10 Steps to Take the Day You Get Sued by an MCA Company

You got served. Or you found out a lawsuit was filed against you in New York, even though you’ve never set foot in New York. Either way, the clock started the moment that complaint hit the docket, and what you do in the next 24 hours matters more than anything you’ll do in the next 24 weeks.

Short answer: Don’t panic, don’t ignore it, and don’t call the MCA company thinking you can talk your way out of it. You can’t. The lawsuit is a pressure tool, and the funder’s lawyer is counting on you doing one of three things – freezing up, calling them to beg, or hiring the wrong attorney. This post walks you through what to actually do, in the order you should do it.

Here’s the thing most business owners don’t realize. By the time the lawsuit gets filed, the funder has already decided you’re not paying, and they’ve already calculated what they’re going to take from you. The lawsuit isn’t the beginning of a negotiation, it’s the beginning of the collection. If you don’t move fast, the next thing you’ll see is a restraining notice on your bank account, and by then, it’s too late to do most of what’s on this list.

1. Read the complaint, and the summons, cover to cover.

Most people skim it, panic, and put it in a drawer. Don’t. The complaint tells you exactly what the funder is claiming, how much they say you owe, which entity is suing (it’s often not the original funder – they sold the paper), and whether they’re suing the business only or the personal guarantor too. The summons tells you how many days you have to answer. In New York, for an MCA case filed in Supreme Court, you usually have 20 or 30 days depending on how you were served. That deadline is real. Miss it, and you get a default judgment, and a default judgment in New York is almost impossible to undo.

2. Find the confession of judgment, if there is one.

Most of the old MCA agreements had a COJ buried in the paperwork. New York banned them for out-of-state defendants in 2019, but if you signed before that, or if you’re a New York business, the COJ is still enforceable. If there’s a COJ, there’s not going to be a lawsuit in the traditional sense – the funder just walks it into the county clerk and gets a judgment the same day. If you’re reading a complaint, that means there’s probably no COJ, or the COJ was defective. Either way you need to know which one you’re dealing with, because it changes everything about what comes next.

3. Pull every document related to the MCA, right now.

The original agreement. The addendums. The bank statements you submitted. Every email with the funder, the broker, and the ISO. Every text message. The ACH authorization. The personal guarantee. Put it all in one folder. Your attorney is going to need it, and if you wait until the day before the answer is due, you’re going to be scrambling at midnight trying to find a PDF from two years ago. Do it now, while you’re already thinking about it.

4. Do not, under any circumstances, call the funder.

I mean it. The second a lawsuit is filed, everything you say to the funder or their lawyer is evidence. If you call them and say “I know I owe the money, I just need more time” – congratulations, you just admitted liability on a recorded line. They will play that back in court. The right move is silence until you have counsel. If they call you, let it go to voicemail. If they email you, don’t respond. This isn’t a negotiation yet. It will be, but not today.

5. Get your bank situation handled before the restraining notice hits.

This is the one most business owners get wrong, and it’s the one that hurts the most. When an MCA lawsuit is filed, the funder’s lawyer can send a restraining notice to your bank within days of getting a judgment, and in some cases before. The restraining notice freezes twice the amount of the judgment in your account. Twice. If they’re suing you for $80,000, they freeze $160,000. If you don’t have $160,000, they freeze everything, and your payroll bounces, and your rent bounces, and your vendors stop shipping. Before that happens, you need to talk to a lawyer about what’s legal to do and what isn’t. I’m not telling you to hide money – that’s fraudulent conveyance, and it’s a crime. I’m telling you to understand what’s coming, so you can make informed decisions about which accounts hold what, and where your operating cash sits.

6. Hire an attorney who actually litigates MCA cases. Not a general business lawyer.

This one is non-negotiable. MCA litigation is its own sub-specialty, and most attorneys don’t understand it. They’ll tell you “just settle” without knowing what the real settlement range is. They’ll tell you the contract is enforceable without ever having argued the usury defense. They’ll miss the arguments about true sale vs. disguised loan, about reconciliation provisions, about the absence of a finite term – all the things that, in the right jurisdiction, can get the whole thing recharacterized as a loan and blow up the funder’s case. You want someone who’s done this, specifically. Not someone who’s done commercial litigation generally.

7. Decide, honestly, what you can pay.

Before you talk to the other side, before your lawyer calls their lawyer, you need a number in your head. What can you pay in a lump sum today? What can you pay over 6 months? Over 12? Don’t pick a fantasy number, and don’t pick a number that puts you out of business. Look at your actual cash flow, your actual receivables, your actual obligations. The settlement conversation is going to happen fast once it starts, and if you don’t know your number, you’re going to either agree to something you can’t afford or walk away from something you could’ve closed.

8. Notify your bookkeeper, your accountant, and nobody else.

Your bookkeeper needs to know so they can track what’s happening with the account. Your accountant needs to know because a settlement, or a judgment, has tax implications – debt forgiveness is generally taxable income. That’s it. Don’t tell your employees. Don’t tell your customers. Don’t post about it. Don’t vent to other business owners in your industry. The funder’s lawyer watches social media, and they will use anything you say against you. I’ve seen cases where a Facebook post about “finally getting through a tough stretch” became Exhibit A in a fraud argument.

9. Check the other MCAs, if you have them.

Most businesses that get sued by one MCA have more than one MCA. Stacking is common, and it’s also a default under every other MCA agreement you signed. The moment one funder sues, the others are going to find out – they watch the court filings, and they share information through industry networks. You need to assume that within a week, every other funder you have knows, and every other funder is going to either accelerate, file their own lawsuit, or send their own restraining notice. You can’t deal with one lawsuit in isolation. You need a strategy for all of them, at once.

10. Breathe. This is survivable.

I’m going to tell you something that the funder’s lawyer doesn’t want you to know. Most MCA lawsuits settle. Most of them settle for significantly less than the full balance. The funders don’t actually want to litigate – litigation is expensive for them too, and a settled case pays faster than a judgment that then has to be collected on. If you move fast, hire the right attorney, and don’t make the obvious mistakes, you have a real path out of this. Not a painless one. But a real one.

The business owners who come out of this in one piece are the ones who treated day one like day one, instead of like a problem they could put off until Monday. The ones who don’t – the ones who ignore the summons, or call the funder, or hire the wrong lawyer, or try to move money around without understanding what’s legal – those are the ones who end up with default judgments, frozen accounts, and a business that doesn’t make it to the next quarter.

You got sued today. That’s bad. What you do in the next 24 hours decides how bad.