Fight MCA Personal Guarantee in New York
Reviewed by: [Attorney Reviewer — Melissa to insert] | Last updated: November 2025
If a merchant cash advance company is threatening to enforce a personal guarantee against you in New York, you are facing one of the most aggressive collection environments in the country. New York is where most MCA contracts are litigated — and where most MCA judgments are entered against business owners who never realized they had been sued. Personal bank accounts can be frozen. Wages can be garnished after judgment. A home, a car, retirement savings — virtually every personal asset becomes a potential target the moment an MCA funder converts a business default into a personal judgment.
But none of that is automatic. A personal guarantee in a merchant cash advance contract is not the same as a personal guarantee on a conventional bank loan. The structure of the underlying agreement, the way the funder collected, what New York courts have said about reconciliation provisions, and whether the contract is actually a disguised criminally usurious loan all determine whether the funder can enforce the guarantee at all.
This guide explains, in plain legal terms, how MCA personal guarantees work in New York, when they are unenforceable, what defenses are available in the Commercial Division, and the immediate steps a small business owner should take if a funder is threatening — or has already filed — a personal lawsuit. The window to act is short. Default judgments in New York are entered quickly, and once a judgment is in place, the enforcement options expand dramatically.
What an MCA Personal Guarantee Really Means
A merchant cash advance is not technically a loan. Funders structure the transaction as the purchase of a percentage of a business’s future receivables at a discount. Instead of a fixed monthly payment, the funder takes a daily or weekly ACH withdrawal from the business’s bank account until the agreed-upon “purchased amount” is delivered.
Almost every MCA contract includes a separate document — usually titled a Performance Guarantee, Validity Guarantee, or Personal Guarantee of Performance — that the business owner is required to sign individually. MCA funders frequently tell owners that this guarantee “only applies if you commit fraud” or “only kicks in if you stop the ACH.” In practice, funders use these guarantees as the legal hook to sue the owner personally the moment the merchant defaults.
There are two distinct documents at work in most MCA disputes: the underlying receivables purchase agreement signed by the business entity, and the personal guarantee signed by the owner. The defenses available against each one overlap but are not identical. To understand how the two interact, see our overview of MCA personal guarantee enforcement in New York.
The critical point: a personal guarantee in an MCA contract is only as enforceable as the underlying agreement. If the receivables purchase agreement is actually a disguised loan that violates New York’s criminal usury cap, the guarantee that secures it is no more enforceable than the loan itself.
Can MCA Lenders Legally Go After You Personally in New York?
Yes, MCA funders can sue a business owner personally in New York if the owner signed a personal guarantee — but whether they can collect on a judgment is a different question. Three issues determine personal exposure:
- Whether the underlying contract is enforceable at all under New York law.
- Whether the personal guarantee was triggered by an event the contract actually covers.
- Whether the funder followed New York procedural rules for service, jurisdiction, and judgment entry.
New York usury law sets two ceilings. Civil usury is capped at 16% per year under General Obligations Law § 5-501 and Banking Law § 14-a. Criminal usury — which makes a loan void as a matter of law — is set at 25% per year under Penal Law § 190.40. When a court characterizes an MCA as a disguised loan with an effective annual rate above 25%, the entire agreement is void, and a personal guarantee securing a void agreement is unenforceable.
The leading authority is LG Funding, LLC v. United Senior Properties of Olathe, LLC, decided by the Appellate Division, Second Department in 2020. The court laid out a three-factor test that New York judges now apply almost universally when deciding whether a transaction labeled as an MCA is actually a loan: whether the agreement contains a meaningful reconciliation provision, whether the term is finite, and whether bankruptcy of the merchant constitutes a default. When all three factors weigh against the funder, the transaction is treated as a loan and the usury analysis kicks in.
This is why the structure of the contract — not the label on it — drives the personal guarantee analysis. A more detailed walkthrough is available in our New York merchant cash advance law explainer and the disguised loan defense breakdown.
When Personal Guarantees Can Be Invalid or Unenforceable
New York courts have repeatedly refused to enforce MCA personal guarantees where the underlying agreement is defective. The most common grounds for attacking a personal guarantee fall into five categories.
1. The Underlying MCA Is a Disguised Criminally Usurious Loan
If the receivables purchase agreement is recharacterized as a loan and the effective rate exceeds 25%, the loan is void under New York law. A guarantee securing a void loan cannot be enforced. Courts will look at the absence of a real reconciliation right, the fixed daily payment that does not vary with receipts, and the funder’s recourse against the principal personally as evidence that the transaction was always a loan.
For a deeper review of the elements that drive a usury finding, see our MCA usury defense guide for New York.
2. Lack of a Meaningful Reconciliation Provision
A genuine MCA must allow the merchant to request a true-up of the daily payment when receipts decline. Courts have struck down MCA agreements where the reconciliation clause is illusory — for example, where it is granted at the funder’s “sole discretion,” requires impossible documentation, or has never been honored in practice. Without a real reconciliation right, the funder is collecting a fixed sum on a fixed schedule, which looks like a loan.
3. Fraud, Misrepresentation, or Inducement
If the funder or broker misrepresented the cost of capital, the daily payment amount, the existence of the guarantee, or the consequences of bankruptcy, the guarantee may be voidable. New York recognizes both fraudulent inducement and negligent misrepresentation as defenses to enforcement of a guarantee, particularly where a broker promised terms that did not match the executed documents.
4. Unconscionability
Personal guarantees that are buried in the closing package, signed under time pressure, or contain confession of judgment language that was never explained may be challenged as procedurally and substantively unconscionable. New York courts have invalidated guarantees where the merchant had no meaningful opportunity to review the document or negotiate its terms.
5. The Triggering Event Never Occurred
Most MCA personal guarantees are written as conditional — they activate only on specific defined events such as the merchant filing bankruptcy, deliberately diverting receipts, or shutting the business down to avoid payment. If the funder is suing the principal because the merchant simply ran out of money, the contractual trigger may not have occurred at all, and the guarantee should not apply.
For a contract-by-contract review of these defenses, see our MCA contract defense overview for New York.
What Happens If You Lose an MCA Personal Guarantee Case
The consequences of an unfavorable outcome are severe and immediate. Once an MCA funder obtains a personal judgment in New York, the enforcement toolbox is wide open.
Personal Bank Account Restraints
Under CPLR § 5222, a judgment creditor can serve a restraining notice on a personal bank without prior notice to the debtor. The bank typically freezes up to twice the judgment amount the same day. Many business owners learn about a judgment for the first time when their personal debit card is declined at a gas station. If this has happened to you, see how to unfreeze a bank account after MCA collection and our New York-specific guide to MCA bank account freezes.
Bank Levies
Restraints are followed by levies under CPLR § 5232, which actually transfer the frozen funds to the marshal or sheriff for delivery to the creditor. See our New York MCA bank levy stop guide for the exemption claim process.
Wage Garnishment
In New York, an income execution under CPLR § 5231 allows a judgment creditor to garnish 10% of a debtor’s gross wages, subject to federal and state minimum-wage protections. A business owner who draws a salary or W-2 income from another employer can have that income garnished by the MCA judgment creditor.
Property Liens and Asset Seizure
A docketed judgment automatically becomes a lien on real property in the county where it is filed. UCC liens may already exist against business assets, and personal assets — non-exempt vehicles, investment accounts, business equity — can be seized through the marshal. For more on lien mechanics, see our MCA UCC lien explainer for New York.
If a default judgment has already been entered against you, do not assume it is final. Many can be vacated. Read how to stop and vacate an MCA default judgment in New York and our broader MCA default judgment response guide.
How to Fight an MCA Personal Guarantee in New York: A Step-by-Step Strategy
Defending a personal guarantee case is a sequence, not a single motion. Each step preserves arguments for the next.
Step 1: Pull and Analyze Every Document the Funder Has Against You
Locate the receivables purchase agreement, the personal guarantee, all addenda, the funding statement, the ACH authorization, and every email or text from the broker. The defenses available depend almost entirely on the contract language. Review the reconciliation clause, the term, the bankruptcy clause, the security clause, and the venue clause. Identify the funded amount, the purchased amount, the specified percentage, and the daily payment. From those numbers, the effective annual rate can be calculated — and that calculation is often the centerpiece of the defense.
Step 2: Identify Legal Defects in the Contract and the Guarantee
Apply the LG Funding three-factor test to the receivables purchase agreement. Check whether the personal guarantee was actually triggered. Look for fraud in the inducement, mismatch between broker representations and final documents, and any procedural irregularity in execution.
Step 3: Challenge Jurisdiction and Service
Many MCA funders file in New York based on a forum selection clause, even when neither the merchant nor the owner has any contact with the state. Forum selection clauses are generally enforceable in New York, but they are not absolute — courts have refused to enforce them where they were procured by fraud or where enforcement would be unreasonable. Service of process is also routinely defective in MCA cases, particularly nail-and-mail service on out-of-state owners. See our MCA jurisdiction defense guide for New York.
Step 4: File the Right Pleading Quickly
If a complaint has been filed, an answer with affirmative defenses and counterclaims must be served within the time set by the CPLR — generally 20 or 30 days depending on how the summons was served. If a default has already been entered, a motion to vacate under CPLR § 5015(a) is the immediate priority. See how to dismiss an MCA lawsuit in New York and vacating an MCA default judgment in New York.
Step 5: Negotiate Strategically — But Only From a Position of Leverage
Settlement is often the most cost-effective resolution, but only after the funder understands that the contract has real defenses. Settlements negotiated before a defense is raised are routinely 80–100 cents on the dollar. Settlements negotiated after a credible usury or disguised-loan defense is on the record are routinely 30–50 cents on the dollar, sometimes less. See our MCA settlement strategy guide for New York and the broader merchant cash advance settlement overview.
Defense Strategies Used in New York Commercial Court
Most large MCA cases in New York are litigated in the Commercial Division of the Supreme Court — typically in New York County, Westchester, or Nassau, depending on the forum selection clause. The Commercial Division has its own procedural rules and judges who see hundreds of MCA matters per year. Effective defense strategies in this forum include the following.
- Motions to dismiss under CPLR § 3211 attacking jurisdiction, venue, or failure to state a cause of action.
- Motions for summary judgment under CPLR § 3212 once limited discovery confirms the contract is a disguised loan.
- Motions to vacate default judgments under CPLR § 5015(a)(1) for excusable default with a meritorious defense, or under CPLR § 5015(a)(4) for lack of jurisdiction.
- Motions to vacate confessions of judgment, particularly any entered before the 2019 amendment to CPLR § 3218 that effectively ended the use of out-of-state confessions of judgment in New York.
Confessions of judgment were historically the MCA industry’s most aggressive enforcement tool in New York. The 2019 amendment requires that the affidavit confessing judgment be made by a New York resident, which dramatically reduced — but did not eliminate — the use of CoJs. Older judgments entered against out-of-state owners are routinely vacatable. See our guide to fighting an MCA confession of judgment in New York.
Can MCA Lenders Take Personal Assets?
Yes — but only after they have a judgment, and only against assets that are not protected by New York’s exemption statutes. Under CPLR § 5205 and § 5206, certain personal assets are exempt from enforcement, including a homestead exemption that ranges from $89,975 to $179,950 depending on the county, exemptions for ordinary household goods, work tools up to $3,400, motor vehicles up to $4,825 (or $11,975 if equipped for a disabled person), and most retirement accounts protected under ERISA and New York law.
Outside those exemptions, a personal judgment exposes savings, investment accounts, non-exempt vehicles, real estate equity beyond the homestead amount, and ownership interests in business entities. Funders often target the personal bank account first because it is the fastest and cheapest enforcement step.
If your business account is also being drained by daily ACH withdrawals while the personal lawsuit is pending, those are two separate problems requiring two separate responses. See how to stop MCA ACH withdrawals immediately and our merchant cash advance bank levy guide.
Real-World Scenarios
Scenario 1: The Out-of-State Owner Sued in Manhattan
A Florida restaurant owner takes a $150,000 advance from a New York funder. The contract specifies New York County as the exclusive venue. After two months of daily payments, revenue drops and the merchant cannot meet the daily ACH. The funder files suit in New York Supreme Court against the LLC and the owner personally on the validity guarantee. The owner is served by mail at a Florida address that is no longer current. A default is entered. The owner discovers the judgment three months later when the personal account at a Florida bank is restrained. A motion to vacate based on improper service and a meritorious disguised-loan defense is the appropriate response — and is routinely granted in the Commercial Division when the contract lacks a real reconciliation provision.
Scenario 2: The Funder Bypasses the Business Entity
A funder serves the LLC and the owner simultaneously, then offers to release the LLC if the owner personally signs a stipulated judgment for the full purchased amount. This is a high-pressure tactic that exploits the owner’s panic. Signing the stipulation forfeits every defense in the contract. The right move is almost always to defend both the entity and the personal guarantee in parallel.
Scenario 3: The Frozen Personal Account After Judgment
A New Jersey HVAC contractor’s personal Chase account is frozen on a Tuesday morning. The judgment was entered six weeks earlier in Nassau County, and the contractor never received the summons. The freeze covers a personal mortgage payment due the next day. An emergency order to show cause to vacate the judgment, combined with an exemption claim under CPLR § 5222-a, can release the funds and re-open the case. See our MCA emergency help resource.
Why New York Is the Center of MCA Lawsuits
Three structural reasons explain why New York handles a disproportionate share of MCA litigation in the United States.
First, forum selection clauses. Almost every MCA contract specifies New York as the exclusive forum, regardless of where the merchant operates. Funders prefer New York because the Commercial Division is fast, the judges are commercially literate, and the procedural tools available to creditors — restraining notices, income executions, judgment liens — are unusually efficient.
Second, the historical use of confessions of judgment. Before 2019, an MCA funder could file an out-of-state debtor’s pre-signed CoJ in any New York county and obtain an entered judgment in days, with no notice to the debtor and no opportunity to defend. Although the 2019 amendment closed that door for out-of-state debtors, the procedural advantages of New York remain.
Third, the concentration of MCA funders themselves. The largest funders are headquartered in New York, their counsel are based in New York, and their preferred process servers and marshals operate within the state’s enforcement infrastructure.
The result is that a small business owner in Texas, Florida, or California is often forced to defend an MCA lawsuit in a New York court more than a thousand miles from home. Local New York counsel is essential. See our New York merchant cash advance lawsuits overview, our general MCA lawsuit defense resource, and our New York MCA defense attorney page.
What to Do Immediately if You Are Facing an MCA Personal Guarantee Action
If you have received a summons, a demand letter, a restraining notice, or any communication suggesting personal liability under an MCA contract, the following steps preserve your defenses and protect your assets.
- Do not ignore the lawsuit. Default judgments in New York are entered quickly and are far harder to vacate than they are to defend in the first place.
- Do not assume the personal guarantee is enforceable. The contract structure determines that question, and most contracts have at least one defensible weakness.
- Do not pay a private settlement broker before consulting counsel. Many “MCA debt relief” companies are not law firms and cannot raise legal defenses on your behalf.
- Pull every document — the agreement, the guarantee, the broker emails, the funding statement, and your bank records showing every ACH withdrawal.
- Calculate the effective annual rate of the advance based on the funded amount, the purchased amount, and the actual term of payments. If it exceeds 25%, a criminal usury defense may apply.
- Engage New York-licensed counsel experienced in MCA litigation immediately, especially if a complaint has been served or a judgment has been entered.
For an end-to-end overview of how a defense unfolds, see our merchant cash advance defense framework.
Frequently Asked Questions
Can an MCA lender sue me personally in New York?
Yes, if you signed a personal guarantee — but a lawsuit is not the same as a winnable case. New York courts apply the LG Funding three-factor test to determine whether the underlying MCA is actually a disguised loan. If it is, and the effective rate exceeds 25%, the agreement is void under Penal Law § 190.40 and the personal guarantee is unenforceable.
Is a personal guarantee in an MCA contract always enforceable?
No. MCA personal guarantees are typically conditional and only activate on specific events defined in the guarantee — most commonly the merchant filing bankruptcy, deliberately diverting receipts, or breaching specific covenants. If the only thing that happened is the business running out of money, the guarantee may not have been triggered at all. Personal guarantees are also unenforceable if the underlying agreement is void for usury, signed under fraud or duress, or procedurally unconscionable.
Can I remove personal liability from an MCA contract after I have already signed?
Direct rescission is rare, but personal liability can be neutralized through litigation defenses, settlement, or — in some cases — bankruptcy. The strongest leverage to negotiate a release of the guarantee comes from a credible usury or disguised-loan defense raised early in litigation.
What happens if I ignore an MCA lawsuit in New York?
A default judgment will be entered, typically within 30 to 90 days of the missed answer deadline. Once entered, the funder can serve a restraining notice on your personal bank, file a judgment lien against any real property you own in New York, garnish wages from a separate employer, and pursue assets in any other state where you live by domesticating the New York judgment. Vacating a default judgment is possible but requires both an excusable reason for the default and a meritorious defense.
Can I settle an MCA personal guarantee case for less than the full amount?
Yes, and most contested MCA personal guarantee cases in New York settle. The settlement value depends almost entirely on the strength of the legal defenses raised. A well-documented disguised-loan defense regularly produces settlements in the 30–50% range of the claimed balance, and sometimes lower. Settlements negotiated before any defense is raised tend to be much higher.
Will an MCA judgment in New York follow me to another state?
Yes. A New York judgment can be domesticated in any other state under the Uniform Enforcement of Foreign Judgments Act, allowing the funder to enforce against personal assets wherever you live or own property. This is one of the reasons New York judgments are so valuable to MCA funders — and so dangerous to small business owners.
Conclusion: Act Before Judgment Is Entered
A merchant cash advance personal guarantee is not the unconditional promise to pay that funders often present it as. New York law has evolved significantly over the last several years, and courts now scrutinize MCA contracts more closely than ever before. The LG Funding factors, the criminal usury cap, the 2019 confession of judgment reforms, and the procedural protections in the CPLR all create real defenses for business owners who act quickly.
The single most important factor is timing. A personal guarantee defense raised before judgment is entered is far stronger, far cheaper, and far more likely to succeed than a motion to vacate filed after a personal bank account has already been frozen. If you have received a summons, a demand letter, or any threat of personal collection, the defense window is measured in days, not weeks.
If you are currently facing an MCA personal guarantee action in New York, contact an experienced New York MCA defense attorney before responding to the funder. The right defense, raised at the right time, can mean the difference between losing your personal assets and walking away with the matter resolved.
Authoritative Resources
• New York Unified Court System — case lookup, court rules, and filing procedures.
• New York General Obligations Law § 5-501 — civil usury statute.
• New York Penal Law § 190.40 — criminal usury statute (25% cap).
• Federal Trade Commission — Small Business Resources.
• Consumer Financial Protection Bureau — guidance on small business financing complaints.
This article is provided for informational purposes only and does not constitute legal advice. Reading this article does not create an attorney-client relationship. Every MCA case turns on the specific facts of the contract, the funder’s conduct, and the procedural posture of the dispute. Consult a New York–licensed attorney about your specific situation.
