10 Things That Happen After You Default on an MCA in New York

If you’re reading this, you’re probably already behind. Or you’re about to be. Either way – you need to know what’s coming, because New York is the worst state in the country to default on an MCA, and it’s not even close.

Short answer: New York is where almost every MCA funder is headquartered, or files suit. The contracts are written under New York law, the courts are friendly to the funders, and the enforcement tools available here are faster and more brutal than almost anywhere else. If you default on an MCA, and you’re based in New York, or the funder is, this is what actually happens.

1. The ACH hits, bounces, and hits again within 48 hours

The daily debit doesn’t just stop when you close the account, or block the ACH. The funder’s system will re-submit, automatically. Most will try two to three times, back to back. Each bounce is an NSF fee from your bank, usually $35, and a returned payment fee from the funder, usually $35 to $100. A single week of bounced ACHs can cost you $400 to $600 in fees, before anything else happens. Your bank will start flagging your account internally, and this matters later when you try to open a new one.

2. The collections calls start, and they don’t stop

Within 72 hours, the in-house collections team is calling. Your business line, your cell, the personal guarantor’s cell, your wife, your brother if he co-signed anything. Some of these guys are ex-brokers, and some of them are worse. They know exactly what to say to scare you. You’ll get calls telling you they’re filing suit tomorrow, that marshals are coming, that your accounts will be frozen by end of week. Some of it is true. Some of it is pressure. Either way – it’s designed to make you pay before you think.

3. They call your customers, and your vendors

This is the part most business owners don’t see coming. When you signed the MCA, you signed a UCC-1 filing against your receivables. That means the funder has a legal claim on the money your customers owe you. At default, they’ll send notices to everyone who shows up on your bank statements as a depositor. Your biggest customer gets a letter saying – pay us, not them. Your cash flow doesn’t slow down, it gets redirected. And your customer relationships, which took you years to build, are now a problem.

4. The balance accelerates, immediately

The moment you’re in default, the remaining balance is due in full. Not the daily payment. The whole thing. If you had $180,000 left on a $250,000 advance, you now owe $180,000 today, plus default fees, plus legal fees, plus whatever the agreement calls a “reasonable” attorney’s fee – which in New York, courts routinely approve at 25 to 33 percent of the balance. That $180,000 becomes $240,000 almost overnight.

5. They file a Confession of Judgment – or they used to, and now they sue fast

Before 2019, New York MCA funders would file a Confession of Judgment the day after default, and have a judgment against you in 48 hours, no lawsuit, no notice. The law changed. Now, for out-of-state defendants, COJs don’t work the same way. But here’s what most people miss – the funders adapted. They sue in New York state court, usually Supreme Court in Westchester, Orange, or Erie County, and they move fast. You’ll be served within a week or two of default, and the judgment can come within 30 to 60 days if you don’t respond correctly.

6. The restraining notice freezes your accounts

This is the one that destroys businesses. Under New York CPLR 5222, once they have a judgment, the funder’s attorney can issue a restraining notice to any bank that holds your money. The bank freezes the account the same day. You can’t make payroll. You can’t pay rent. You can’t buy inventory. The freeze lasts a year, or until the judgment is satisfied. And the notice can be sent to every bank in New York, not just the one you use – which is why a lot of business owners find out their accounts are frozen when their card gets declined at a gas station.

7. Marshal levies, and the sheriff showing up at your business

After the restraining notice, they escalate to a marshal or sheriff’s levy. In New York City, city marshals are private enforcers who work on commission, and they are aggressive. They’ll show up at your business, during business hours, and levy the cash register, the receivables, and in some cases, physical property. Outside the city, the county sheriff handles it, and they’re slower, but the outcome is the same. This is not theoretical. This happens every single day in New York.

8. They go after the personal guarantor – meaning you, personally

Almost every MCA agreement has a personal guaranty buried in it. Most business owners don’t read it, or they read it and sign anyway because they need the money. At default, the funder sues the business and the guarantor together. Your personal bank accounts, your personal assets, your house if it’s not properly protected – all of it is on the table. New York allows wage garnishment up to 10 percent of gross income for consumer debts, but MCA judgments are commercial, and the rules are different, and harder to fight.

9. Your credit isn’t the problem – your UCC is

People worry about their credit score. That’s the wrong thing to worry about. MCAs don’t report to the consumer bureaus, so your FICO might look fine. What kills you is the UCC filing, which is public, and which every other lender, landlord, and vendor can see. Once there’s a default-status UCC against your business, you can’t get a bank loan, you can’t get a new lease, you can’t get net-30 terms from a serious supplier. The UCC follows you until it’s terminated, and the funder has no incentive to terminate it until they’re paid.

10. They stack the lawsuits

If you have more than one MCA – and most defaulters do, because stacking is how people end up here in the first place – every funder sues separately. You don’t get one case to defend. You get three, or five, or seven. Each with its own attorney, its own restraining notice, its own marshal. The judgments compound, the legal fees compound, and the restraining notices hit every bank you’ve ever used. At this point, most business owners either file bankruptcy, or they negotiate settlements with every funder at once, which is what we do here at Delancey Street.