his business, and can now breathe again. But it was a hard-fought battle that could have ended much worse without aggressive legal representation.

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