In an earlier post FactorLaw discussed Merchant Cash Advances, which is a form of financing that appears to be marketed to certain types of small businesses, according to an article dated November 20, 2018 published in Businessweek (the "BW Article"). The BW Article offers what we believe is an in depth treatment of how Merchant Cash Advances work and how they can be abused to the detriment of small businesses.
The major premise of the BW Article is best summarized by the following lead-in: "How an obscure legal document turned New York’s court system into a debt-collection machine that’s chewing up small businesses across America?" That "obscure legal document" is, of course, the confession of judgment that often accompanies the documentation for a Merchant Cash Advance. According to the BW Article, "some lenders have abused this power." The BW Article also indicates the authors conducted "dozens of interviews" and reviewed "court pleadings" and based upon those sources the BW Article reports that "borrowers describe lenders who’ve forged documents, lied about how much they were owed, or fabricated defaults out of thin air." The BW Article further reports that: "Cash-advance companies have secured more than 25,000 judgments in New York since 2012, mostly in the past two years, according to data on more than 350 lenders compiled by Bloomberg Businessweek." The authors of the BW Article opine that "New York’s courts are especially friendly to confessions and will accept them from anywhere, so lenders require customers to sign documents allowing them to file there. That’s turned the state into the industry’s collections department."
FactorLaw continues to handle cases for companies or individuals that are dealing with Merchant Cash Advances and continues to believe that a bankruptcy filing sometimes is a viable option for dealing with a Merchant Cash Advance. The automatic stay generally stops all collection actions, and in a chapter 11 case individuals and businesses sometimes are able to restructure debt obligations, including secured debt or debt arising from a confession of judgment. Chapter 13 also is available to individuals and, like chapter 11, generally allows individuals to retain property while they are working to repay debt over time.
If you would like more information regarding bankruptcy filings and would like to speak to one of our experienced attorneys, please call (312) 878-6976 or fill out a contact form here.