7 Stages of an MCA Lawsuit in New York (And How Long Each Takes)

This is the opening shot. The funder (or their attorney) sends a formal notice stating you've breached the MCA agreement and the full remaining balance has been accelerated.

The demand letter usually includes:

The total amount they claim you owe (the purchased amount, not just the remaining daily payments)

A deadline to pay, typically 5 to 10 business days

A threat to pursue legal action, including filing suit, enforcing the personal guarantee, and activating UCC liens

Here's what most people get wrong about this stage: the demand letter is not a negotiation. It's a paper trail. The funder is documenting that they gave you notice before they filed suit, because courts look at that. Some funders skip this step entirely and go straight to filing. They're allowed to. Most MCA agreements don't require a cure period or a grace window. Read yours again — you probably signed away both.

How long this lasts: 5 to 10 days, if it happens at all. Some funders skip directly to Stage 2.

The funder files a breach of contract action in New York Supreme Court. Almost always New York, regardless of where your business is located. Why? Because your MCA agreement contains a forum selection clause that says all disputes get resolved in New York courts, governed by New York law. You agreed to that when you signed.

The complaint will allege you breached the MCA agreement and will claim the full accelerated balance plus attorney fees, default fees, and costs.

But here's the part that catches people off guard. In New York, MCA funders have a shortcut. Under CPLR §3213, if the claim is based on an "instrument for the payment of money only" (which many MCA personal guarantees qualify as), the funder can file for summary judgment in lieu of a complaint. That means they skip the normal pleading process entirely. They file the motion for judgment at the same time as the summons. There's no complaint, no discovery, no trial. The court can decide the case on the papers alone.

This is a big deal. CPLR §3213 was designed for straightforward debt collection on promissory notes and guarantees. MCA funders use it constantly because the personal guarantee you signed is often clean enough to qualify. If you don't respond, they get a default judgment. If you respond but can't raise a genuine factual dispute, they get summary judgment. Either way, they can have a judgment in hand in weeks, not months.

How long this lasts: The lawsuit itself gets filed 1 to 3 weeks after default. If the funder uses CPLR §3213, the motion can be heard as soon as 20 to 30 days after service.

You get served with a summons and complaint (or a summons with a CPLR §3213 motion). This is the formal notification that you've been sued.

Under CPLR §320, you have:

20 days to respond if you were served in person in New York

30 days to respond if you were served by any other method (mail, substituted service, out-of-state service)

If you don't respond within that window, the funder moves for a default judgment. And a default judgment in a New York MCA case is basically game over. Once they have that judgment, they move straight to enforcement — bank freezes, asset seizures, the works. No hearing, no trial, no second chance.

This is the stage where most business owners make their biggest mistake. They ignore the papers. They assume it'll go away, or they figure the funder is bluffing, or they just don't understand how fast New York courts move on commercial debt. It doesn't go away. The funder is not bluffing. And New York courts move very fast.

Critical point: If you're located outside of New York, you might think you can challenge personal jurisdiction. You can try. But the forum selection clause in your MCA agreement will usually hold up. New York courts enforce those routinely in MCA cases. You signed it, and courts have consistently upheld these clauses against out-of-state defendants.

How long this lasts: 20 to 30 days, depending on method of service. If you miss this deadline, expect a default judgment within 2 to 4 weeks.

This is the stage that destroys businesses. And it moves faster than anything else in the process.

Once the funder obtains a judgment — whether by default, by CPLR §3213 summary judgment, or by confession of judgment (for in-state businesses; New York banned out-of-state COJs in 2019 but they remain fully enforceable for New York-based businesses under CPLR §3218) — they can serve a restraining notice on your bank under CPLR §5222.

Here's what makes CPLR §5222 so dangerous: the funder's attorney can issue the restraining notice themselves, without a court order. They serve it on the bank by certified mail or personal delivery, and the bank is legally required to freeze your account immediately. The restraining notice has the same force as a court injunction. Violating it is contempt of court.

The freeze doesn't just hit your business account. If you signed a personal guarantee — and you almost certainly did — your personal bank accounts, savings accounts, and investment accounts are all fair game. Business owners have woken up on a Tuesday morning unable to access a single dollar across every account they own. Payroll bounces. Vendor payments fail. Rent checks get returned.

There are some protections. Under CPLR §5222(h), banks can't freeze the first $3,425 in an account that's received exempt deposits (Social Security, disability) within the last 45 days. And under CPLR §5222(i), amounts equal to or less than 240 times the state minimum hourly wage may be protected. But if you're a business owner with operating accounts holding $50,000 or $100,000, those minimum thresholds are meaningless. The bulk of your money is frozen.

How long this lasts: The restraining notice takes effect immediately upon service to the bank. The freeze stays in place until the judgment is satisfied, the notice is vacated by court order, or the creditor releases it. For restraining notices served on third parties (like your bank), they expire after one year. On the judgment debtor directly, they last until the judgment is paid.

When you took the MCA, the funder filed a UCC-1 financing statement against your business with your state's Secretary of State. This gave them a security interest in your receivables. At the time, that filing was basically insurance. Now it becomes a weapon.

At default, the funder (or their attorney) will send notices to:

Your credit card processor

Your customers who owe you money

Any other third party that pays you

These notices instruct them to redirect payments directly to the funder. And here's the thing — this isn't a threat. Under Article 9 of the UCC, the funder has the legal right to do this once you're in default. They can literally intercept the money owed to you before it ever reaches your bank account.

This stage is what chokes off cash flow completely. Even if the bank freeze doesn't get you (maybe you moved money, maybe you have accounts they don't know about), the receivables interception will. Your customers start getting letters from an attorney telling them to send their payments elsewhere. That's a reputational problem on top of a cash flow problem.

Some funders go even further. They'll contact your customers and vendors who appear on the bank statements you provided with the original MCA application. They have those statements. They know who pays you and how much.

How long this lasts: UCC lien enforcement begins immediately at default and continues until the lien is released. Standard UCC-1 filings expire after 5 years, but funders can renew them. Post-judgment, the interception of receivables can continue indefinitely until the judgment is satisfied.

If you actually filed an answer in Stage 3 and raised legitimate defenses, the case moves into discovery. This is the stage where both sides exchange documents, take depositions, and build their cases.

Common defenses in MCA lawsuits include:

Usury recharacterization: If the MCA functioned as a loan rather than a true purchase of receivables — meaning the funder bore no risk of loss if your revenue dropped — the agreement can be recharacterized as a usurious loan. New York caps criminal usury at 25% per year (Penal Law §190.40) and civil usury at 16% (General Obligations Law §5-501). Some MCA agreements carry effective rates of 50%, 100%, even higher. If the court agrees it's a disguised loan, the entire agreement could be voided.

Illusory reconciliation: Your MCA agreement probably has a "reconciliation" clause that says your payments will adjust if your revenue drops. But did the funder ever actually honor that? If they kept pulling fixed daily amounts regardless of your revenue, courts are increasingly treating that as evidence the MCA is really a loan. After the Yellowstone Capital settlement in January 2025 — a $1 billion-plus judgment by the New York AG for predatory lending disguised as MCAs — judges are scrutinizing reconciliation provisions more closely.

Lack of personal jurisdiction: Even with forum selection clauses, there are circumstances where jurisdiction can be challenged.

Fraudulent inducement: If the funder or broker misrepresented the terms.

Discovery is expensive. Depositions, document production, expert witnesses. But if you have strong defenses — particularly usury — this is where leverage gets built. Many cases settle during or immediately after discovery because the funder would rather take 40 to 60 cents on the dollar than risk a court voiding the entire agreement.

How long this lasts: 3 to 6 months is typical. Complex cases with multiple funders (stacking situations) can take longer, sometimes 8 to 12 months.

If the case doesn't settle during discovery, it moves to a decision. This happens one of three ways:

Summary judgment motion. After discovery closes, either side can move for summary judgment under CPLR §3212. The motion must be filed within 120 days of the note of issue. If the funder proves there's no genuine issue of material fact, they get judgment. If you raised a real usury defense with supporting evidence, this is where it matters. The court rules on the papers, oral argument isn't guaranteed but can be requested.

Trial. If summary judgment is denied — meaning there are genuine factual disputes — the case goes to trial. In New York Supreme Court, this can be a bench trial (judge only) or, in rare cases, a jury trial. Trials in MCA cases are not common. Most cases settle before this point because the economics don't justify the legal spend for either side.

Settlement. This is how the majority of MCA lawsuits actually end. The funder agrees to accept a reduced lump sum — typically 30% to 60% of the outstanding balance — in exchange for a release of all claims, dismissal of the lawsuit, and termination of the UCC lien. The later in the litigation you settle, the more leverage you generally have, but the more you've spent on legal fees getting there.

Once a judgment is entered — by default, summary judgment, or after trial — the funder can enforce it. In New York, judgments last 20 years and can be renewed. Enforcement tools include bank restraining notices (CPLR §5222), income executions, property liens, and in some cases, information subpoenas that force you to disclose every asset you own.

And if you're thinking about moving assets to avoid enforcement — don't. Fraudulent transfer claims under New York's Debtor and Creditor Law give the funder the ability to claw back transfers made with the intent to avoid paying the judgment. Courts in New York don't play around with this. They can and will void transfers and freeze accounts held in other people's names if there's evidence you moved money to dodge the judgment.

How long this lasts: Summary judgment motions take 2 to 4 months after discovery closes. Trial, if it happens, adds another 3 to 6 months or more depending on court backlog. Post-COVID, New York courts are still dealing with significant caseload backlogs, particularly in high-volume jurisdictions like New York County and Kings County. Enforcement continues until the judgment is satisfied — which can be up to 20 years.

Stage

What Happens

Timeline

Funder sends notice of default and acceleration

Day 1–7 (or skipped entirely)

Breach of contract action in NY Supreme Court

Week 1–3 after default

You get served, clock starts on your answer

20–30 days to respond

CPLR §5222 restraining notice locks your accounts

Same day as judgment — can be hours

Receivables intercepted, customers contacted

Immediate at default, ongoing

Document exchange, depositions, defense building

3–6 months (if you answered)

Final judgment, asset seizure, liens

2–4 months post-discovery; enforcement up to 20 years

If you don't respond to the lawsuit: Stages 3 through 5 collapse. The funder gets a default judgment in as little as 2 to 4 weeks after service, and enforcement begins immediately. The entire process from default to frozen bank accounts can take less than 60 days.

If you respond and fight: The case typically runs 6 to 12 months, with most settling during or after discovery. Cases with strong usury defenses have settled for 30 to 60 cents on the dollar.

If you're in the early stages — you've missed payments but haven't been served yet — you're in the best position you'll ever be in during this entire process. Every day you wait, the funder's enforcement options multiply and your negotiating leverage shrinks.

If you've already been served, you need to respond within your deadline. Not next week. Not when you "figure things out." Within the deadline. A default judgment in a New York MCA case is the single worst outcome, and it's also the most preventable one.

If your accounts are already frozen, an attorney can file an emergency motion to vacate the restraining notice — particularly if the underlying judgment was entered by default, if service was improper, or if the MCA agreement contains usury defenses. Courts have vacated these. It's not hopeless. But it requires moving fast, faster than you think.