MCA Default Judgment New York: How Business Owners Can Vacate, Defend, and Stop Enforcement

CREDIBLELAW  •  NEW YORK MCA DEFENSE

MCA Default Judgment New York

If you have landed on this page, you are likely facing one of the most stressful situations a small business owner can confront in New York.

A merchant cash advance company has obtained a court judgment against your business — possibly without you ever appearing in court — and now your operating account is frozen, daily ACH withdrawals are still pulling funds, or a marshal is preparing to levy your assets. You may have learned about the case only this morning, when your bank told you that your funds were being held under a restraining notice from a New York Supreme Court action. This is the standard shape of merchant cash advance lawsuits in New York, and it tends to escalate within days.

A default judgment is serious, but it is not necessarily the end of the road. New York courts allow defendants to move to vacate default judgments under several legal theories, and many MCA judgments are vulnerable to challenge because of improper service, defective contracts, or criminal usury. The first 24 to 72 hours after enforcement begins are the most important. This guide explains what a default judgment is, how MCA lenders enforce it under New York law, and what specific options you have to fight back, settle the debt, or unfreeze a bank account seized after an MCA judgment.

If your account was frozen this week A New York restraining notice can be issued by an attorney without court permission and will hold up to twice the judgment amount. You generally have a narrow window to act before funds are turned over to a marshal. Stop new ACH pulls, pull the court file, and evaluate vacatur or settlement immediately.

What Is a Merchant Cash Advance Default Judgment?

A merchant cash advance (MCA) is a financing product structured as the purchase of future receivables rather than a traditional loan. The funder advances a lump sum, and the business agrees to remit a fixed percentage of daily revenue — typically through a fixed daily or weekly ACH withdrawal — until a specified “purchased amount” is delivered. When the business cannot keep up with payments, the MCA company often declares the contract in default and sues for the unpaid balance.

A default judgment is a court order entered against a defendant who fails to answer the complaint or appear in the lawsuit. Under New York’s Civil Practice Law and Rules (CPLR), a defendant generally has 20 to 30 days after service to file an answer. If no answer is filed, the plaintiff can move for entry of a default judgment under CPLR § 3215. Once the clerk or judge signs the judgment, the lender is treated as a judgment creditor with the full enforcement powers of New York law.

MCA companies pursue default judgments aggressively because the process is fast, cheap, and procedurally straightforward. Many MCA contracts contain forum-selection clauses requiring litigation in New York — particularly New York County — even when the borrower’s business is located in another state. This combination of forum lock-in, expedited motion practice, and the legacy of confession of judgment clauses (before the 2019 reform of CPLR § 3218) has made New York the national hub for MCA collections litigation.

Why So Many MCA Lawsuits Result in Default Judgments in New York

There are several reasons MCA lawsuits in New York convert into default judgments at unusually high rates:

• Service is often missed or contested. MCA plaintiffs frequently rely on substituted service or service on a registered agent the business owner is unaware of. Out-of-state defendants may not realize the New York summons is real.
• Borrowers do not understand the deadline. A New York summons typically requires an answer within 20 days if served personally in New York, or 30 days if served outside the state or by other means.
• Financial distress paralyzes response. Owners drowning in daily ACH withdrawals often cannot afford counsel by the time a complaint arrives.
• Forum-selection clauses confuse out-of-state borrowers. A trucking company in Texas or a restaurant in Florida sued in Manhattan often does not realize that New York courts have personal jurisdiction by contract.
• The contract is engineered for default. Stacked advances, daily withdrawals, and reconciliation refusals make defaults nearly inevitable, and the litigation playbook is ready as soon as ACH payments stop.

If you have already missed the answer deadline, do not assume you have no options. Many of these judgments can still be vacated — but timing matters.

Where MCA Default Judgments Are Filed in New York

Most MCA default judgments are filed in the New York Supreme Court — the trial-level court of general jurisdiction in New York. Larger commercial cases (typically over $500,000) may be assigned to the Commercial Division. Filings are tracked through the New York State Unified Court System’s NYSCEF e-filing portal, where defendants can pull the complaint, affidavit of service, and motion papers. The most common venues for MCA litigation are:

• New York County (Manhattan) — the default forum specified in many MCA contracts and the highest-volume venue for Manhattan MCA cases.
• Kings County (Brooklyn) — frequently used by funders headquartered in Brooklyn; see Kings County MCA lawsuits.
• Queens County — common for cases involving Queens-based funders or borrowers.
• Nassau County and Suffolk County — Long Island venues used by several large MCA funders.
• Westchester, Rockland, and Erie Counties — less common, but possible depending on the funder’s office location.

What Happens After an MCA Default Judgment Is Entered

Once a judgment is signed and entered with the county clerk, the lender becomes a judgment creditor with broad powers under CPLR Article 52. Enforcement typically begins within days, sometimes hours, of entry — and the first sign of trouble is often a phone call from your bank.

Restraining Notices and Bank Account Levies

A judgment creditor can serve a restraining notice under CPLR § 5222 directly on your bank, freezing up to twice the amount of the judgment in any account bearing your business or personal name. The bank must comply immediately, often before you receive any notice. To convert the freeze into actual seizure, the creditor delivers an income execution or property execution to a city marshal or sheriff under CPLR § 5230, who then levies the funds. If your account has already been hit, see our emergency guide on how to stop an MCA bank levy in New York.

ACH Withdrawals and Account Drainage

Even after a judgment, some MCA funders continue ACH pulls under the original authorization, layering daily debits on top of post-judgment enforcement. Stopping these requires both bank-level ACH revocation and, in many cases, court intervention. Continued post-default ACH activity can also be a defense point if the funder is double-collecting on the same balance.

UCC Liens and Asset Seizures

Most MCA contracts include a UCC-1 financing statement filed against the business’s accounts receivable, equipment, and general intangibles. After judgment, the lender can move to enforce the lien, intercept customer payments, or levy on equipment. Defenses to MCA UCC lien enforcement in New York often turn on whether the underlying contract is enforceable in the first place.

Personal Guarantee Enforcement

Nearly every MCA contract includes a personal guarantee from the owner. A judgment against the guarantor allows the creditor to restrain personal bank accounts, levy on personal assets, and place liens on real property through a transcript of judgment filed with the county clerk. The scope of MCA personal guarantee enforcement in New York depends on the language of the guarantee and whether spouses or other co-signers were included.

How MCA Lenders Enforce Judgments Under New York Law

CPLR Article 52 gives judgment creditors a powerful enforcement toolkit. The most common steps in an MCA enforcement sequence are:

1. Restraining notice (CPLR § 5222) served on banks, customers, and payment processors.
2. Information subpoena (CPLR § 5224) demanding financial records, asset disclosures, and deposit account locations.
3. Property execution (CPLR § 5230) delivered to a marshal or sheriff to levy on funds and goods.
4. Income execution (CPLR § 5231) for individual judgment debtors with wage income.
5. Turnover proceeding (CPLR § 5225) to compel third parties holding your assets to deliver them to the marshal.

A creditor does not need additional court permission to issue a restraining notice — an attorney-issued notice is enough. That is why so many business owners learn about a judgment only when their operating account is suddenly inaccessible.

Can You Vacate an MCA Default Judgment in New York?

In many cases, yes. New York law provides multiple statutory grounds to vacate a default judgment. Filing the motion does not automatically stop enforcement, but courts can issue stays of enforcement while the motion is pending, and a successful motion to vacate an MCA default judgment in New York wipes the judgment out entirely. The right grounds depend on how — and whether — you were actually served.

CPLR § 5015(a) — General Grounds

Under CPLR § 5015(a), a defendant can move to vacate based on:

• excusable default (with a reasonable excuse and a meritorious defense),
• newly discovered evidence,
• fraud, misrepresentation, or other misconduct of an adverse party,
• lack of jurisdiction, or
• reversal of a prior judgment on which the order was based.

Motions for excusable default must generally be made within one year of service of the judgment with notice of entry.

CPLR § 317 — Defendants Not Personally Served

If you were not personally served and did not receive actual notice in time to defend, CPLR § 317 allows you to move to vacate within one year of learning of the judgment, up to five years after entry. You must show a meritorious defense. This is one of the most powerful tools for out-of-state MCA defendants who never received the summons.

Improper Service and Process Server Fraud

If the affidavit of service is defective — wrong address, wrong individual served, or fabricated entries — the judgment may be vacated for lack of personal jurisdiction without a strict time limit. Process server fraud has been a recurring issue in MCA litigation, and a careful review of the affidavit against signed delivery records, building access logs, or surveillance often reveals discrepancies.

Legal Defenses to Merchant Cash Advance Lawsuits

Whether you are vacating a default judgment or defending an active case, the underlying defenses are largely the same. New York courts have developed a sophisticated body of law on MCA contract defenses, and the strongest cases combine several theories.

The Disguised Loan Argument

The most important defense is that the MCA is not a true purchase of receivables but a disguised loan, which would subject it to New York usury law. New York courts apply the framework set out in LG Funding, LLC v. United Senior Properties of Olathe, LLC (2018), examining (1) whether the funder has recourse if the merchant goes bankrupt or out of business, (2) whether the contract has a finite term, and (3) whether the merchant has a meaningful right to a reconciliation that adjusts payments to actual revenue. If the contract effectively guarantees repayment regardless of revenue, courts may reclassify it as a loan.

Criminal Usury

Under New York Penal Law § 190.40, a loan to a corporation at an effective interest rate above 25% is criminal usury. If an MCA is reclassified as a loan and the implied rate exceeds 25%, the contract may be void and unenforceable — and the entire balance, including principal, can be forfeited. The Court of Appeals in Adar Bays, LLC v. GeneSYS ID, Inc. (2021) confirmed that criminal usury renders a loan void from the outset. See our deeper analysis of the New York criminal usury defense in MCA cases.

Reconciliation Violations

Most MCA contracts include a reconciliation clause that allows the merchant to adjust the daily withdrawal to match actual revenue. When funders refuse to honor reconciliation requests — or set up an unworkable process designed to be denied — they may breach the contract themselves. That breach can void the default and supports the broader disguised-loan argument.

Unconscionability and Fraud in the Inducement

Excessive fees, undisclosed stacking restrictions, inflated factor rates, and misrepresentations during sales calls can support unconscionability and fraud-in-the-inducement defenses. These often surface in discovery once a case is reopened.

Jurisdictional and Forum-Selection Challenges

Out-of-state defendants can sometimes challenge personal jurisdiction or seek dismissal under forum non conveniens, particularly where the MCA contract was negotiated and performed entirely outside New York and the forum-selection clause was not knowingly accepted.

New York Usury Laws and Merchant Cash Advances

New York’s usury structure is central to MCA defense:

• Civil usury cap: 16% per year (General Obligations Law § 5-501).
• Criminal usury cap: 25% per year (Penal Law § 190.40).
• Corporate borrowers generally cannot raise civil usury, but they can raise criminal usury as a defense to a loan.

Because most MCAs imply effective annualized rates well above 25%, the criminal usury defense — when paired with a successful disguised-loan argument — can be devastating to the funder’s case. This is also why the FTC and the Consumer Financial Protection Bureau have brought enforcement actions against MCA funders accused of deceptive collections practices.

How to Stop MCA Judgment Enforcement

If your account is frozen or enforcement is imminent, the priority sequence is straightforward — but every step is time-sensitive.

• Pull the court file via NYSCEF to confirm the judgment, the affidavit of service, and the underlying complaint.
• Serve a written ACH revocation on your bank to stop continuing withdrawals.
• File a motion to vacate the default judgment under CPLR § 5015 or § 317, paired with a request for a stay of enforcement. See how to vacate an MCA judgment in New York.
• Negotiate a settlement. Most funders will accept a reduced lump sum or structured payoff, particularly when faced with a vacatur motion. Our overview of MCA settlement options in New York walks through realistic settlement ranges.
• Evaluate MCA bankruptcy options in New York. A Chapter 11 Subchapter V or Chapter 7 filing automatically stays enforcement under 11 U.S.C. § 362.

The right combination depends on your cash position, the strength of your defenses, and whether the judgment is against the business, the personal guarantor, or both.

Industries Most Targeted by MCA Lawsuits in New York

MCA litigation disproportionately affects industries with thin margins and seasonal cash flow:

• Restaurants and hospitality — high MCA penetration and frequent stacking; see restaurant MCA lawsuits in New York.
• Trucking and logistics — fuel cost volatility and slow customer payments make defaults common; see trucking MCA lawsuits in New York.
• Construction and contractors — long receivable cycles and lien-driven cash flow gaps; see construction MCA lawsuits in New York.
• Retail and e-commerce — inventory-driven cash flow gaps.
• Medical and dental practices — insurance reimbursement delays.
• Auto repair, salons, and service businesses — small operating buffers and seasonality.

Common MCA Lenders Filing Lawsuits in New York

A handful of funders dominate New York’s MCA docket. Frequent plaintiffs include Yellowstone Capital and its successor entities, GTR Source, Itria Ventures, Rapid Capital Funding, EBF Partners (Everest Business Funding), Kapitus, Forward Financing, and World Global Capital, alongside dozens of smaller funders operating under multiple corporate names. Several of these companies have been the subject of FTC and New York Attorney General enforcement actions, and their judgments may carry vacatur opportunities tied to those investigations.

When to Contact an MCA Defense Attorney

Time is the single most important variable in MCA enforcement. Every day a restraining notice is in place is a day your business cannot make payroll, pay vendors, or fulfill orders. An experienced New York MCA defense attorney can review the docket and judgment for procedural defects, file an emergency motion to vacate with a stay request, negotiate directly with the funder’s counsel for a release of the freeze, structure a settlement that protects the personal guarantor, and coordinate with bankruptcy counsel if reorganization becomes necessary.

If you operate in the five boroughs, our local teams handle Manhattan MCA defense, Brooklyn MCA defense, and Queens MCA defense matters. If you have been served with a summons, received a notice of judgment, or found your account suddenly inaccessible, do not wait for the situation to develop further.

Quick reality check A New York default judgment is reversible far more often than business owners assume — but only when the defense moves before assets are turned over to a marshal. The motion is the first move. Settlement is usually a second-order option.

Frequently Asked Questions

What is a default judgment in an MCA lawsuit?

A default judgment is a court order entered when a defendant fails to answer the complaint or appear in court. In an MCA lawsuit, this allows the funder to obtain the full claimed balance — plus interest, fees, and costs — without ever proving the merits, and to immediately begin enforcement under CPLR Article 52.

Can I reopen a default judgment in New York?

In most cases, yes. New York courts can vacate default judgments under CPLR § 5015 (excusable default, fraud, lack of jurisdiction, or newly discovered evidence) and CPLR § 317 (defendants not personally served). The motion must be supported by a reasonable excuse and a meritorious defense. See how to vacate an MCA default judgment in New York for a step-by-step explanation.

How long do I have to vacate a default judgment?

For excusable default under CPLR § 5015(a)(1), you generally have one year from service of the judgment with notice of entry. For lack of personal jurisdiction or fraud, there is no firm time limit. Under CPLR § 317, you have one year from learning of the judgment, up to five years after entry.

Can MCA lenders freeze my business or personal bank account?

Yes. Once a judgment is entered, the funder’s attorney can issue a restraining notice under CPLR § 5222 without further court approval, freezing up to twice the judgment amount in any account in your name or your business’s name. If your account is already locked, see our emergency guide on how to unfreeze a bank account after an MCA judgment.

Can a default judgment affect my personal assets?

Yes, if you signed a personal guarantee. Almost all MCA contracts include one. A judgment against the guarantor reaches personal bank accounts, vehicles, investment accounts, and — through a transcript of judgment filed with the county clerk — real property in that county.

What courts handle MCA lawsuits in New York?

MCA cases are filed in New York Supreme Court — most often in New York County (Manhattan), Kings County (Brooklyn), Queens County, Nassau County, or Suffolk County. Larger commercial matters may be assigned to the Commercial Division. Filings can be reviewed through the NYSCEF e-filing system.

Can bankruptcy stop MCA judgment enforcement?

Yes. Filing a bankruptcy petition triggers the automatic stay under 11 U.S.C. § 362, which immediately halts almost all collection activity, including restraining notices and levies. The right chapter depends on whether you want to reorganize or liquidate. Read MCA bankruptcy options in New York for a comparison of Subchapter V, Chapter 11, and Chapter 7.

Do MCA lenders have to prove the debt in court?

In a contested case, yes — the funder must prove the contract, the funded amount, and the unpaid balance. In a default, however, the court accepts the plaintiff’s allegations as true. That is why so many MCA judgments are entered without any factual scrutiny, and why vacating the default is the first defense priority.

What happens if my business is located outside New York?

Most MCA contracts include forum-selection clauses choosing New York. Out-of-state defendants are often legitimately subject to personal jurisdiction in New York by contract, but they may also have stronger CPLR § 317 vacatur arguments because they were never personally served and never received actual notice of the suit.

Are MCA contracts legal in New York?

Properly structured MCA contracts — true purchases of future receivables with non-recourse risk, no fixed term, and a workable reconciliation right — are legal in New York. The legal problem arises when the contract is structured so that repayment is effectively guaranteed. In that case, the contract may be reclassified as a loan and held void for criminal usury.

How do I stop daily MCA ACH withdrawals immediately?

Send a written ACH revocation to your bank under NACHA rules and Regulation E principles, request a stop-payment on the originating company name, and follow up with a written notice to the funder. Continued pulls after revocation may give rise to additional defenses and counterclaims.

Final Word: Move Before Enforcement Outpaces You

A default judgment from an MCA funder in New York can feel like the end of the road — frozen accounts, levied receivables, and personal assets in the line of fire. It usually is not. New York gives defendants real tools to vacate defaults, challenge disguised loans, and force funders into negotiated resolutions. The variable that decides outcomes is not the size of the judgment; it is how quickly the defense moves.

If you are reading this because a marshal called your bank, a process server left papers at your door, or a notice arrived from a New York court, treat the next 24 to 72 hours as the most important window. Pull the file, stop the ACH pulls, and put a New York MCA defense attorney on the case before the funder converts the freeze into a turnover.