Served With an MCA Lawsuit — What Do I Do?

When you are served with a lawsuit, you generally have a limited, deadline-driven window to file a written response (often called an answer) with the court — commonly somewhere in the range of about 20 to 30 days, though the exact deadline varies, and can be longer or shorter, depending on the state, the court, and how you were served. Missing that deadline is one of the most consequential mistakes a defendant can make. Important: not every MCA collection effort starts with a lawsuit and a response window. If you signed a confession of judgment, a funder may be able to obtain a court judgment against you without ever filing a lawsuit or serving you — sometimes the first you learn of it is when your bank account is already frozen. So whether or not you have been served, get help the moment you fall behind or receive any legal or collection notice.

If a defendant does not respond to a lawsuit by the deadline, the plaintiff can ask the court to enter a default judgment. By failing to answer, the defendant gives up the right to contest the case — but a default judgment is not automatic. Outside narrow 'sum-certain' cases, the plaintiff must still show the court a valid claim: under New York's CPLR 3215(f) and Federal Rule 55(b), the court reviews proof of the facts constituting the claim before entering judgment. This matters for MCAs in particular — New York courts have denied judgments to MCA funders, even when the merchant raises no defense, where the funder's agreement is really a loan at a criminally usurious rate (which makes it unenforceable). If a default judgment is entered, the company can pursue post-judgment collection such as a bank levy, wage garnishment (where state law allows), or (in New York) a restraining notice under CPLR 5222 — but only subject to procedural steps and to exemptions that protect a baseline of bank funds and benefits like Social Security. A default judgment can also often be vacated, for example if you were never properly served or you act promptly with a good reason for missing the deadline.

Some MCA agreements include a personal guaranty signed by the business owner, but the scope of these guaranties varies and is often narrower than it looks: many are guaranties of performance (covering specific breaches such as misrepresenting your application, blocking the agreed payments, or violating covenants) rather than guaranties of repayment of the advance. In a true MCA, the funder buys future receivables and bears the risk of ordinary business decline or closure — so if your business simply runs out of money without breaching the agreement, a valid guaranty may impose little or no personal liability for the balance. Whether you can be held personally responsible depends on the exact terms of your guaranty and your state's law. Two defenses matter especially: the guaranty may not actually cover repayment of the purchased amount, and where an MCA is in substance a high-rate loan it can be challenged as usurious or otherwise unenforceable — and a guaranty of an obligation that is void for usury is generally unenforceable. If you have been sued personally, do not assume a personal judgment is inevitable; have your specific agreement reviewed by a qualified attorney before defaulting or settling.

Merchant cash advances are typically written as purchases of a business's future receivables rather than loans, which is how they are structured to fall outside state usury limits. In some cases, however, courts have looked past the label and examined the substance — considering factors such as whether there is a meaningful reconciliation provision, whether the term is fixed rather than open-ended (a fixed term cuts toward a loan), and whether the funder still has recourse if the merchant goes bankrupt or fails through no fault of its own — and have occasionally recharacterized an advance as a disguised, potentially usurious loan. Outcomes are fact-specific, vary by state, and recharacterization is not a guaranteed path to relief. Two limits matter: most merchants who sign these agreements are corporations or LLCs, and in New York and many states a business entity cannot raise the ordinary civil usury cap at all — its only usury remedy is criminal usury, which in New York requires the effective rate to exceed 25%; and many MCA contracts choose the law and courts of states with no usury cap (such as Delaware or Utah), which can defeat a usury argument before a court reaches the substance test.

Being sued does not necessarily mean the matter will be decided at a trial — civil cases, including MCA collection suits, are frequently resolved by negotiated settlement, and a creditor will often prefer an agreed payoff to the time and expense of litigating. A pending lawsuit therefore does not foreclose the possibility of negotiating a resolution, and a settlement can be reached at any stage, even after a judgment. The catch is that this opportunity must be preserved: many MCA matters proceed not through a contested trial but by default judgment if the defendant never responds, or by a confession of judgment the merchant may have signed — so responding by the deadline, and getting help to do so, is what keeps the door to negotiation open.