What Happens If I Default On A Merchant Cash Advance?

What happens if you default on an MCA payment? The funder will continue debiting your account. It will add fees and accelerate the balance owed. It can tell your customers or card processor to pay it directly under UCC 9-607(a). Except in a few states, the MCA funder needs to sue you to freeze your bank account; in some states, it can use a confession of judgment instead.

The key gates: before a judgment, the funder's tools come from the contract and Article 9 of the UCC, and only after a judgment do court enforcement tools open up.

What triggers a default on a merchant cash advance?

Generally, you are in default if you bounce too many debits, block the ACH without giving written notice, change the designated account, take in another MCA or otherwise “divert” your receivables. There is usually no “cure” period: you’re in default as soon as it happens. If you missed one payment, read this article about what to do.

If your sales go down, however, a true purchase of receivables contract should not put you in default, and reconciliation fixes the problem. But you have to ask for it. In Apollo Funding v. Dave Reilly Construction (2d Dept., Sept. 24, 2025), a merchant that never requested reconciliation lost on summary judgment.

What can the MCA funder do before suing you?

The MCA funder will keep debiting your account, because your authorization remains valid even after you are in default. It will also add fees: a complaint filed in Rockland County in 2026 charged a $5,000 default fee, a $2,500 blocked-account fee and a UCC fee of $199. Then it will accelerate the balance owed, adding up everything it has not yet collected plus the fees. That’s the amount they will sue for.

Calls, letters and demand emails are generally legal, because the Fair Debt Collection Practices Act only applies to consumer debt. But the funder cannot threaten violence or take money it isn’t authorized to take. See the FTC’s case against RCG Advances.

Under UCC 9-607(a), once you are in default the funder can tell anyone who owes you money to pay it directly, which for card-heavy businesses generally means your credit card processor. See our post on whether the MCA funder can shut your business down.

Can a funder freeze my bank account without suing me?

Except in a few states, the MCA funder cannot freeze your bank account without suing you. The UCC gives it no rights in your deposit account unless it has control, and a New York restraining notice is available only to a judgment creditor. See CPLR 5222.

The exception is a confession of judgment, which is itself a judgment, and where it applies depends heavily on your state. In New York, since August 30, 2019, the funder can only file a confession of judgment in the county where you live if you are in New York (S6395). In Texas, as of September 1, 2025, any contract for sales-based financing that includes one is void (HB 700). But in Pennsylvania, the funder can still use a “confessed judgment” in a commercial matter and serve a writ of execution along with the notice.

How will I know I’ve been sued, and how long do I have to answer?

You will be served with a summons, usually from a court in New York, and your time to answer runs from service. As the local paper recently reported, many of these cases end in default judgments, and few are challenged. The business is likely sued along with its owner, who signed as a guarantor. The deadlines:

Watch your mail for the CPLR 3215(g) notice. If you are an individual, it goes to your home in an envelope marked “personal and confidential,” and it is typically the last warning before the clerk enters a default judgment for a sum certain without a judge.

What happens after a judgment is entered?

The funder’s attorney can send restraining notices to your banks. Each lasts a year and freezes deposits that arrive after it, and a bank holding twice the judgment amount is released as to the rest. If you are a merchant in another state, a New York judgment must be registered in the state where you have assets. To get your house, they need a judgment against you personally as guarantor, then execution and a sheriff’s sale.

Can you still get out at each stage?

Yes, depending on the stage. Before suit, you can reconcile or settle. If you settle, get a UCC-3 termination; the funder must file it within 20 days of your authenticated demand once you owe nothing. After service, answer within the allotted time. After a default judgment, you can still seek vacatur within the time limits above. At any time, bankruptcy’s automatic stay stops the collection process. For the remedies funders actually use, in ranked order, see What Can an MCA Company Do if I Default?

Frequently Asked Questions

Will I be sued in New York if I am not located in New York?

Often, yes. Most MCA contracts choose New York State courts, and Rockland County alone is seeing hundreds of suits per month against merchants not located in New York. But to collect, they still have to register the judgment in the state you have assets in.

Do they need a judgment to contact my customers and/or processor?

No. UCC § 9-607(a) allows the funder to notify your customers to start paying it once you have defaulted. The customers can request “reasonable evidence” of the assignment.

What can I do if I didn’t answer and a judgment was entered?

In New York, you have one year from service of the judgment with notice of entry to seek vacatur for excusable default. A challenge for lack of jurisdiction, such as no service of the summons, has no fixed deadline. In Pennsylvania, you get one chance to open a confessed judgment, with 30 days from service of notice to file the petition.

How long does the whole default process take?

No public data shows how long it takes. Day-by-day timelines online are only estimates, so rely on the time limits in the table above.

From Someone Who Sees This Everyday.

Often I see a lot of panic post when you've defaulted on an MCA. Most of the fear is based on what the lender is telling you over threatening phone calls, or via emails. The objective of this is to correct the record. My goal is to help you understand what you can, and cannot, legally do. so here's the real list.

First - what are they going to do immediately? They're going to hit your bank account. Many contracts let them keep pulling the daily, or weekly, debit, and if the pull bounces, they'll try other accounts listed on your application. They might retry hitting the account from different companies they own - because if you blocked them on one company, they'll try from other companies that aren't blocked. In addition, some will try to pull the full remaining amount in one shot. That's why people wake up with a fully negative account and think they were hacked.

The next thing they'll do is call your customers and other associates. They filed a UCC lien when they funded you, and they'll use that to send letters to your clients. They can legally do this, and they can tell the clients to pay the lender instead of you. It's called a UCC lien notification, and it's brutal if you rely on those receivables. Not only your clients, but also your payment processor will get this notification. They'll tell all of them to redirect the deposits to the lender instead. Legally, they can do this, and there's nothing you can do to stop it. You signed off on the UCC lien being applied when you took the funding.

The next thing they'll do is file a lawsuit. If you've defaulted on the MCA, they can sue you, and sue your personal guarantor. This is usually you. Most of these contracts pick New York state, as the state where the contract will be litigated. If they win, or you don't respond to the lawsuit. They get a judgement. This will let them freeze your bank account, with a restraining notice, a garnish, and even go after business assets.

What they can't do: they can't have you arrested. Defaulting on an MCA is not a crime, despite the threats some predatory MCA lenders will make. You should assume lenders are going to threaten you, lie to you, anything to keep you in life.