The MCA mistakes that can double the debt you owe are:
- stacking new advances to pay current ones;
- not responding to a Summons or a notice of a Confession of Judgment;
- moving your bank account or revoking an ACH;
- signing a new Confession of Judgment to get a payment plan; and
- settling without proper release paperwork.
Take an example merchant who owed $40,000 on a $50,000 factor 1.4 MCA ($70,000 in “purchased receivables”) after paying $30,000.
Which MCA debt mistakes grow the balance fastest?
| MCA Debt Mistake | Consequence |
|---|
| Stacking new advances to pay current ones | An anti-stacking default, plus a new factor on the rolled amount |
| Ignoring a Summons or COJ notice | A judgment for the balance and fees, plus 9% (NY) or 6% (PA) interest, used to restrain your bank accounts |
| Moving your bank account or revoking the ACH | Default, acceleration, UCC 9-406 letters telling your customers to pay the funder, and/or a voidable transfer suit |
| Signing a new Confession of Judgment to get a payment plan | A judgment for the full amount claimed after one missed payment |
| Settling without the proper paperwork | Leaving a lien, guarantee or judgment in place even after you paid |
Will taking another MCA to stay current cause a default?
Often, yes, since anti-stacking covenants make stacking a default that lets the funder demand the full amount. Renewing with the same funder mid-cycle charges a new factor on the rolled amount, so the unpaid balance carries two factors. Each MCA usually comes with its own personal guarantee, and many agreements also have a cross-default clause that puts every contract in default when one is. See the math of staying current on one MCA by stacking a fifth.
What happens if you ignore an MCA lawsuit or confession of judgment notice?
In New York if you are personally served in-state you have 20 days to appear, otherwise 30 days, under CPLR 320(a). After that the funder can enforce the default clause to declare the entire uncollected “purchased” amount, fees and attorneys fees due immediately (See LG Funding, LLC v. United Senior Properties of Olathe, LLC and our post on what a notice of default and acceleration costs).
New York judgments accrue 9% per annum under CPLR 5004. In Pennsylvania the legal rate is 6% pursuant to 42 Pa.C.S. 8101 unless the contract sets a higher post-judgment rate. A New York restraining notice lets banks hold twice the amount due on the judgment pursuant to CPLR 5222, so for our example merchant the funder could restrain $80,000 for up to a year.
In Pennsylvania, once notice has been served pursuant to Rule 2958.1 you have 30 days to file a Petition to Strike or Open the Confession of Judgment pursuant to Pa.R.C.P. 2959; all grounds must be asserted in one Petition and late filings will be denied absent compelling reasons.
Can I close my bank account or revoke the ACH to stop the MCA payments?
Many MCA contracts make it a default that accelerates the unpaid balance if the designated bank account is closed, the ACH is revoked or the merchant changes payment processors. The federal Electronic Fund Transfer Act, 15 U.S.C. 1693a(2), only applies to accounts “established primarily for personal, family, or household purposes”; business account debits are governed by Nacha’s rules for non-consumer accounts.
Under UCC 9-406(a), once a customer receives “authenticated notice” of the assignment, it can discharge the invoice only by paying the funder. Diverting payments to a new account or entity after being threatened with suit could be considered a “badge of fraud” under New York Debtor and Creditor Law, Article 10 or 12 Pa.C.S. § 5104, letting the funder bring that entity into the lawsuit for fraudulent transfer.
Should I sign a Confession of Judgment to get a payment plan?
Read closely. Many structured settlements contain a “Stipulation of Judgment” for the entire balance the funder claims you owe. So if our example merchant agreed to pay $28,000 and the funder claimed $40,000, one missed installment could get you a judgment for the $40,000 plus fees. If the agreement creates a “new” debt at the amount the funder claims, the funder may call it a purchase to avoid usury (See Adar Bays, LLC v. GeneSYS ID, Inc., holding criminally usurious loans void in New York).
In New York, a Confession of Judgment can only be filed in the County where the defendant “resided” when the COJ was signed or filed (CPLR 3218). A business “resides” where it has a place of business. So a Pennsylvania company with no place of business in New York cannot have a COJ filed there. Pennsylvania, however, allows confessed judgments on “commercial instruments,” so one could be filed where you signed it. Texas voids sales-based financing contracts containing a COJ as of September 1, 2025, but New York’s A07545, which would ban COJs for less than $5 million, has not passed.
What documents should I receive when I settle my MCA?
You should receive a full release of all claims, a paid-in-full letter, a UCC-3 termination statement that the funder must file by a certain date, a release of any personal guarantors, and a Covenant Not to Sue or file any COJs. If a judgment was entered, you need a “Satisfaction of Judgment” or “Vacatur.” Discontinuing the lawsuit does not clear a confessed judgment. If you stacked, a release from one funder does not release the others.
Canceled debt is generally taxable income, but IRS Publication 4681 describes an insolvency exclusion claimed on Form 982. Ask your CPA whether the funder’s “discount” counts as canceled debt when they claim they purchased the receivables.
Frequently Asked Questions
How many days do I have to respond to an MCA lawsuit in New York?
If you were personally served within New York State, you have twenty (20) days to respond; otherwise, thirty (30) days. See CPLR 320(a). If you fail to respond, the funder can get a default judgment against you, which will earn 9% per annum. See CPLR 5004.
Do I have EFTA rights to stop ACH debits from my business account?
The EFTA only applies to an “account established primarily for personal, family, or household purposes.” Nacha rules and your bank agreement govern the ACH debits. Many MCA contracts contain a provision that revoking ACH authorization is an event of default.
Will I get a 1099-C if I settle my MCA?
It will depend on the funder. A 1099-C must be issued for any canceled debt of $600 or more if the organization’s “significant trade or business is the lending of money.” Funders who claim they only purchase receivables may not issue one. Ask your CPA.