Defaulting on an MCA with a Personal Guarantee
Welcome to Delancey Street. If you signed a personal guarantee on your MCA, and you’re now thinking about defaulting – this is the article you need to read before you do anything else. Most business owners don’t understand what they signed. They think the LLC protects them. It doesn’t.
Short answer: When you default on an MCA you personally guaranteed, the funder can come after your personal assets – your house, your savings, your car, your wages. They can sue you personally, get a judgment against you personally, freeze your personal bank accounts, and put liens on property you own in your own name. The LLC, the corp, the entity – none of that matters anymore. You signed away the corporate veil the day you initialed that guarantee. Most owners don’t realize this until the process server is at their door.
What a personal guarantee actually does
Most MCA agreements bury the personal guarantee on page 8 or 9. It’s a separate document, sometimes a separate signature page. You probably signed it in 30 seconds, while the broker was telling you to hurry up because the funder needed it back before 5pm.
Here’s what you actually signed:
- You agreed to be personally liable for the full purchased amount, plus fees, plus default interest, plus attorney’s fees
- You waived your right to a jury trial in most cases
- You consented to jurisdiction in New York (almost always), even if your business is in Texas, Florida, California, or anywhere else
- You agreed to a confession of judgment in some older agreements – this is mostly gone after the 2019 NY law change, but if you signed before then, it may still be enforceable
- You agreed the funder can collect from you personally the moment the business defaults, without having to exhaust the business assets first
That last point is the one that surprises people the most. The funder doesn’t have to try to collect from the business first. They can skip the business entirely, and come straight at you. This is called a “guaranty of payment” not a “guaranty of collection,” and the difference is everything.
What happens to you personally after default
The timeline is fast, and it’s brutal. Here’s roughly the order:
Days 1-7: The collections team starts calling. Your cell, your home, your spouse’s cell if they have it. They’ll call your references from the original application. They’ll call vendors and customers from your bank statements. They have your full personal info – SSN, home address, date of birth, drivers license – because you handed it over in the application.
Days 7-30: The lender’s attorney sends a demand letter to your home address. Not the business – your home. The letter demands the full accelerated balance, plus fees, within 10 days. Sometimes 5. The letter is designed to scare you, and it usually does.
Days 30-60: The lawsuit gets filed. Almost always in New York Supreme Court (usually Kings, Queens, or Nassau county), regardless of where you live. You’ll get served at your home, sometimes at your business, sometimes both. The complaint names you personally, alongside the business. Your name, on a public lawsuit, that shows up on Google.
Days 60-120: If you don’t answer, you get a default judgment. If you do answer with the wrong attorney(or no attorney), you usually lose anyway. MCA cases are very hard to defend on the merits. The contracts are written by sophisticated lawyers who’ve been doing this for 15+ years.
Days 120+: Now they have a judgment against you personally. This is when it gets real. They can:
- Domesticate the judgment in your home state (a quick process, usually 30-60 days)
- Freeze your personal bank accounts with a restraining notice
- Garnish your wages, if you’re a W-2 employee anywhere(yes, even at your own company)
- Put a lien on your house, your investment property, anything in your name
- Subpoena your personal tax returns, your personal bank statements, your spouses financial info in some states
- Force you into a deposition under oath, about every dollar you have
The asset hunt
This is the part nobody tells you about. After the judgment, the lender’s attorney does what’s called a post-judgment asset search. They have access to databases that show every property you own, every car titled in your name, every bank account that’s ever been linked to your SSN, every business you’ve ever been listed as an officer of.
They’ll find:
- The house you bought with your wife – even if it’s only in her name, in a non-equitable distribution state, they may still come after it
- The boat, the second car, the recreational vehicle
- The brokerage account you opened in 2019 and forgot about
- The Venmo balance, the Zelle transfers, the crypto wallet linked to your bank
- The other LLC you opened, where you moved money to “keep it safe”
That last one is the trap. Business owners panic, and they start moving money around. They open a new LLC, they transfer assets to a spouse, they move cash to a relatives account. This is fraudulent conveyance, and it’s one of the few things that can turn a civil MCA case into something much worse. Lenders look for this specifically. If they find it, they file a separate action to claw it back, and now you’re explaining to a judge why you moved $80,000 to your brother three days after you got the demand letter.
What about the spouse?
Depends on the state. In community property states (California, Texas, Arizona, Nevada, and a few others), your spouses assets can be reachable, even if they didn’t sign the guarantee. In equitable distribution states (New York, New Jersey, Florida, most of the country), the spouse is usually protected, unless they co-signed, or unless you commingled funds in a way that exposes them.
But here’s the thing – even in protected states, if you own the house jointly, the lender can put a lien on your half. They can’t force a sale in most cases, but the lien sits there, and it has to get paid when you sell or refinance. Your spouse will find out. There’s no hiding this from them.
Can you settle?
Yes. This is what we do at Delancey Street, every day. The reality of MCA collections is that lenders would rather get 40-60 cents on the dollar today, than chase you for 5 years and maybe collect 80 cents. The economics of litigation are bad for them too – they’re paying attorneys, paying court fees, paying for asset searches, and most of these cases settle anyway.
The leverage you have, even with a personal guarantee, is bigger than you think:
- Litigation is expensive and slow for them
- You can file for bankruptcy, which wipes the personal guarantee in most cases (Chapter 7) or restructures it (Chapter 13/11)
- You can negotiate from a position of “here’s what I actually have” – if the asset search shows you have $30k in equity and a leased car, they’re not getting blood from a stone
- Multiple MCAs can be settled together, with the leverage of “settle with me, or I file BK and you get zero”
But you have to move fast, and you have to move smart. The biggest mistake we see – business owners try to negotiate themselves, directly with the collections team, and they make admissions that get used against them later. Anything you say to that collector is going into a file. They’re trained to get you to admit you have assets, that you intended to default, that you took the MCA knowing you couldn’t pay it back. Don’t talk to them. Get representation, before you say a word.
What to do right now if you’ve signed a PG and you’re in trouble
- Stop talking to the collections team. Every call, every email – it’s evidence
- Don’t move money around. No transfers to spouses, no new LLCs, no cash withdrawals over $10k
- Pull your personal credit report. See what they’re already reporting
- Get every MCA contract you signed – including the guarantee documents, which are usually separate
- Talk to someone who does this every day – not your business attorney, not your accountant, someone who negotiates MCA settlements as their actual practice
The personal guarantee changes everything. It’s not a business problem anymore – it’s a personal financial survival problem. The owners who get through this in one piece are the ones who recognize that early, and act on it. The ones who lose their house, their savings, and their credit for 7 years – they’re the ones who waited, hoped it would go away, or tried to handle it alone.
