Every day the debits run, the funder collects. Every day after you have decided to stop them is a day the account deteriorates further. The question is not whether to act, but in what sequence.
Step One: Document the Debit History
Before taking any action to stop debits, the attorney and merchant compile a complete record of every withdrawal since the agreement began. Date, amount, and the balance in the account at the time of each debit. This record has two uses: it establishes whether the funder honored the reconciliation provision, and it establishes whether any debits were taken in amounts inconsistent with the agreement’s stated terms.
A debit history that shows fixed daily withdrawals regardless of deposit activity is not merely evidence of financial strain. It is evidence that the reconciliation clause was never operative, which goes to the core of the funder’s defense against loan characterization.
Step Two: Send a Reconciliation Demand
The reconciliation clause is the cleanest legal mechanism for reducing or pausing debits without triggering a default. The demand must be in writing, must reference the contract provision by section, must document the revenue decline with bank statements or processor reports, and must request a specific adjusted payment amount. A vague request for relief is not a reconciliation demand. It is an informal complaint, and funders treat it accordingly.
The funder’s response or non-response to a properly documented reconciliation demand becomes part of the legal record. A funder who ignores the demand while continuing to withdraw fixed amounts has provided the attorney with a factual basis for several claims, including breach of contract and, in appropriate circumstances, the kind of conduct that leads courts to recharacterize the transaction as a loan.
Step Three: Issue a Bank-Level ACH Revocation
Federal law permits account holders to revoke ACH authorizations. The revocation must be in writing, must identify the specific originating entity and account number, and must be delivered to the bank with sufficient lead time for the bank to act before the next scheduled debit. Most banks require at least three business days.
This step carries consequences. The MCA contract likely defines revocation of ACH authorization as an event of default, and the funder may respond by accelerating the entire remaining balance. The revocation is not a neutral act. It is a tactical one, and it should be taken only after the attorney has assessed what the funder’s likely response will be and whether the business is prepared for that response.
Step Four: Negotiate a Standstill
Concurrent with or immediately following the revocation, the attorney contacts the funder’s legal department and proposes a standstill: an agreement to hold all collection actions while the parties negotiate a resolution. The standstill is more achievable when the funder understands that the alternative is a contested proceeding with a credible reconciliation defense and, potentially, a usury counterclaim.
The standstill request is delivered in writing and proposes a specific duration, typically two to four weeks, with an extension option if negotiations are progressing. A standstill without a defined endpoint is not a standstill. It is a suspension that the funder can terminate unilaterally at any time.
Step Five: Seek Emergency Relief If a COJ Has Been Filed
If the funder has already obtained a confession of judgment and filed it with the court, the timeline accelerates. The attorney files an emergency motion to vacate the COJ and seeks a temporary restraining order preventing the funder from enforcing the judgment while the motion is pending. New York courts have been receptive to vacatur motions where the underlying MCA contained a defective or unconscionable COJ clause, and where the funder’s conduct included failure to honor reconciliation provisions.
A COJ filed in Rockland County on a Thursday morning can produce a bank levy by Friday afternoon. The response window is measured in hours, not weeks.
Step Six: Consider the Business Account Structure
In some circumstances, the attorney and merchant discuss whether the current bank account should remain the primary operating account for the business. If the funder’s ACH authorization is attached to an account that receives daily revenue deposits, the exposure continues until the account relationship changes. Opening a separate operating account while the dispute is pending is not fraud or concealment. It is a standard business decision. The attorney advises on the specific circumstances before any account changes are made.
Step Seven: Evaluate the Bankruptcy Option
The filing of a bankruptcy petition produces an automatic stay that immediately halts all collection activity, including ACH debits. This is not the right tool for every situation, but in cases where multiple funders are withdrawing simultaneously and the business has no realistic path to solvency under the current payment structure, the automatic stay provides a controlled environment for restructuring. The attorney evaluates the bankruptcy option alongside the negotiated options and presents both, with an honest assessment of what each produces.
A call with Spodek Law Group is the starting point. Understanding the sequence of available actions, and which ones fit your specific agreement and financial condition, changes what happens next.
