How does MCA debt settlement work? It starts with a review of your MCA agreements, followed by stabilizing your cash flow and building funds to make offers, then negotiating a lump sum or installment plan settlement with your funders, and concluding with a signed settlement agreement, a release of personal liability, a UCC-3 termination, and judgment cleanup.
You can read more about how long the process takes.
How does the intake process work? What documents will be needed?
Intake is a document review used to create a schedule of advances and identify issues on each advance. Documents typically include the MCA contracts, 3 to 6 months of bank statements, payment history, a profit and loss statement, funder correspondence, and a written hardship description.
A recent New York appellate decision, People v Richmond Capital Group (Feb 19, 2026), found the advances were actually loans because reconciliation was not performed in practice and requests for it were denied. A New York corporation can raise a criminal usury defense, which kicks in above 25% per annum under Penal Law 190.40. A criminally usurious loan to a corporation is void ab initio. These are arguments that can be leveraged in negotiation.
The review also checks for a Confession of Judgment, UCC-1s in the Secretary of State index, and notices sent to customers or processors. Texas voids confessions of judgment taken in commercial sales-based financing under Section 398.055 of the Texas Finance Code, effective September 1, 2025.
Do you have to stop paying your MCA while a reserve builds?
Not necessarily. The first step is to request a halt or reduction of the debits where the contract permits, often by requesting reconciliation. Make that request quickly. A recent New York appeals decision in NewCo Capital Group v SPE Trading (June 26, 2026) enforced a provision putting the merchant in default for not requesting reconciliation within one business day of a bounced debit.
Many MCA settlement programs use a reserve model, where instead of paying daily debits, you send the funds to a reserve account until there is enough to make offers. The problem is that stopping payments will likely put you in default, letting the funder file a lawsuit, sweep your account, go after your processors, or send notices to your customers under Section 9-406 of the Uniform Commercial Code, which requires them to pay the funder instead of you once they receive an authenticated notice of assignment.
If asked to pay into a reserve account, ask who holds and controls it, and what happens to the funds if you leave. Also ask for the fee schedule, as the FTC rules that ban advance fees for debt relief services do not apply to B2B under Section 310.6(b)(7) of 16 C.F.R.
How does MCA debt settlement work in the negotiation process?
MCA funders will settle when the prospect of a guaranteed payment outweighs the risks of other collection methods, such as the cost of litigation or the prospect of a loan defense.
Funders also weigh bankruptcy, which brings an automatic stay under Section 362 of Title 11 of the U.S. Code, and the recovery of preferences paid in the last ninety days. New York has also taken an interest, with the attorney general settling for $1.065 billion against Yellowstone Capital in January 2025 and the FAIR Business Practices Act signed into law on December 19, 2025. Settlements generally fall into one of three categories:
- lump sum settlements;
- structured settlement installment plans; or
- restructured payment plans.
What should the MCA settlement agreement say?
A settlement agreement with a Merchant Cash Advance funder should include:
- All parties: the funder, any assignee or servicer, your business, and yourself if you signed a personal guarantee.
- The amount, payment schedule, payment method, and cure period for a late installment.
- The funder's agreement to cease all ACH debits and cancel its ACH authorizations as of signing.
- A release, ideally mutual, which should explicitly release any personal guarantee.
- A date by which the funder will file a UCC-3 termination.
- Written withdrawal of any 9-406 notices sent to your customers or processors.
- A covenant not to sue or file a confession of judgment, and disposal of anything already filed.
- Whether or not the funder will file a 1099-C.
The UCC-3 date belongs in the agreement itself because under UCC 9-513 a funder must file a termination only once no debt remains, and a funder claiming to be a purchaser of receivables may argue the sale-of-accounts rule applies. After signing, pay in a traceable way and request a letter stating that your balance is now zero.
How do you get the UCC lien and any judgment cleared?
Send the funder a signed written demand, and under 9-513(c) it has twenty days to file or send a termination statement (UCC-3). If it fails to do so, 9-509(d)(2) of the UCC lets you file the UCC-3 yourself, and the funder may be liable to you under 9-625 for your actual losses plus $500.00. Also check the UCC index for filings under affiliated entities.
In New York, under CPLR 5020 a creditor must file a satisfaction piece and can be fined $100.00 or $500.00 for failing to within twenty days of full payment. In Pennsylvania, under 42 Pa.C.S. 8104 a creditor must satisfy a judgment upon written request and can be liable for 1% per month of the judgment amount (minimum $250.00, maximum $2,500.00) if it willfully or unreasonably fails to do so for more than ninety days.
Frequently Asked Questions
Does an MCA settlement release my personal guarantee?
Only if the settlement agreement says so. Include yourself as a party to the release and make sure the personal guarantee is explicitly released.
Do I have to pay taxes on the forgiven debt?
You may. Under IRS Publication 4681 you must report canceled debt even if you don't receive a 1099-C, but the two most common exceptions are discharge in bankruptcy and insolvency. If you qualify for one, you can file Form 982 with your tax return.
What happens to a lawsuit or confessed judgment that's already filed?
A pending lawsuit should end with a stipulation of discontinuance. An entered judgment needs to be satisfied or vacated, which may take a separate motion. If served with a confession of judgment in Pennsylvania, you have 30 days to file a petition to strike or open it under Pa.R.C.P. 2959(a)(3).
If my customers have already been notified under 9-406, will they be notified that the debt has been settled?
Not unless you make them. A customer that received an authenticated notice of assignment must keep paying the funder until told otherwise. Make sure the settlement agreement requires the funder to send a written release to any customer or processor to which it sent notice under 9-406.