When Can a Merchant Cash Advance Garnish Your Wages or Bank Account?
The Harsh Reality of Merchant Cash Advance Defaults
You took out a merchant cash advance (MCA) to help your business through a rough patch, but now – you’re struggling to make those daily or weekly payments. The MCA company is calling, demanding their cut of your future receivables, and threatening serious consequences if you can’t pay up. So, what do you do, if you get hit – with one of these things?Merchant cash advances are not regulated like traditional loans. They are structured as a purchase of future income, which means – the rules are very different. MCA companies have extraordinary powers to collect, including garnishing your wages, freezing your bank accounts, even going after your personal assets if you signed a personal guarantee.It’s a brutal reality that many small business owners face. You thought you were just getting an advance, but now – you‘re trapped in a vicious cycle of debt that could destroy everything you‘ve built.
The Slippery Slope of MCA Contracts
The problem starts with those MCA contracts you blindly agreed to in desperation. They are filled with dense legalese, giving companies wide latitude to take aggressive collection actions if you miss even a single payment.Buried in the fine print, you may have inadvertently:
- Granted a blanket lien on all business assets
- Personally guaranteed repayment, putting your home/savings at risk
- Allowed direct debits from your bank accounts
- Waived rights to dispute charges or withhold payments
- Agreed to pay excessive default fees and legal costs
It’s a minefield designed to strip you of protections and leverage. The MCA company holds all the cards – unless you know how to fight back.
When Exactly Can They Garnish Wages or Bank Accounts?
In short, an MCA company can likely garnish your wages or freeze your bank accounts if:
- You signed a personal guarantee
- You granted them a blanket lien or right to debit accounts
- You are in clear breach of the repayment terms
If those conditions are met, they can pursue garnishment through the courts without delay. The confiscation of funds can happen shockingly fast, crippling your business overnight.Even if you didn’t technically sign a personal guarantee, some MCA contracts may still allow them to go after personal assets by classifying you as a “co-buyer” or using other legal loopholes.It’s a ruthless system stacked against small business owners. But you do have rights and options to fight back – if you act quickly and decisively.
How to Stop Garnishments and Protect Your Assets
The first step? Don’t ignore the problem – that only makes it worse. As soon as you have trouble making payments, you need to take proactive steps:
- Thoroughly review your contract and any personal guarantees you may have signed. Understand exactly what leverage the MCA company has.
- Consult with an experienced MCA attorney immediately. They can advise you on your rights, the company’s obligations, and potential defenses like violations of usury laws.
- Demand a reconciliation of payment amounts if your business revenue has dropped, which most contracts should allow for. Get it in writing.
- If the MCA company refuses to negotiate, be prepared to go on the offensive with your attorney’s guidance:
- File for an emergency injunction to stop garnishments
- Initiate a lawsuit challenging the contract’s legality
- Seek bankruptcy protection for your business
- Negotiate a structured settlement to avoid liquidation
It’s a high-stakes battle, but being proactive and lawyering up gives you a fighting chance to protect your assets and secure a reasonable resolution.
The Hypothetical: What If They Already Garnished You?
Let’s say the worst-case scenario happened: you missed some payments, the MCA company obtained a judgment, and they’ve already started garnishing your wages or emptying your bank accounts.It’s a disastrous situation, no doubt – but not necessarily the end of the road if you act swiftly and decisively with legal counsel:
- Your attorney can file an emergency motion to vacate the judgment and unfreeze accounts based on violations of due process, unconscionable terms, or improper service.
- If the contract itself is potentially usurious or illegal, you may be able to get the entire agreement voided and funds returned.
- Bankruptcy can provide an automatic stay against further collections while negotiating a settlement.
- As a last resort, your lawyer can attempt to negotiate a structured settlement and payment plan within your means.
The key is moving quickly to stop the financial bleeding and assert your rights before it’s too late. Letting an MCA company freely plunder your assets is the path to complete ruin.
When Bankruptcy May Be Your Best Option
For many small businesses crushed by onerous MCA debt, bankruptcy is the only viable path to survival. It halts all collections immediately and can allow an orderly restructuring or liquidation.Both Chapter 7 (liquidation) and Chapter 13 (reorganization) bankruptcies can discharge MCA debts, though the process and requirements differ:
Chapter 7 Bankruptcy
- Allows a full discharge of eligible debts, including MCAs
- Business assets are liquidated to pay creditors
- Personal assets may be exempt depending on state laws
- Best option if business is no longer viable
Chapter 13 Bankruptcy
- Debts are consolidated into a 3-5 year repayment plan
- Business operations can continue
- Some assets may need to be liquidated
- Personal assets are protected during repayment period
The bankruptcy option provides powerful legal protections, but also carries heavy consequences like a negative credit impact. It should only be pursued with guidance from an experienced bankruptcy attorney.Bankruptcy may seem like a last resort, but for many trapped under crushing MCA debt – it represents a fresh start and the best path to financial survival.
The Hypothetical: What If You Didn’t Sign a Personal Guarantee?
Even if you were careful to avoid signing a personal guarantee when taking out an MCA, don’t assume your personal assets are fully shielded.Merchant cash advance companies are notorious for using deceptive language and loopholes to go after business owners’ personal wealth, such as:
- Misclassifying you as a “co-buyer” rather than just the business
- Claiming you violated the “terms of purchase” to void corporate protections
- Alleging fraud or material misrepresentation in the application process
They will look for any tiny crack to pry open and attack your personal assets and savings if the business can’t pay up.That’s why, even without a personal guarantee, you MUST take aggressive legal action at the first sign of missed payments or threatened collections. An MCA attorney can move for an injunction and examine the contract for any violations or illegalities that could get it voided.Don’t simply assume your personal assets are safe based on the paperwork. With MCAs, it’s always wise to be proactive in shoring up your legal defenses.
The Hypothetical: What If Your MCA is Potentially Illegal?
Believe it or not, there are certain circumstances where an MCA agreement could be deemed an illegal loan, rendering it null and void – and that’s your get-out-of-debt-free card.Some factors that could make an MCA illegal:
- The contract uses loan terminology like “interest rates” instead of “factor rates”
- There are no reconciliation provisions if your business revenue drops
- The effective annualized fees exceed your state’s usury limits
- The MCA company failed to properly disclose all terms as required
If your attorney can demonstrate any of those violations, you may be able to void the entire agreement and recoup any funds already paid – a huge win.Of course, actually proving an MCA is illegal requires meticulous examination of the contract language and the MCA company’s practices. It’s an extremely complex legal battle that only skilled attorneys should wage.But if successful, it could instantly relieve you of that MCA debt albatross and let you refocus on your business. An illegal contract is the ultimate “get out of jail free” card.