What Really Happens If You Default on an MCA
If you are behind on your MCA payments. or thinking about stopping them. you need to know exactly what you are facing. MCA companies have aggressive collection tools that most traditional lenders do not, including the ability to freeze your bank account, file liens on your business assets, and in some states, get a court judgment against you without a trial.
But here is the other side of the story: MCA companies also have limits. There are things they cannot legally do, rights you still have, and steps you can take right now to protect yourself and your business. Let us walk through the entire timeline of what happens when you default on an MCA. and what you can do at each stage.
The Default Timeline: What Happens Step by Step
Every MCA company handles defaults a little differently, but the general pattern is remarkably consistent. Here is what to expect.
Stage 1: Missed Payment (Day 1-3)
The moment a daily ACH withdrawal fails. usually because there is not enough money in your bank account. the MCA company's system flags your account. Within one to three business days, you will typically receive:
- A phone call from your account representative asking about the failed payment
- An email notification about the missed payment
- An automatic retry of the ACH withdrawal (most MCA companies will retry failed withdrawals one to three times)
At this stage, the tone is usually professional and non-threatening. A single missed payment is common and does not immediately trigger aggressive action.
Stage 2: Multiple Failed Payments (Days 3-14)
If payments continue to fail, the MCA company escalates. During this period you can expect:
- More frequent phone calls. daily or even multiple times per day
- Formal written notice of default, typically via email and certified mail
- Demand for immediate payment of the full remaining balance (acceleration clause)
- Transfer to the collections department. you will no longer be dealing with your original account rep
This is a critical window. The MCA company is assessing whether you are a temporary problem (your business hit a rough patch) or a permanent one (you cannot or will not pay). How you communicate during this period significantly affects what happens next.
This Is Your Best Window to Negotiate
Days 3 through 14 are your strongest negotiation window. The MCA company has not yet spent money on legal action, and they are still hoping for a resolution. If you are going to negotiate a settlement, lower payments, or a payment pause. do it now.
Stage 3: UCC Lien Enforcement (Days 14-30)
Nearly every MCA agreement includes a UCC-1 filing that gives the MCA company a security interest in your business assets. When you default, they can begin enforcing that lien. This means:
- Sending notices to your customers informing them that payments owed to your business should be redirected to the MCA company
- Contacting your payment processor (like Square, Stripe, or your credit card processor) to intercept incoming payments
- Filing additional UCC amendments to strengthen their claim on specific assets
This is where many business owners first feel the real impact of default. Having your revenue stream intercepted can shut down your operations fast.
Stage 4: Confession of Judgment (Days 14-45)
If you signed a confession of judgment (COJ) as part of your MCA agreement. and many MCA contracts include one. the MCA company can file it with a court and obtain a judgment against you or your business without a trial. There is no hearing, no opportunity to present your side, and no advance notice.
Once they have a judgment, they can:
- Freeze your bank accounts by serving a restraining notice on your bank
- Garnish accounts receivable. money owed to you by customers
- Seize business assets through a marshal or sheriff
Bank Account Freezes Happen Fast
When an MCA company files a confession of judgment, your bank account can be frozen within days. If you are at risk of default, consider keeping operating funds in a separate account that is not linked to the MCA agreement. Consult an attorney before taking this step.
Stage 5: Formal Lawsuit (Days 30-90)
If the MCA company does not have a confession of judgment. or if they are in a state where COJs are restricted. they may file a formal lawsuit against your business and you personally (if you signed a personal guarantee). This process includes:
- Service of process. you will receive legal papers notifying you of the lawsuit
- A court date. unlike a COJ, a lawsuit gives you the opportunity to respond and defend yourself
- Discovery. both sides exchange financial documents and evidence
- Judgment. if the court rules in the MCA company's favor, they get a judgment they can enforce against your assets
Lawsuits take longer than COJs but the end result is similar. The key difference is that you have the right to defend yourself, which creates real opportunities if your MCA agreement has legal vulnerabilities.
Stage 6: Post-Judgment Collection (Ongoing)
Once the MCA company has a judgment. whether through a COJ or a lawsuit. they have powerful collection tools:
- Bank levies. seizing money directly from your bank accounts
- Property liens. placing liens on real estate you own
- Wage garnishment. in some states, if you have personal income from another source
- Asset seizure. a marshal can physically seize business equipment, inventory, or vehicles
Judgments are enforceable for years (typically 10 to 20 years depending on the state) and can usually be renewed. They also accrue interest, so the amount you owe grows over time.
Your Rights When Facing MCA Default
Even in this stressful situation, you have important legal rights.
Right to Due Process
If the MCA company sues you (rather than filing a COJ), you have the right to defend yourself in court. You can challenge the amount owed, argue that the MCA is really a loan subject to usury laws, or raise other legal defenses. According to the Consumer Financial Protection Bureau, businesses have the right to fair treatment in debt collection.
Right to Challenge a Confession of Judgment
Even after a COJ is filed, you can petition the court to vacate (cancel) it. Courts will vacate a COJ if you can show:
- The COJ was fraudulently obtained
- The amount claimed is incorrect
- You were not properly served
- The MCA agreement is unconscionable or violates state law
New York banned the use of out-of-state confessions of judgment in 2019 after widespread abuse. The New York State Legislature passed this law specifically to protect small businesses from predatory MCA practices.
Protection From Harassment
While the Fair Debt Collection Practices Act technically applies to consumer debts, many states have similar protections for business debts. MCA companies and their collectors generally cannot:
- Call you at unreasonable hours
- Use threats of violence or criminal prosecution
- Misrepresent the amount you owe
- Contact you at work after you have asked them to stop
What MCA Companies Cannot Do
| They CAN Do | They CANNOT Do |
|---|---|
| Call you to collect the debt | Threaten you with criminal charges (MCA default is a civil matter) |
| File a lawsuit against you | Show up at your business to seize assets without a court order |
| Enforce UCC liens on business assets | Access your personal bank accounts without a personal guarantee and judgment |
| Contact your payment processor | Impersonate law enforcement or government officials |
| File a confession of judgment (where legal) | Charge fees or penalties not specified in the original agreement |
How to Protect Your Bank Account
Your bank account is the MCA company's primary target. Here are steps you can take to protect your operating funds. but please consult an attorney before taking action, as some of these steps have legal implications.
Open a New Bank Account
If you anticipate a bank freeze, consider opening a new business bank account at a different bank. one that the MCA company does not know about. Direct new revenue to this account. This does not eliminate your debt, but it can keep your business operating while you negotiate or pursue legal options.
Talk to Your Payment Processor
If the MCA company contacts your payment processor to intercept payments, call your processor immediately. In some cases, you can switch processors or change the bank account where funds are deposited. Again, get legal advice first. you do not want to take actions that could be seen as fraudulently hiding assets.
Document Everything
Keep records of every call, email, letter, and payment. If the MCA company engages in abusive collection practices, this documentation becomes evidence you can use in your defense or in a countersuit.
State Laws Are on Your Side
Many states have been strengthening protections for small businesses against aggressive MCA collection. California, New York, Virginia, Utah, and several other states now require MCA companies to make specific disclosures and follow fair collection practices. Check your state's laws. you may have more protection than you realize.
When to Get Legal Help
Get an attorney involved immediately if any of the following apply:
- Your bank account has been frozen or you have received notice of a judgment
- You have been served with a lawsuit
- The MCA company is threatening actions that seem illegal or excessive
- You signed a confession of judgment and want to challenge it
- Your total MCA debt exceeds $50,000 and you cannot negotiate a resolution on your own
- You believe the MCA is actually a loan with an interest rate that violates usury laws
The American Bar Association can help you find an attorney who specializes in commercial debt or MCA defense. Many attorneys offer free initial consultations for MCA cases.
Frequently Asked Questions
Can you go to jail for defaulting on an MCA?
Will MCA default affect my personal credit?
Can an MCA company take my house?
What happens to my MCA debt if I close my business?
How long can an MCA company chase me for the debt?
Sources
- Consumer Financial Protection Bureau. Federal agency overseeing financial products and protecting consumers and small businesses.
- Federal Trade Commission. Fair Debt Collection Practices Act. Federal law governing debt collection practices.
- New York State Senate. Passed legislation banning out-of-state confessions of judgment to protect small businesses.
- American Bar Association. Lawyer Referral. Find attorneys specializing in MCA defense and commercial debt.