Yes, if you signed a personal guaranty or you operate as a sole proprietor or general partner, then you can be sued personally for a business MCA. The funder will typically sue your company and you in the same case and get judgment against you both jointly and severally.
How does a guarantor end up named in an MCA lawsuit?
They will name you as a party in the caption and plead a cause of action based upon the guaranty, which is a separate contract from the Merchant Agreement. In July of 2026, an appellate court decided EBF Holdings v Defiant Arms. The funder pleaded a second cause of action against the owner of the LLC, and the trial court had entered a judgment against both defendants “jointly and severally, for the amount of $25,502.30.” Jointly and severally means the funder can collect the entire amount from either defendant.
Most MCA contracts choose New York law and courts, so you will likely be served in New York. Sometimes the funder will serve you with a motion for summary judgment in lieu of a complaint under CPLR 3213, which only applies to actions upon “an instrument for the payment of money only.” A guaranty that makes you liable only if the Merchant Company breaks a certain promise is not an instrument for the payment of money only, so you may be able to oppose this motion. See our article about personal guaranties being enforceable.
Do you get a different deadline than your company?
Yes, and you also have some rights an LLC does not:
| Rule | What it means for you personally |
|---|
| NY CPLR 320(a) | Twenty days to respond if served personally in New York; thirty if served by substituted service or out of state |
| NY CPLR 321(a) | You may appear pro se; LLCs have to have a lawyer |
| NY CPLR 3215(g)(3) | An extra notice mailed to you, marked “personal and confidential,” at least twenty days before default judgment |
| Pa.R.C.P. 1026 and 237.1 | Twenty days to file a pleading in Pennsylvania, plus ten days notice before a default |
The funder has to file an affidavit of service of the 3215(g)(3) notice, or you may be able to attack the default judgment later.
Can your spouse be sued personally for a business MCA?
They cannot sue your spouse on your guaranty if your spouse did not sign one. They can if your spouse signed a guaranty too, and MCAs often require all of the owners to sign. Under federal Regulation B, 12 C.F.R. 1002.7(d) says the creditor “shall not require the signature of an applicant’s spouse or other person, other than a joint applicant, on any credit instrument if the applicant qualifies.” It is unclear if this applies to MCAs, which are technically a purchase of receivables, or to guaranties. The 8th Circuit said it does not apply to guaranties in Hawkins v. Community Bank of Raymore, and the Supreme Court affirmed in 2016 by an equally divided Court.
Once they get a judgment against you, they can serve a restraining notice freezing any accounts that have your name on them, and your spouse would have to prove the funds are theirs. In California, under California Family Code 910, the community estate is liable for a debt incurred by either spouse, “regardless of whether one or both spouses are parties to the debt.” In Texas, under Texas Family Code 3.202, the other spouse’s separate property and the community property they solely manage generally are not subject to your debt. In Pennsylvania, creditors of only one spouse cannot reach property you own as tenants by the entireties, but if you both signed, this protection doesn’t apply. See whether your house is subject to a personal guaranty.
What defenses do I have that my business does not?
Perhaps the strongest defense is that the guarantee says what it says. In EBF, the appeals court agreed that the business breached its contract, but vacated the judgment against the owner because the funder assumed the breach “automatically triggered” the guarantee. But the guarantee only covered the listed “Guaranteed Obligations,” not all of the company’s obligations. Funders tend to limit what is guaranteed so the agreement will look more like a sale. If the funder says your guarantee covers simple nonpayment, then, as the EBF dissent noted in quoting Davis v Richmond Capital, that is evidence the agreement is a usurious loan.
Other common defenses that only you can assert include:
- You signed the agreement in a representative capacity, e.g., “Joe Smith, President”
- The lawsuit was improperly served at your home under CPLR 308
- The funder failed to send you a 3215(g)(3) notice before seeking a default judgment
- You can assert the defense of criminal usury (greater than 25%), although corporations cannot assert civil usury under GOL 5-521
- Removal to federal court if the amount in controversy exceeds $75,000 and no defendant is a New York citizen, within 30 days of your own service
You must raise service and jurisdiction objections in your first response, usually a 3211 motion or answer, or you will waive them under CPLR 3211(e). Contrary to popular belief, the New York co-signer notice law, GOL 15-702, does not apply to these guarantees, because it is limited to consumer credit. For how guarantees, veil piercing, and fraud create personal liability, see am I personally liable for my business’s MCA debt.
Frequently Asked Questions about Personal Liability for MCAs
If my LLC is sued, am I a defendant in the lawsuit?
Only if the funder makes you a defendant. Usually the funder sues the individual on a guarantee. If there is no guarantee, then under NY and PA law, an LLC member is not liable simply for being a member.
My company filed for bankruptcy. Does that stop the lawsuit?
Usually not. Under the Bankruptcy Code, the discharge of the company does not affect the liability of any other entity. While there is a codebtor stay in Chapter 13, it only applies to consumer debts.
Can I protect my assets by putting them in my spouse’s name?
Be very careful doing this after defaulting or being threatened with a lawsuit. Under Pennsylvania’s voidable transfer law, one of the red flags for a voidable transfer is a transfer to an insider (your spouse would be an insider) when you have already been sued or threatened with suit. The lookback period is four years, and your spouse could end up a defendant.
My business is settling the lawsuit. Will I be let off the hook?
Only if the settlement agreement says you will. Make sure the settlement agreement expressly releases you, discontinues the case with prejudice as to you, and gives back any confession of judgment you signed.