Served with an MCA Lawsuit: Your Rights, Deadlines, and Defense Options

When your business is served with an MCA lawsuit, the first thing you need to know is how much time you have to respond. In New York state court, that is often 20 or 30 days, depending on how service was made. Many MCA agreements require you to bring disputes in New York, even if the business is located in another state. If you miss the deadline, the funder can seek a default judgment and pursue collection against your business accounts and assets. That can put additional pressure on a company already dealing with MCA payments, but being sued does not mean the funder is entitled to everything it demands.

A merchant cash advance (MCA) is generally structured as a purchase of future business receivables rather than a loan. That distinction matters when a funder files suit. New York courts look at the agreement's terms to determine whether the funder bought receivables or made a loan that must be repaid regardless of business revenue. If the agreement operates like a loan, the business could have grounds to challenge the funder's claims under New York law.

What It Means to Be Served with an MCA Lawsuit

If an MCA funder has sued your business, you cannot afford to ignore the paperwork. A lawsuit filed in New York includes a deadline to respond, and missing it can allow the funder to obtain a default judgment. You may have grounds to dispute what the funder says you owe, but you must respond before the deadline.

The summons and complaint explain who is suing your business, what they want to collect, and why they believe they are owed that money. Proper service means you now have a deadline to respond. You may disagree with the amount the funder is demanding or have grounds to challenge the agreement itself. Either way, you must address those issues through the court process before the response deadline passes.

If your business operates outside New York, you may be wondering why the funder sued you there. The answer is often in the MCA contract. Many agreements say that New York law governs the transaction and that lawsuits must be brought in New York courts. New York General Obligations Law § 5-1401 allows certain commercial contracts to use New York law even when the business has no other connection to the state. That does not automatically give a New York court authority to hear the case. The contract's forum-selection language and jurisdictional requirements still need review.

What Are the Response Deadlines You Cannot Miss?

Under CPLR § 3012, a defendant generally has 20 days to serve an answer after certain forms of personal service or 30 days after other methods of service, including substituted service. The deadline depends on the defendant, the method of service, and the court. Missing the deadline lets the funder seek a default judgment without a hearing on the merits.

The service method determines your deadline, and the clock is calculated under the applicable service rules, not simply from the date you first read the papers:

• Personal service: If someone hands you the lawsuit papers directly, you generally have 20 days to respond.
• Substituted service: If someone at your home or business accepts the papers and a copy is mailed, you generally have 30 days after service is completed to respond.
• Nail-and-mail service: If the papers are attached to your door and another copy is mailed, you generally have 30 days after service is completed to respond.
• Service by publication: If notice of the lawsuit is published instead of delivered directly, the court's order and applicable rules determine the response deadline.

If you miss the deadline, the funder can seek a default judgment. Once entered, that judgment can support bank account restraints under CPLR § 5222, execution against qualifying business assets, and collection efforts involving an enforceable personal guarantee. As detailed on the firm's page covering what happens if you default on MCA loans, the enforcement tools available to a judgment creditor in New York can create serious problems for an operating business. Ignoring service doesn't buy you time. It puts your ability to defend the case at risk.

What Should You Do Immediately After Being Served?

If an MCA funder has served your business with a lawsuit, you need to address several things right away. Confirm when you received the papers, gather your MCA records, check for any judgments or restrictions on your bank accounts, and speak with a New York MCA attorney while you still have time to respond.

Step 1: Confirm when you were served. Do not assume the response deadline starts on the day you opened the lawsuit papers. How and when service was completed matters. Keep everything you received, including the summons, envelopes, and delivery notices. Your attorney can review the court records and affidavit of service to work out when your answer is due.

Step 2: Gather your MCA paperwork. Find the original contract, any amendments, and bank statements showing the funder's withdrawals. Also gather any requests you made to adjust payments, the replies you received, and your communications with the funder or its collectors. Your attorney can use those records to see whether the funder followed the agreement and whether the balance it claims is accurate.

Step 3: Find out whether a Confession of Judgment has been filed. A Confession of Judgment (COJ) authorizes a creditor to obtain a judgment without going through the usual lawsuit process, provided the legal requirements are met. If the funder has already obtained a judgment, your attorney will need to determine whether you can challenge it separately. New York law limits the use of confessions of judgment against certain out-of-state defendants, and you can challenge a judgment entered in violation of those restrictions. Read more about Confession of Judgment in MCA agreements.

Step 4: Check your business bank accounts. Find out whether the funder has already obtained a restraint against any of your accounts. A frozen account can interfere with payroll, vendor payments, and other operating expenses. If a restraint is in place, your attorney can review how it was obtained and whether there are grounds to ask the court to remove or limit it.

Step 5: Review your business's other financial obligations. The MCA lawsuit is only one part of the financial picture. Outstanding taxes, rent, equipment loans, other MCA agreements, and creditor demands all affect how the business should proceed. Your attorney needs to understand those obligations before recommending whether to defend the lawsuit, negotiate with the funder, or consider bankruptcy or restructuring. If you have several MCAs or are in a debt consolidation arrangement, your attorney also needs to review those agreements.

What Not to Do After Being Served

Four behaviors consistently make a bad situation worse. Avoid all of them.

• Do not ignore the papers. Every day without a response brings you closer to the deadline to answer the lawsuit. There is no procedural benefit to waiting.
• Do not call the funder to "work it out" alone. Statements made during negotiations can affect your litigation position. Funders and their collection agents are not neutral parties. When appropriate, handle negotiations through counsel.
• Do not move money between accounts to avoid collection. New York's Debtor and Creditor Law can challenge transfers intended to place assets beyond a creditor's reach. That creates a separate legal problem on top of the existing lawsuit.
• Do not sign anything from the funder without having an attorney review it first. A settlement, payment plan, or forbearance agreement can change what your business owes and limit your ability to challenge the funder's claims. Make sure you understand the terms before agreeing to them.

What Legal Defenses Are Available in an MCA Lawsuit?

New York courts recognize several defenses to MCA lawsuits, including recharacterizing the MCA as a usurious loan, failing to honor reconciliation provisions, procedural defects in a Confession of Judgment, and improper service. The defenses available in a particular case depend on the agreement, the funder's conduct, and the circumstances surrounding the lawsuit.

The Recharacterization Defense

An MCA funder might describe its agreement as a purchase of future receivables, but that does not necessarily make it one. If the business must repay the money regardless of how much revenue it brings in, the arrangement starts to look more like a loan. New York courts look at what the contract actually requires, rather than the language the funder uses to describe the transaction.

There are three important questions. Can the business lower its payments when sales slow down? Is there a set period in which the business must repay the full amount? And can the funder still demand payment if the business files for bankruptcy? The answers help determine whether the funder took on any real risk. If the daily withdrawals never change and the business has no workable way to adjust them, the agreement may be challengeable as a loan.

This is where the difference between an MCA and a loan becomes important. New York generally sets the civil usury limit at 16% annually and the criminal usury threshold at more than 25%. But those rules don't cover every business financing agreement. Transaction size and applicable exceptions can change the analysis. Just because an MCA is expensive does not mean it violates the law. First, you must establish that it is actually a loan, then determine whether the interest rate is legally permitted.

Reconciliation Failures

A reconciliation provision should let a business adjust its MCA payments when revenue changes. But that language means little if the funder will not follow it. A business might request lower withdrawals after a drop in sales, only for the funder to keep taking the same amount. That can be important evidence when challenging whether the agreement was a true purchase of receivables. It can also raise a separate contract issue if the funder failed to follow the reconciliation terms it agreed to.

Confession of Judgment Vacatur

Under CPLR § 5015 and other applicable procedures, a judgment can be challenged on grounds including lack of jurisdiction, fraud, misrepresentation, or excusable default. For out-of-state defendants, a COJ entered in violation of the 2019 restrictions under CPLR § 3218 can also be subject to challenge on procedural grounds independent of the underlying MCA dispute. The firm's analysis of how to fight a Confession of Judgment in New York covers the available legal approaches.

Regulatory Context

MCA funders are also facing more questions about how they pursue businesses for payment. In 2026, the New York Attorney General sued an arbitration service that the office accused of being set up to help predatory MCA funders. The lawsuit is another example of why the way a funder collects a debt deserves attention. When a business is sued over an MCA, the contract isn't necessarily the only thing worth examining.

What Are Your Strategic Options When Facing an MCA Lawsuit?

There is no single way to handle an MCA lawsuit. Some cases should be defended in court. Others may be resolved through settlement, and some businesses need to consider bankruptcy because the MCA debt is part of a much larger financial problem. Before choosing a direction, you need to understand the funder's claims and whether the business can realistically keep up with its other obligations.

Litigation Defense and Settlement

You don't have to accept the balance an MCA funder includes in its complaint. The agreement may contain challengeable terms, or the funder may have failed to follow its own reconciliation requirements. Those issues can matter in court and during settlement discussions. A funder facing a serious defense may choose to negotiate rather than continue litigating, though a reduced settlement is never guaranteed. What matters is knowing where the business stands before making an offer. Our article on how to negotiate a merchant cash advance settlement explains what goes into those discussions.

Bankruptcy as a Strategic Tool

Fighting an MCA lawsuit might address one funder's claims, but it will not necessarily fix the business's debt problems. If the company is behind on payments to several creditors and cannot keep up, bankruptcy may be worth considering. Filing generally triggers an automatic stay under 11 U.S.C. § 362, stopping many collection efforts against the business while the case is pending. There are exceptions, and the stay does not automatically resolve existing bank restraints or protect personal guarantors. Chapter 11 or Subchapter V may allow it to reorganize its debts and continue operating. The question is whether the company can afford to stay in business and whether restructuring would put it in a better financial position.

Multiple MCA Agreements

One MCA can put pressure on a business. Several can make it difficult to cover ordinary expenses. Each funder may be taking payments every day or every week, and those withdrawals add up quickly. You might settle one agreement and still have other funders pulling money from the same account. That is why it is important to review each contract for possible defenses while also looking at the total debt. A settlement that leaves the business unable to meet its other obligations may not solve much.

Multiple MCA Agreements

One MCA can put pressure on a business. Several can make it difficult to cover ordinary expenses. Each funder may be taking payments every day or every week, and those withdrawals add up quickly. You might settle one agreement and still have other funders pulling money from the same account. That is why it is important to review each contract for possible defenses while also looking at the total debt. A settlement that leaves the business unable to meet its other obligations may not solve much.

Why Is the Lawsuit in New York Even If Your Business Isn't?

If your MCA lawsuit is filed in a New York court, you need an attorney admitted in New York who understands MCA litigation procedure, the CPLR, and the arguments New York courts have accepted and rejected. Your business does not need to be located in New York for the lawsuit to proceed there.

If your business is nowhere near New York, you might wonder why an MCA funder is suing you there. The answer is usually in the agreement you signed. Many MCA contracts specify that New York law applies and that disputes must be brought in New York courts. State law allows qualifying commercial contracts of $250,000 or more to choose New York law even without another connection to the state. Whether the lawsuit can actually proceed there still depends on jurisdiction and the enforceability of the forum-selection clause. That is how a business in Houston, Miami, or Chicago can end up facing an MCA lawsuit in New York.

Not every business litigation attorney handles MCA cases. You want someone admitted to practice in New York who understands the court procedures, knows how to challenge a confession of judgment or UCC enforcement action, and can review whether the MCA is really a loan under LG Funding and similar decisions. If the funder has already frozen your accounts, your attorney also needs to be prepared to go to court for emergency relief.

J. Singer Law Group works with businesses anywhere in the United States on MCA issues. When Singer represents a business in an MCA lawsuit, that lawsuit must be filed in New York. The business itself can be located anywhere in the country. Jeb Singer previously clerked for Judge Stuart M. Bernstein in the U.S. Bankruptcy Court for the Southern District of New York before building the firm's MCA defense practice. The firm's experience in both MCA litigation and Chapter 11 restructuring allows counsel to evaluate options ranging from defending the lawsuit and negotiating a settlement to pursuing business reorganization.

Frequently Asked Questions

How much time do I have to respond after being served with an MCA lawsuit?

You could have as little as 20 days to respond to an MCA lawsuit in New York state court. In other situations, the deadline may be 30 days or follow a different rule. It depends on how the papers were served and whether the defendant is an individual or a business. Do not assume the deadline starts when you finally open or read the documents. Your attorney can check the service records and determine when your response is actually due.

My business is in another state. Why was I sued in New York?

Your MCA agreement probably contains language requiring disputes to be handled in New York. That is common in these contracts, even when the business receiving the advance is located in another state. Whether the lawsuit belongs in New York depends on the contract and the court's jurisdiction. Singer Law Group represents businesses nationwide on MCA issues, including businesses outside New York that are facing MCA lawsuits filed in New York courts.

The MCA funder already froze my bank account. What can I do?

A frozen business account is a serious problem, especially when employees and vendors are waiting to be paid. First, ask whether the funder obtained a judgment or used another court procedure to restrain the account. Your attorney can review what happened and determine whether you have grounds to challenge the restraint or seek emergency relief. Don't assume the account must remain frozen until the entire lawsuit is over.

Can I argue that my MCA is actually a loan subject to usury limits?

You may be able to. Just because the agreement calls itself a purchase of receivables does not mean a court will treat it that way. If the funder can collect the full amount regardless of your business's sales, you may have grounds to argue the MCA is actually a loan. The reconciliation terms, repayment requirements, and other provisions all matter. If a court treats the agreement as a loan, your attorney can determine whether New York's usury laws apply.

A court entered a Confession of Judgment against me. Can it be vacated?

Possibly. A Confession of Judgment does not mean there is no way to challenge what the funder did. New York has rules governing when courts can enter these judgments, including restrictions involving certain out-of-state defendants. You may also have issues with jurisdiction, fraud, or how the judgment was obtained. Your attorney will need to review the documents and filing history to determine whether a motion to vacate is appropriate.

Should I consider bankruptcy if I've been sued by an MCA funder?

If your business is dealing with several MCAs or other debts it cannot keep up with, bankruptcy is worth considering. Filing generally stops many collection efforts against the debtor, and Chapter 11 or Subchapter V may let you reorganize what the business owes. That protection has limits, particularly with frozen accounts and personal guarantees. Bankruptcy isn't the right answer for every MCA lawsuit, but you should consider it when settling or defending a case if it won't solve the larger financial problem.

About the Author

Jeb Singer is the Managing Partner of J. Singer Law Group, PLLC, in Manhattan's Financial District. He defends businesses in MCA disputes, handles commercial litigation, and helps companies navigate bankruptcy and restructuring. He previously clerked for Judge Stuart M. Bernstein in the U.S. Bankruptcy Court for the Southern District of New York. That experience gives him a background in the bankruptcy and creditor issues that often arise when businesses are struggling with MCA debt.

The Next Step

Don't leave an MCA lawsuit sitting on your desk. The funder has made its claims, but that does not mean the amount is correct or that the agreement cannot be challenged. Your attorney needs time to review the contract, assess what you've already collected, and decide how to respond. Waiting until the deadline is almost here makes that work harder and puts your business at greater risk of a default judgment.

J. Singer Law Group works with businesses across the country on MCA matters and provides MCA lawsuit defense for cases filed in New York courts. You do not have to operate in New York to get representation in a New York MCA lawsuit. If your business has been served, now is the time to have us review your case. Call (917) 905-8280 to schedule a consultation and discuss your options.