This is a question many business owners ask when they feel trapped by crippling debt. If you are considering pausing your payments, you might be wondering whether you could face legal ramifications that could threaten your business. Our team at DelanceyStreet.com is here to help you navigate this issue. We are a top tier business debt relief company, based out of NYC, that helps clients nationwide. Below, we’ll walk you through key points about stopping your MCA (merchant cash advance) payments, potential civil and criminal consequences, and strategies we can use to defend you.

Why Do Business Owners Stop Making MCA Payments?
Many times, a merchant cash advance, which was supposed to help with short-term cash flow, ends up putting a huge burden on a business. A merchant cash advance (MCA) is an advance that was provided against your future credit card sales, so each day or week, a portion of your sales goes directly to the MCA provider. If your revenue dips, those deductions can crush your cash flow. Sometimes, you just can’t keep up.

Stopping payments feels like a temporary fix. But you should know there can be serious consequences for choosing not to pay. A missed payment that was skipped can trigger fees, default interest, and possibly legal action. Nevertheless, it’s important you understand your options so you can protect your business.

Is It a Crime to Stop Merchant Cash Advance Payments?
Many business owners worry that they’ll get arrested if they stop making payments. In most cases, failing to pay a merchant cash advance is a civil issue, not a criminal one. A person who was falling behind on MCA payments is typically not sent to jail simply for defaulting. But if there was fraud, there could be criminal allegations.

1. Civil vs. Criminal
   • Civil: Defaulting on an MCA usually leads to lawsuits or judgments.
   • Criminal: Fraud that was committed, like intentionally lying about your company’s finances or forging documents, could result in criminal prosecution.
     If you’d like more details on how fraud is defined, you can visit the Federal Trade Commission’s website for consumer and business education.

Penalties, Fees, and Lawsuits
If you stop making payments, you can expect to face these potential outcomes:

1. Acceleration of the Debt
   An MCA that was once payable in small daily amounts can suddenly be “accelerated,” meaning the entire balance becomes due immediately. That escalation can be devastating for business owners who were already strapped for cash.

2. Court Judgments and Garnishments
   The lender who was expecting daily or weekly payments may file a lawsuit. If you lose, the court might grant the lender a judgment that was designed to let them garnish your bank accounts, place liens on your assets, or seize property.

3. Fees and Default Interest
   Extra fees that were triggered can make your total debt higher than before. This raises the amount you owe and prolongs your hardship. Many MCA contracts add late charges, collection fees, and even legal fees on top of your unpaid balance.

4. Damage to Your Reputation
   Creditors who were not paid may report you to credit bureaus, hurting your personal and business credit. This can impact your ability to get future loans and cause long-term harm to your business relationships.

Crimes and Punishments Related to MCA Defaults
Stopping payments, by itself, is rarely a criminal offense. However, some actions that you might take before or after defaulting could put you at risk:

1. Fraud or Misrepresentation
   A borrower who was lying about monthly revenue, or who created fake financial statements, could face fraud charges under certain federal or state laws. If you are concerned about how your MCA contract was signed or if your financial statements might be questioned, consider talking to an attorney.

2. Check Kiting or Altered Bank Info
   If you wrote checks that were not backed by real funds, or if you changed your business bank information to hide assets, you could be accused of crimes like check kiting. For more information on check fraud, see the U.S. Department of Justice’s website.

3. Possible Criminal Penalties
   Criminal charges that were brought for fraud can result in fines, probation, or even prison time, depending on the seriousness of the charges. That is why it is crucial to ensure all your application documents and financial statements are truthful.

What Are Confessions of Judgment, and Why Do They Matter?
A confession of judgment (COJ) is a legal document that was signed by you, sometimes at the start of the MCA agreement. This document, which grants the lender the ability to quickly obtain a judgment in case of default, can skip the normal court process. If you stop making payments, the MCA provider can file the COJ in court and obtain a judgment without much notice to you.

Consequences of a Judgment That Was Entered

1. Account Freezes: The lender who was granted a judgment can ask the court to freeze your bank accounts.
2. Asset Seizure: Some states allow the lender to seize assets that were used for the business, such as equipment.
3. Credit Damage: A formal judgment that was issued can drastically lower your credit score and remain on your report for years.

Strategies to Defend Against MCA Defaults
You might be wondering, “How can I protect myself if I already stopped making payments, or if I’m close to default?” Our team at DelanceyStreet.com can employ several strategies:

1. Debt Negotiation
   Negotiating a settlement with your MCA provider is one possibility. A settlement that was reached could reduce the total you owe or lengthen your payment schedule, so you don’t go bankrupt.

2. Legal Defense in Court
   If you are sued, our attorneys can raise defenses such as the MCA provider’s failure to comply with lending rules, or question the validity of the confession of judgment that was signed. In some cases, we can argue the contract’s terms were misleading or unconscionable.

3. Potential Business Debt Consolidation
   Sometimes, it’s wise to obtain a debt consolidation loan that was structured to pay off your MCA. A single monthly payment at a lower interest rate could ease your financial strain. The U.S. Small Business Administration website has details on government-backed loans and programs that might help you consolidate or restructure.

4. Invoice Factoring
   If you issue invoices to clients, you can factor those invoices and get immediate cash. That cash can help you catch up on MCA payments or avoid default altogether.

5. Review for Predatory Lending
   Our attorneys look for red flags that were hidden, such as extremely high factor rates or unfair “stacking” practices. If we uncover that the MCA was predatory, we can use that as leverage when negotiating with the lender.

We Can Help You Understand Your Options
DelanceyStreet.com is committed to helping business owners nationwide. We know how complicated and scary it is to fall behind on MCA payments. A business that was desperate for relief can become overwhelmed when constant withdrawals from your bank account make it impossible to pay the bills. Regardless of where you are in the process, we can help you explore every available remedy.

Potential Civil and Criminal Penalties
Here is a quick summary of how penalties and potential crimes could unfold:

• Missed Payments lead to late fees and higher interest.
  • Consequence: More money comes out of your pocket, damaging your cash flow.
• Default triggers legal notices or a lawsuit.
  • Consequence: Court judgments that were granted can include liens, asset seizure, or garnished accounts.
• Fraud Allegations arise if false info was provided.
  • Consequence: Possible criminal prosecution, which might lead to fines or jail.
• Confession of Judgment lets lenders skip the usual process.
  • Consequence: Instant judgments, with minimal warning, causing immediate harm to your credit and bank balances.

Defenses We Rely On

1. Contractual Violations by the Lender: A lender who was violating state regulations might not be able to enforce all terms of the MCA.
2. Unfair or Misleading Terms: Debt settlement laws in some states protect business owners if the MCA contract was deceptive.
3. Payment Plans: Sometimes, a revised payment plan that was designed to be more realistic can keep you in operation.
4. Evidence of Good Faith: If you can show that you were truly unable to meet the daily deductions due to economic hardship, many lenders will work with you.

Practical Steps If You Are Behind

1. Open Communication: Contact the lender first. A lender who was made aware of your trouble might be more flexible in creating a new payment plan.
2. Cut Unnecessary Spending: Show you are prioritizing the MCA. A budget that was trimmed can indicate you’re serious about paying your debts.
3. Gather Documentation: Bank statements, receipts, and business contracts that were compiled can help your attorney negotiate on your behalf.
4. Consult DelanceyStreet.com: We bring professional expertise. Our attorneys know how to talk to MCA providers and fight for your best interests.

Criminal Implications: Rare but Possible
Most MCA defaults stay in the civil realm. However, we have seen lenders contact law enforcement if they find clear fraud. Fraud that was proven can lead to severe punishments, including fines or jail time. For instance, if you took out multiple MCAs using false statements, the lender might claim it was intentional fraud. To avoid that scenario, ensure your disclosures are honest.

Government Resources
If you would like additional guidance on business lending, check out these government agencies:

• Federal Trade Commission (FTC): Offers information about unfair or deceptive business practices.
• Small Business Administration (SBA): Provides resources on managing and refinancing business debt.