You just got served. Maybe a process server showed up at your office, maybe your registered agent forwarded the summons, maybe you found out because your bank called and said your accounts are frozen. However it happened – you have a lawsuit, and the clock is already running.
Short answer: When an MCA company sues you, the most dangerous thing isn’t the lawsuit itself. It’s the Confession of Judgment, the restraining notice, and the speed. You have days, not weeks, to respond. The first 24 hours determine whether you keep operating, or whether your accounts get frozen, your receivables get intercepted, and your personal assets get exposed. Read every step below before you do anything.
Most business owners freeze when they get sued. That’s the worst thing you can do. Here’s what to do instead, in the order you should do it.
Step 1: Don’t call the MCA company
This is counterintuitive, and it’s the first mistake almost everyone makes. You get the summons, you panic, you call the funder to “work it out.” Don’t.
Anything you say gets used against you. If you admit you owe the money, you’ve just handed them the case. If you offer a settlement number, you’ve established a floor. If you explain why you defaulted, you’ve given them ammunition for fraud claims. The collections team is trained for this conversation – you are not. Stop talking to them, the moment you get sued.
Step 2: Find out if there’s a Confession of Judgment
This is the single most important question of the day. A Confession of Judgment (COJ) is a document you signed at funding, that lets the MCA company get a judgment against you without a trial, without notice, and without you having a chance to defend yourself.
If your MCA was funded before 2019, there’s a good chance the COJ was filed in New York, even if you’ve never been to New York. New York used to allow COJs against out-of-state defendants – that changed in August 2019, but COJs signed before then are still enforceable.
Pull your funding documents. Look for “Affidavit of Confession of Judgment.” If it’s in there, assume it’s been filed, or is about to be. This changes everything about your timeline.
Step 3: Check your bank accounts. Right now.
Stop reading. Open your banking app. Check every business account, every personal account, every account the personal guarantor has.
If a restraining notice has been served on your bank, the money is frozen, and you won’t get a phone call about it. You’ll find out when a check bounces, or when payroll fails. Restraining notices freeze up to twice the judgment amount, which means a $100,000 judgment can lock up $200,000 across all your accounts.
If you’re frozen – you need an attorney today, not tomorrow. There are emergency motions to vacate or modify the restraint, but they have to be filed fast.
Step 4: Read the summons. All of it.
Most people glance at the summons, see the dollar amount, and put it down. Read it. Word for word. Specifically look for:
- The court it was filed in (state court vs. federal, which county)
- The response deadline – usually 20 or 30 days, but it can be shorter
- The named defendants – is it just the business, or you personally as guarantor?
- The causes of action – breach of contract, fraud, conversion, RICO?
- Whether a COJ has already been entered – if so, this isn’t a lawsuit you can defend, it’s a judgment you have to vacate
The fraud and RICO claims are the ones that should worry you most. Breach of contract is a money problem. Fraud is a fraud problem – it can pierce the corporate veil, it survives bankruptcy, and in some cases it triggers criminal exposure.
Step 5: Get the funding file together
Before you call any attorney, gather everything:
- The original MCA agreement, and every amendment
- Every bank statement you submitted to the funder during underwriting
- Every email with the broker, the funder, the underwriter
- The funding wire confirmation, and the schedule of payments
- A list of every payment you’ve made, with dates and amounts
- Any other MCAs you have outstanding (this matters for stacking defenses, and for triage)
If you submitted bank statements that were altered, doctored, or didn’t match reality – tell the attorney that immediately, and tell no one else. That’s the fact pattern that turns a civil case into a criminal referral, and your lawyer needs to know before they file anything.
Step 6: Triage your other MCAs
If you have one MCA suing you, you probably have others that are about to. MCA funders watch each other. When one accelerates, the rest find out within days, usually because they share information through brokers, ISOs, and industry databases.
Make a list. For each MCA: balance owed, daily payment, last payment date, whether they’ve called yet, whether you signed a COJ. The ones that are largest, most aggressive, or have COJs – those are the ones to deal with first. The ones that are small and quiet can wait a week.
This is triage, not avoidance. You’re deciding the order of fires to put out.
Step 7: Stop the daily ACH – the right way
If the lawsuit is filed and the balance is accelerated, the daily ACH is no longer pulling against your contract – it’s pulling against a debt that’s now in litigation. You don’t want them taking another $2,000 a day while you’re trying to fund a defense.
But you cannot just close the account and run. That’s the mistake that turns a civil case into a fraud case. The right move is to revoke ACH authorization in writing, document it, and have your attorney handle the notice to the funder. Revoking ACH is legal. Hiding money is not. The line between the two is paperwork.
Step 8: Don’t move money around
This is the second mistake almost everyone makes after getting sued. You see the lawsuit, you panic, you start moving money – to a personal account, to a spouse’s account, to a new LLC, to crypto.
Don’t. Every transfer you make after you’ve been sued is reviewable as a fraudulent conveyance. Courts can claw it back. Worse, the act of moving it gives the MCA company’s lawyers a fact pattern to argue you’re hiding assets, which strengthens every motion they file against you – restraining orders, asset freezes, contempt motions, the works.
If you need to keep operating, talk to an attorney about the legitimate ways to do that. There are some. None of them involve a Wells Fargo account in your cousin’s name.
Step 9: Call an MCA defense attorney – not your business attorney
Your business attorney is not the right call. Your divorce attorney, your real estate attorney, your friend who does wills – none of them are the right call. MCA litigation is its own specialty, and the attorneys who do it know the funders, the funder’s lawyers, the judges, the standard motion practice, and the settlement ranges.
A general business litigator will charge you to learn the area while your accounts stay frozen. An MCA defense attorney will know within an hour of looking at your file what the realistic outcomes are, what the funder typically settles for, and whether you have a vacate motion worth filing.
Ask specifically: how many MCA cases have you defended in the last 12 months? If the answer is under 20, keep looking.
Step 10: Decide your endgame today, not in a month
You have, broadly, four options – and you need to know which one you’re aiming at before your attorney files anything.
- Settle. Negotiate a lump sum or a payment plan. Most MCA cases end here. Settlements typically range from 40-70 cents on the dollar, but it depends on the funder, the case, and the leverage you have.
- Defend and litigate. Fight the case on the merits – usury, criminal interest rates, true loan vs. true sale arguments, breach by the funder, fraud in the inducement. This is expensive but in the right case it works.
- Vacate the COJ. If a confession of judgment has been entered, the move is a motion to vacate. The grounds are narrow but they exist – improper venue, fraud, no actual default, defective COJ.
- Bankruptcy. Chapter 11 (reorganization), Subchapter V (small business), or Chapter 7 (liquidation). This stops every collection action immediately through the automatic stay, but it has long consequences and it’s not the right answer for everyone.
The endgame drives every decision you make from this point forward. Settling looks different than litigating. Litigating looks different than filing bankruptcy. Pick the path, then move.
