Business Debt Restructuring in New York: 7 Laws That Change Your Leverage (2026)

New York practice rewards the owner who reads the controlling paper before negotiating around it. Across seven authorities the same lesson repeats, and the exceptions prove narrower than funders claim. The ledger controls.

Confession Practice Under CPLR 3218

A judgment by confession may be entered without any action on an affidavit executed by the defendant stating the sum, the authorization, the county of residence, and the facts from which the debt arose, as the text of CPLR 3218 requires. Filing is permitted only within three years after execution, and only with the clerk of the county where the defendant resided when the affidavit was executed or resides at filing. A company resides in any county where it maintains a place of business.

Joint debtors deserve attention here. Where fewer than all confess, the judgment binds only those who signed, and the claim survives against the rest. Where the debt is not all due, execution issues only for the sum matured, while the judgment stands as security for the balance. The clerk taxes costs of fifteen dollars. Small sums decide large outcomes.

How Courts Test Whether an Advance Is a Loan

In the Appellate Division decision in LG Funding, 181 AD3d 664, the court measured the transaction by its real character rather than its label. The rudimentary element of usury is a loan, and where no loan exists there can be no usury however unconscionable the terms. Courts weigh reconciliation, finite duration, and bankruptcy recourse to decide whether repayment is absolute. Review the agreement against those three factors before asserting anything about legality, and ask independent counsel to ensure the file is complete.

The figures in that case give the test weight. The funder paid $100,990 for future receivables and collected 15 percent of daily revenue capped at $2,499 per week until $129,267.20 arrived, with two individuals guaranteeing performance of the representations and covenants. The trial court denied dismissal of the usury defenses, and the appellate court kept that denial while dismissing the counterclaim. Pleading liberality favored the defense at that stage, which differs from winning it.

The Debt That Was Never a Loan

Rarely does a court explain the purchase side as patiently as the Fourth Department did in the Fourth Department decision in Bridge Funding. The agreement took 25 percent of future revenue with no interest rate, no schedule, and no date by which collection had to end. Two reconciliation provisions adjusted remittances on request with proof. The funder acknowledged the risk of slowdown or failure and disclaimed recourse on bankruptcy. The court treated the transaction as a purchase rather than a loan, with reconciliation terms that gave the funder no sole discretion to refuse adjustment.

Paper earns deference only when performance matches it. The same opinion reversed the funder summary judgment because the manager affidavit conflicted with the verified complaint on damages, and the guaranty claim fell with the contract claim it depended on. A dissenting test would sort purchases from loans differently; the majority did not adopt it.

Security Interests That Survive Disposition

Often we see files where the owner assumes a sale cleansed the collateral. Section 9-315 of the Uniform Commercial Code answers that assumption directly. A security interest continues in collateral despite sale, lease, license, exchange, or other disposition unless the secured party authorized disposition free of the interest, and the interest attaches to any identifiable proceeds. Perfection in proceeds generally follows perfection in the collateral, with stated time limits.

Protect and preserve the sale documents, the authorization correspondence, and the proceeds accounting as one set. A buyer who holds that collateral, even briefly, needs advice about the encumbrance traveling with it. Some statements describe collateral broadly in order to reach untouched accounts; counsel should compare the description against the agreement.

The sale was valid. The lien survived.

Most funders file first and read the collateral description later. They prefer the widest possible net.

Termination Statements on Signed Demand

And the demand must be signed. Within twenty days after receiving a signed demand from the debtor, the secured party must supply or file the termination statement where no obligation remains secured, or where the filing was never authorized. There are exceptions, though in practice they tend to confirm the rule.

Payoff alone authorizes no filing by the debtor hand. A debtor filing stands only where the secured party failed its duty. The signed agreement itself authorized the initial filing.

What the Yellowstone Settlement Decided

In January 2025, the Attorney General announced a settlement following a 2024 action concerning allegedly fraudulent loans disguised as MCA paper, documented in the Attorney General announcement of the Yellowstone settlement. A consent order and judgment followed. Monetary claims closed January 9, 2026, with payments mailed that April and the July 8, 2025 lien request deadline passed.

Relief runs only to covered Yellowstone obligations and parties. Cancellation of covered outstanding balances operates automatically and reaches personal guarantors, while satisfied judgments receive distinct treatment. Cloudfund obligations sit outside the settlement, with litigation continuing. Whether any further distribution will follow is a question the current record cannot answer. The office accepts complaints but provides no representation, so included accounts need docket verification.

Reorganization and the Automatic Stay

Private negotiation creates no stay. Only a bankruptcy filing generally triggers the automatic halt, subject to exceptions, and reorganization under Chapter 11 bankruptcy basics with small business provisions offers a supervised path through the court. One filing does not automatically shield every guarantor, and recent dismissed cases can limit the stay absent fresh court relief.

Few owners call before the first missed payment. I understand why. Without a forum, resisting pressure means choosing which obligations to admit, and an admission can revive what discharge had buried. Resist the urge to acknowledge any old balance before advice.

Consult and contact Delancey Street, a settlement company rather than a law firm, for a free confidential initial review of the MCA accounts while independently licensed counsel handles the legal questions. We ensure no filing proceeds without a complete record. Close the ledger on the old obligations before opening another, because New York honors paper that reflects performance and discounts the rest.