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MCA Lawsuit: The Complete Playbook When You've Been Sued (2026)

Step-by-step what to do in the first 7/30/60 days after being served with an MCA lawsuit. Deadlines, defenses, mistakes to avoid, settlement leverage.

By Bar Alezrah13 min readPublished April 16, 2026 · Updated April 16, 2026

If you have been served with an MCA lawsuit, the next four to eight weeks matter more than any other period of the case. Deadlines are short. Defenses can be waived by silence. And the operational choices you make in the first 72 hours, from which documents you save to whether you call the funder, shape the rest of the litigation. This playbook walks through what to do on day one, day seven, day thirty, and day sixty. It is written for small business owners and personal guarantors in New York, Florida, Texas, California, and federal court. It is informational and does not substitute for legal advice about your specific case, which only a licensed attorney in your jurisdiction can provide.

TL;DR

Day 1 to 7: read the complaint carefully, preserve every document, calendar the response deadline, and stop ACH pulls only after consultation. Day 8 to 20: hire an MCA defense attorney or prepare your pro se filing, identify affirmative defenses, and decide answer versus motion to dismiss. Day 21 to 30: file your response on time, in the right court, with every defense preserved. Day 30 to 60: discovery starts, early settlement discussions become realistic, and summary judgment motions come into view. Throughout: do not talk to funder counsel without your lawyer, do not admit the debt in writing, and do not miss a deadline. Most cases settle once an answer is on file and a real defense is preserved.

The First 7 Days: Do Not Panic, Read the Complaint, Preserve Everything

The worst move in the first week is paralysis. Small business owners routinely describe a version of the same experience: the papers arrived, the panic set in, the folder went into a drawer, and three weeks disappeared. By the time the merchant searched for help, half the response window was gone and half the documents had been deleted or overwritten.

Do four things in the first week. First, read the complaint cover to cover. Identify the plaintiff (the funder or an assignee), the defendants (you, your business, and any personal guarantor), the causes of action (typically breach of contract, breach of guaranty, sometimes conversion or fraud), the amount demanded, and the court. Write down the response deadline. In New York, a summons and complaint served in person typically triggers a 20 day response window under CPLR 3012; service by mail or other non-personal methods can extend to 30 days.

Second, preserve documents. Export your business bank statements for the last 24 months. Save every email and text with the funder. Pull the original MCA agreement, all amendments, and any reconciliation communications. Screenshot any ACH pulls and reversals. Do not delete anything, even if it looks bad. Spoliation (destruction of evidence) is a separate legal problem that can result in sanctions or adverse inferences at trial.

Third, calendar the deadline in three places: your phone, your email calendar, and a physical note. Missing the answer date is the single most common way merchants lose MCA cases.

Fourth, stop direct communication with the funder. Do not call to explain. Do not email to negotiate. Do not admit anything in writing. Every statement you make can be used as an admission later. If the funder calls, say "I have counsel," even if you do not yet, and hang up. Then go find counsel.

Days 8 to 20: Hire Counsel or Prepare Pro Se, Identify Defenses

Week two and three are about building your response. The first question is whether to hire an attorney or proceed pro se (on your own). MCA cases are not the place most small business owners should self-represent. The body of law is specific, the procedural rules are unforgiving, and the funder almost always has experienced commercial litigators on the other side.

If you hire counsel, the process looks like this. You describe the case in a 20 to 40 minute consultation. The attorney reviews the complaint, the contract, and your document set. You get a written engagement letter with a fee structure (typically hourly against a retainer) and a clear scope (the answer, motion practice, discovery, settlement, trial if necessary). Expect an initial retainer of $3,000 to $10,000 and total through-settlement cost of $10,000 to $40,000 for a contested case. The MCA defense attorney guide walks through selection criteria in detail.

If you must proceed pro se because of cost, you still have options. Many state courts have self-help centers. The New York Unified Court System maintains pro se forms and procedural guides. The federal courts' pro se handbook covers Federal Rules of Civil Procedure basics. Pro se litigants who file a competent answer with affirmative defenses preserve far more leverage than those who default, even if the pleading is not perfect.

Whatever path you choose, use week two to identify the defenses you will raise. The core MCA defenses include recharacterization as a usurious loan (the New York appellate line discussed in Champion Auto Sales v. Pearl Beta Funding and Davis v. Richmond Capital Group), failure to reconcile, unconscionability, UCC Article 9 violations in the secured filings, improper service or venue, and statute of limitations. The MCA lawsuit defense strategies article covers each in depth. The New York MCA defense attorney page covers NY-specific practice.

Days 21 to 30: File the Response, Challenge Venue if Appropriate

Week four is about execution. The response you file can be an answer with affirmative defenses (the more common path) or a pre-answer motion to dismiss under CPLR 3211 in New York state court or Fed R Civ P 12(b) in federal court.

An answer admits or denies each paragraph of the complaint, asserts affirmative defenses, and optionally pleads counterclaims. In MCA cases, the affirmative defenses typically include recharacterization, failure to reconcile, unconscionability, breach of the implied covenant of good faith and fair dealing, and any procedural defenses such as statute of limitations or improper service. New York requires defenses not pled in the answer to be deemed waived, so the pleading has to be comprehensive.

A motion to dismiss can end the case early on threshold grounds. The common bases are failure to state a claim, lack of personal jurisdiction, improper venue, and statute of limitations. In federal court, Rule 12(b) lists the specific grounds. The risk is that a denied motion to dismiss can waive certain defenses that were not raised, which is why many defense attorneys prefer a comprehensive answer.

Venue challenges matter in MCA cases because funders frequently include choice-of-forum clauses pointing to New York even when neither party is a New York resident. If the merchant is in Texas, California, or another state, the attorney may move to dismiss or transfer on forum non conveniens or lack of jurisdiction grounds. If the funder attempted a confession of judgment in New York on an out-of-state merchant, the 2019 New York ban (detailed at NY confession of judgment ban) may apply and the judgment is void or unenforceable.

Days 30 to 60: Discovery Begins, Early Settlement, Summary Judgment

Once the response is filed, the case enters discovery. Each side serves document requests, interrogatories (written questions), and sometimes depositions. For the merchant, discovery is the time to build the reconciliation and recharacterization record. Written reconciliation requests, bank statement timelines, and email chains with the funder become exhibits to any summary judgment motion or trial.

Early settlement discussions typically start between day 45 and day 120. Funders have full visibility now into the merchant's legal theory, the estimated cost of litigating, and the risk of recharacterization. Many cases settle at 35 to 55 cents on the dollar at this stage, often with releases of personal guarantees and terminations of UCC-1 financing statements as part of the deal.

Summary judgment motions become relevant toward the end of discovery, typically six to twelve months into the case. The funder often moves for summary judgment on the promissory note and guaranty theories. The merchant's opposition puts the recharacterization and reconciliation record in front of the court. In federal court and New York Supreme Court, denial of summary judgment often triggers serious settlement negotiations, because trial becomes imminent.

For merchants also weighing debt relief firms versus DIY settlement, the best MCA debt relief companies guide covers how those options narrow once litigation is active.

Common Mistakes That Destroy Your Case

The most common fatal mistake is missing the response deadline. Default judgments can be vacated under CPLR 5015 for excusable default with a meritorious defense, but the motion is expensive, uncertain, and often denied. Prevention is cheaper than cure.

The second mistake is talking to funder counsel or internal collections without your attorney. Admissions in voicemails, emails, and text messages are routinely used at trial. "I owe it, I just cannot pay right now" is a devastating line in a transcript. Route everything through counsel.

The third mistake is destroying documents. Even unfavorable documents must be preserved. Spoliation sanctions can include adverse inference instructions, which tell the jury to assume the worst about what the destroyed document contained.

The fourth mistake is filing pro se without reading the procedural rules. Missing a certification, filing in the wrong court, serving the wrong party, or failing to plead an affirmative defense can all be fatal. If you must file pro se, read the rules first and use the court's self-help resources.

The fifth mistake is settling too early at a bad number. Funders often make aggressive opening offers in the first 30 days hoping to resolve before the merchant has counsel. Offers typically improve substantially once an answer is on file and defenses are preserved.

When to Settle Versus When to Fight

Most MCA cases settle. The question is timing and number. Settlement beats trial when the cash-on-hand discount plus the saved legal fees plus the avoided trial risk exceeds the expected trial outcome. Settlement loses to fighting when the defenses are strong, the merchant can fund the litigation, and the upside (a recharacterization holding, a counterclaim verdict) justifies the delay.

A rough heuristic: if the defenses are weak and cash is short, settle early and move on. If the defenses are strong (a clear failure to reconcile, an obviously abusive contract, an out-of-state COJ attempt), the value of the case goes up substantially after the answer is filed. Your attorney can model the expected value of each path.

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