What actually happens
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1
Reversed ACH
Bank notifies you. Funder notifies you. Templated email, short, generic. The clock starts here.
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2
Collections sequence
Original underwriter → collections desk → outside counsel. Each handoff narrows your settlement window.
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3
Demand letter
Formal notice of default. Total balance accelerated. Rights reserved.
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4
Legal action
COJ filed (if applicable) → bank freeze. Or complaint filed → 20-day answer clock.
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5
Settlement window
This is when the actual negotiation typically happens. Outcomes depend on funder posture, contract specifics, and case facts.
01The first thing that happens
A reversed ACH. Your bank notifies you, and the funder notifies you. Sometimes the same day, sometimes within 48 hours. The notice is short and templated.
What the notice doesn't say is what comes next, that's where most of our advisory work begins.
02The collections sequence
Calls escalate quickly. From the original underwriter to a collections desk to outside counsel, most funders move through this sequence in 30–60 days. The faster you respond, and the more honestly, the more leverage you preserve.
A common mistake: ghosting. Funders interpret silence as either bad faith or imminent bankruptcy. Both make settlement harder.
03The legal moves
After 30–60 days of nonpayment, funders begin legal action. The two main paths: (1) a Confession of Judgment (COJ) for funders who have one, and (2) a normal civil suit for those who don't.
COJs result in fast bank-account freezes. Civil suits take months but eventually produce judgments and the same enforcement tools.
04The settlement window
Almost every MCA default eventually settles. The window opens at default and closes when the funder has fully exhausted their collection options. The biggest discounts come in the middle, after the funder has accepted the borrower can't pay full freight, but before the file is sold to a third party for pennies.
Working that window is the entire job. Move too fast, you leave money on the table. Move too slow, you lose leverage.
05What "settlement" actually means
A settlement is a private contract: the funder accepts a reduced lump sum or installment plan in full satisfaction. The original contract is terminated. UCC liens are released. The personal guarantee is released. The account closes "settled in full."
Properly papered, a settlement ends the matter completely. Improperly papered settlements come back to bite borrowers months later, which is why we won't close one without counsel review.
If this is you, do these things this week
- Pull your MCA contracts and identify which have COJs and which do not.
- Confirm where each funder is allowed to sue (the venue clause).
- Document your hardship in writing: P&L, AR/AP, bank statements.
- Get a written settlement strategy in place before the first lawyer letter arrives.
Frequently asked
How long before they sue?
Most funders begin legal action 30–60 days after the first missed payment. Some move faster, especially when a COJ is in place.
Will they freeze my bank account?
If they have a Confession of Judgment, yes, within days of court entry, sometimes without notice. If they don't have a COJ, they need a court order, which takes weeks.
Can I negotiate while in default?
Yes, and the discount window is widest in default. The funder has accepted you can't pay full freight; you have leverage they didn't have pre-default. The trick is to negotiate from a documented position rather than a panicked one.
What about my other MCAs?
We sequence them in priority order, the funder with the most leverage (typically a COJ holder) gets handled first, in parallel with stop-pay protections. Multi-position cases are our specialty.
Should I file bankruptcy?
Sometimes. Chapter 11 reorganization can stop collections immediately and discharge stacked debt. We refer to bankruptcy counsel when the math supports it. For most cases, settlement is faster, cheaper, and less public.
Talk to a senior advisor, free.
30-minute review. Free consultation. 100% confidential.
- NY UCC § 9-609, Secured party rights post-default.
- NY CPLR § 5222, Restraining notices on bank accounts.
- Pearl Capital Rivis Ventures LLC v. RDN Const. Inc., 54 Misc. 3d 470 (Sup. Ct. NY 2016), daily-payment MCAs as purchase-of-receivables.
