How to Stop Paying Merchant Cash Advances

Merchant cash advances (MCAs) can seem like an easy way for businesses to get quick capital, but they often come with predatory terms and exorbitantly high effective interest rates. If you’ve taken out an MCA and are struggling to make the daily payments, you may be wondering if there’s a way out. The good news is there are steps you can take to legally stop paying your MCA.

Understand Your MCA Agreement

The first step is to carefully review your MCA agreement and understand the terms. Some key things to look for:

• Payback Amount and Factor Rate: This will determine the total amount you owe.
• Personal Guarantee: If the owner personally guaranteed the MCA, their personal assets may be at risk.
• Confession of Judgment or UCC Filings: These allow the MCA company to seize assets or bank accounts without notice.

Once you understand all the terms, you can better assess your options.

Attempt Voluntary Settlement

If possible, the ideal solution is to negotiate a settlement with the MCA company. Some things you can offer:

• Lump Sum Payment: Offer a lump sum that’s less than the full payback amount. Get it in writing before paying.
• Payment Plan: Propose a reduced regular payment plan.
• Collateral Exchange: Offer business assets or collateral in exchange for reduced payments.

Most MCA companies would prefer to recoup some money rather than none, so settlements are often possible. That said, some companies are notoriously aggressive about collections. Don’t expect miracles, but it’s worth exploring voluntary options before resorting to legal actions.

File Bankruptcy

If you truly cannot pay what you owe on the MCA, bankruptcy may be an option. The most common relevant chapters are:

• Chapter 7 Bankruptcy: Liquidates assets to pay debts. MCA debt can potentially be discharged.
• Chapter 13 Bankruptcy: Establishes 3-5 year repayment plan for debts. Can sometimes lower MCA payments.

The impact on MCA debt depends on whether the court sees it as a loan or purchase agreement. If deemed a loan, the debt is more likely dischargeable. Talk to a bankruptcy attorney to understand your options.

One risk with bankruptcy is the MCA company could file a complaint claiming you committed fraud by taking out debt you knew couldn’t be repaid. This makes debts non-dischargeable. Honesty with your attorney is crucial to avoid this.

Attempt Debt Invalidation

There are various legal arguments that could potentially invalidate MCA debt, releasing you from payment obligations. Two options to explore:

• Usury Claims: Argue the MCA violates state laws against excessively high interest rates (usury laws). This depends on how the state classifies MCAs and applicable usury caps.
• Unconscionability Claims: Argue the unfair and deceptive terms make the contract invalid and unenforceable. This is fact-specific and often an uphill battle.

We recommend consulting a commercial litigation lawyer to assess if debt invalidation arguments could apply to your MCA. If successful, the associated UCC liens and judgments could also be voided.

Defend Collection Lawsuits

If you stop paying, eventually the MCA company will likely sue for breach of contract. Some tips for navigating a collection lawsuit:

• Avoid Ignoring the Lawsuit: Get a lawyer to respond or you risk a default judgment.
• Raise Counterclaims: File usury/unconscionability counterclaims to invalidate debt.
• Challenge Improper Documentation: The plaintiff must properly document the agreement and debt owed.
• Dispute Reported Information: Ensure credit agencies reflect disputed status while contesting.

With an experienced commercial litigation lawyer representing you, there are often strong defenses against MCA collection lawsuits. Contesting the litigation also buys additional time.

Negotiate Settlement from Lawsuit

At any point during litigation, you can still attempt to negotiate a settlement. The same principles apply – offer lump sum payments or a payment plan in exchange for dropping the lawsuit. Be prepared to file for bankruptcy if talks break down. Having an experienced lawyer greatly helps such negotiations.

While scary, defending against an MCA collection lawsuit is absolutely possible. Just don’t let a judgment be entered against you by default.

Other Defenses to Explore

Some other legal arguments that could potentially stop MCA payments:

• Violation of State Lending Laws: Certain state laws prohibit non-bank lending. Argue the MCA agreement violates such laws.
• No License to Lend: In some states, MCA companies must have a lending license. Check if the company had the proper licensing.
• Affirmative Defenses: Common law contract defenses like duress, undue influence, mistake, or incapacity.

An experienced lawyer can help assess if any of these apply and could release you from the MCA debt. The analysis will be very specific to your situation and state laws.

Avoid Desperate Measures

When facing crushing MCA payments, it’s easy to consider desperate options. For example, closing the business entity, hiding assets, or claiming identity theft. We strongly advise against such measures:

• They often don’t work – Savvy MCA companies plan for these scenarios.
• You remain personally liable – Personal guarantees and confessions of judgment persist.
• Significant legal downsides – At best, you buy some time. At worst, you incur fraud charges.

Instead, focus efforts on the legal defenses and settlement strategies outlined above. They provide ways to properly invalidate or mitigate MCA debt under the law.

Consult MCA Defense Attorneys

If you decide to stop paying your merchant cash advance, we highly recommend retaining legal counsel to guide you. Please feel free to call us at 212-210-1851 or contact us online to discuss your situation in confidence.

Some key benefits of working with our legal team include:

• Initial consultation at no cost
• Review your agreement terms and personal liability
• Assess defenses based on your specific facts
• Negotiate settlement offers on your behalf
• Defend collection lawsuits filed against your business
• Avoid personal judgments and bank levies

We understand how stressful and confusing it can be when MCA payments become unmanageable. Our lawyers have successfully helped clients legally stop payments or mitigate obligations. We know the litigation playbook funding companies rely on and how to defend against it.

Please reach out so we can explore your options together. The sooner we get involved, the more leverage we have to negotiate. We are always happy to discuss your situation free of charge.