What an MCA Funder Can and Cannot Take: Nine Asset Groups to Review Under the Governing Law

No inventory of property answers the collection question before the creditor’s rights are established. An MCA funder with a signed security interest, a funder with a judgment, and a funder with neither hold different positions against the same bank account.

The truck sits in the driveway and the lien sits in the filing office. Exposure turns on the second location, not the first.

The Order of Questions

The obligor comes first. A claim against the company does not by itself reach the owner’s personal accounts, and a claim against the guarantor does not by itself reach company property held free of any lien. The distinction between company property and personal property is extremely decisive for everything that follows.

Only after judgment does a restraining notice reach the bank. Before that point, the funder’s nonjudicial rights run against collateral described in a valid security agreement and little else.

The nine groups are business accounts, personal accounts, earnings, inventory, equipment and vehicles, receivables with their proceeds, the home, retirement benefits, and the statutory exemptions that remove certain funds from enforcement. The order reflects convenience, and no section number measures exposure.

Accounts and Earnings

A restraining notice under New York restraining notice rules forbids the recipient to transfer property in which the judgment debtor holds an interest, and the restraint against a third party lasts until the judgment is satisfied or one year passes. The notice issues on a judgment. A demand letter, however stern, starts no restraint.

Where the account belongs to a natural person, New York exemption notice requirements direct the creditor to serve exemption forms with the restraint, and failure to serve them renders the restraint void. The bank mails the forms to the debtor within two business days, and the debtor may claim the funds as exempt. The creditor serves the restraint in order to compel attention before negotiation begins.

Earnings receive a federal floor. Federal limits on garnishment cap the garnishable portion of disposable earnings for a workweek at twenty five percent or the excess over thirty times the federal minimum wage, whichever is less. Support orders, Chapter 13 orders, and tax debts stand outside that ceiling. The federal floor is extremely durable, and no court may enforce an order that violates it.

Joint accounts complicate the picture, since the restraint reaches the debtor’s interest and the other holder must assert a separate share. Collect and compare the statements with the notices, keep the payment records, and let counsel read the restraint before responding. What looks like a frozen account may be a restrained account with a procedure attached. Simply bring the notices to counsel before responding.

Collateral in Hand

Collateral is the exception to the judgment rule. After default, New York rules for possession after default permit a secured party to take possession of the collateral, with or without judicial process where no breach of the peace occurs. The same section permits the secured party to render equipment unusable without removal and to require assembly of the collateral at a reasonably convenient place.

A sale of the collateral does not cleanse it. New York law on disposition of collateral continues the security interest despite sale or other disposition unless the secured party authorized disposition free of the interest, and the interest attaches to identifiable proceeds. The filing (which the funder may describe as proof of the debt itself) proves only the claimed lien, and the claimed amount requires proof all the same. That surprises owners who paid for the equipment twice.

Inventory and equipment each answer under the same test: the agreement must describe them, the filing must perfect the interest, and default must have occurred. An unsecured funder with no judgment repossesses nothing.

Most blanket descriptions were drafted to cover everything the borrower owns or will own. Breadth in the collateral description serves the drafter, and the drafter was not the borrower. Counsel reads and tests the description against the assets in hand. The funder discloses what it chooses to disclose, and withholds the rest. Any conversation with the field agent, even briefly, should pass through counsel.

The Home and the Homestead Rule

Protection for the home varies by county in New York. New York homestead exemption rules shield a principal residence up to tiered dollar amounts above liens and encumbrances, unless the judgment was recovered wholly for the purchase price. The lien of a judgment attaches to the surplus, and a creditor seeking sale of a home worth more than the exemption must proceed through a special court proceeding.

The dollar figures move with amendment, and this article states no figure as current. Whether surplus equity exists is a matter of appraisal and lien search, not assumption. Resist the urge to sell the house to fund a settlement before counsel measures the exemption.

Collectors describe the house as the obvious source of settlement funds. The house is where the guarantor lives. No owner looks forward to that conversation. Few admit how long they postponed it.

Retirement Benefits and Exempt Funds

Years after the contributions post, pension benefits retain a federal shield. ERISA pension benefit protections provide that plan benefits may not be assigned or alienated, while a qualified domestic relations order creates an exception the plan must honor.

Whether a given account holds ERISA plan assets is a separate question for counsel. Funds that are exempt keep their character in the bank, and the exemption forms exist for claiming them.

A Review Before Positions Harden

Positions harden as enforcement advances. An owner can bring the asset inventory to Delancey Street, which operates as a settlement company for MCA and business debt and not as a law firm, for a commercial review while independent counsel tests each claimed lien and each exemption. The objective is to ensure negotiation and defense proceed from the same inventory. Counsel should ensure no asset is surrendered without review.

Collection law sorts property with a patience the collection call does not show. The law of exemptions is less uniform than a single article can convey. The settlement team opens its files to the owner before asking for anything in return.