San Francisco Professional Services Firms: 8 Restructuring Rules That Decide What a Funder Can Reach (2026)

A funder holding paper on a San Francisco professional practice can reach less than the contract claims and more than the partners assume. The agreement describes a stream of future receipts, a blanket filing, and guarantees signed by individuals whose names sit beside the entity. That description opens the analysis. Judgments, liens, exemptions, and the character of each named asset close it.

Consider a hypothetical consultancy above Montgomery Street with three advances and partners who read the funding amount and little else. The eight rules below decide what a funder can reach from a firm shaped like that one, under law counsel must confirm against current facts.

Seizure Requires a Judgment or a Lien

No inspected authority permits a private funder to seize property that is neither its collateral nor subject to a judgment. The distinction controls the restructuring conversation from the first conference. A funder with an unsecured position owns a contract claim. A funder with a judgment owns access to the enforcement tools of the state.

Characterization comes first. New York courts test substance over labels, asking whether repayment is absolute and weighing reconciliation, a finite term, and bankruptcy recourse, under the LG Funding decision of the Second Department. That ruling is New York authority rather than a national rule, and a reconciliation clause alone decides nothing about enforceability.

There are exceptions, though in practice they tend to confirm the rule.

Self Help Stays Peaceable

A secured party may take possession of its collateral after default, with or without judicial process, only without breach of the peace. The limitation appears in the full text of the repossession provisions of UCC article 9, and it governs every retrieval a funder attempts on its own. Confrontation, threats, and forced entry cross the line the section draws.

Showing up is not seizing. No inspected source authorizes a private funder to lock the doors of a practice or carry out equipment by force. Most funders know what their field agents may do. They prefer not to ask what those agents do in practice.

The Lien Follows Collateral Into Proceeds

Before the first engagement letter was ever drafted, before any partner reviewed the security agreement, the filing had already attached to receivables the firm had not yet billed. A security interest continues in collateral despite disposition unless the secured party authorized a free and clear transfer, and it attaches to identifiable proceeds, under the New York proceeds statute. Client payments remain encumbered as they move from operating account to payroll.

The filing alone proves neither the debt amount nor enforceability. Bank supervisors describe receivables financing as collateral based lending turning on receivable quality, concentration, and dilution, in the OCC account of receivables and inventory finance. Two clients supplying most of the revenue present the concentration risk that framework flags.

Payoff alone does not clear the record. Termination follows a signed debtor demand when statutory conditions hold, with a twenty day duty on the secured party, and debtor self filing remains narrow. A restructuring that omits filed terminations leaves the lien cloud in place.

The Federal Floor Beneath Earnings

But the earnings of individual partners have a federal floor. Garnishment of disposable earnings through judicial process cannot exceed the lesser of twenty five percent or the amount above thirty times the federal minimum wage, under the federal garnishment ceiling. The ceiling is a floor in substance, since states may protect more, and it restrains judicial garnishment rather than voluntary contractual debits. A funder debiting an operating account by agreement invokes extremely different law.

Whether partner draws count as earnings under that section is a question counsel answers on the compensation structure. The sample behind any general answer here is not scientific.

California Homestead Protection

California protects a dwelling exemption keyed to the countywide median sale price, within a statutory floor and ceiling, under the California homestead section. Judgments for the purchase price stand excepted. Figures adjust over time, so no amount is stated here and counsel confirms the current figure before advising any partner. The shield is extremely partial: it does not cover the practice, its receivables, or the guarantee.

Pension Benefits and Alienation Limits

Pension plan benefits stand behind a federal wall. Plan terms must prohibit assignment and alienation, with defined exceptions including qualified domestic relations orders, under the ERISA anti alienation rule. A funder cannot rewrite that protection by contract language, in order to reach retirement benefits through a blanket lien.

Individual retirement accounts sit outside that wall as a rule, with state law governing their protection. I have yet to see a funder brief that treats the two as identical, though collection letters imply the difference does not exist.

Transfers That Invite Avoidance

The movement of assets among related entities carries hidden freight. The representative voidable transfer tests ask whether a transfer was made with intent to hinder creditors or without equivalent value while the debtor was insolvent or became so, under the Washington enactment of the uniform act (other states use different numbering, and New York relief sits in a separate article counsel must check). Shifting unbilled time or equipment into a new entity on the eve of negotiation invites exactly the scrutiny the tests describe.

Disclose the position, obtain advice, and ensure every transfer occurs at documented value. What a funder cannot reach today, a court can unwind tomorrow, and the unwinding costs more in the end than the asset was worth.

California Disclosure Duties and Complaint Channels

In 2022, California imposed commercial financing disclosures covering merchant advances as well as loans, with funding amount, finance cost, annual percentage rate, and payment information among the required metrics. The state advisory of April 2025 bars unfair, deceptive, or abusive practices and invites business complaints, described in the DFPI advisory to small businesses. A federal court sustained the regime against challenge in December 2023.

Bring every agreement first. The balances can wait until counsel sees the collateral descriptions.

A complaint does not itself cancel debt or suspend litigation, and the disclosure regime does not convert every advance into a loan. Owners should preserve solicitations, disclosures, and debit records from the first contact forward. Any communication with the funder about what was disclosed, even briefly, can alter later review. Resist the urge to narrate the complaint by telephone before counsel has read the documents.

Delancey Street is a settlement company, not a law firm, and it offers a free confidential initial review of MCA and business debt positions while independently licensed counsel handles legal questions. Consultation is where this conversation begins. We ensure the documents are reviewed and analyzed before any position is stated. A practice that understands what a funder can reach negotiates from the ledger rather than the letter.