Defendants lose MCA cases in two ways: by default, and by response. The default losses are obvious. The response losses are the ones that deserve attention, because they happen when business owners engage the lawsuit with the wrong approach and inadvertently forfeit the defenses that would have mattered most.
Seven mistakes appear with enough regularity to be worth naming directly.
Filing a Late Answer
Late means after the deadline. Under New York’s CPLR, the window is twenty days from personal service or thirty days from other methods of service. Courts can extend that deadline for good cause, but the motion for extension must itself be filed before or promptly after the deadline passes. An answer filed weeks late, with no extension motion, typically gives the court no basis to relieve you of the default.
And default is not a procedural inconvenience. A default judgment in an MCA case gives the funder immediate enforcement authority over your business accounts, your receivables, and your personal assets if a personal guarantee exists. The entire body of case law that has developed around usury defenses and recharacterization becomes unavailable at the moment the default enters.
Contacting the Funder Before Retaining Counsel
The call seems reasonable. You want to explain what happened to your revenue, ask for a payment plan, and make the lawsuit go away. What the call actually produces is a set of admissions that the debt is valid, that you owe the amount claimed, and sometimes an informal agreement that waives your right to raise the defenses available under the current state of the law.
Funders employ collectors and attorneys who have had this conversation with hundreds of defendants. The conversation is not neutral. Wait until you have counsel.
Signing a Forbearance Agreement Without Legal Review
When a funder sends a forbearance agreement shortly after filing suit, it is because the funder wants to lock in the debt’s validity before you discover that the agreement might be recharacterizable as a usurious loan. The forbearance almost always includes a release, an acknowledgment of the amount owed, and a new personal guarantee.
In Crystal Springs Capital, Inc. v. Big Thicket Coin, LLC, the court found the underlying agreement void as criminally usurious. A forbearance signed before that analysis was performed would have eliminated any benefit from that ruling in your own case.
Filing an Answer Without Affirmative Defenses
A bare denial — “defendant denies the allegations of the complaint” — preserves nothing. Under civil procedure rules, affirmative defenses must be specifically pleaded in the answer or they are waived. Usury, unconscionability, breach of the reconciliation provision, fraudulent inducement, and accord and satisfaction are all affirmative defenses that must appear as separate paragraphs in your answer to remain available at trial or during settlement discussions.
The answer is the first and sometimes only opportunity to put the funder on notice of what it is actually litigating. A bare denial tells them nothing costs them nothing.
Overlooking Counterclaims
If the funder charged fees not disclosed in the agreement, debited your account in amounts not authorized by the contract, or made material misrepresentations during the application process, those facts support counterclaims. Counterclaims change the negotiating posture of the case in ways that defenses alone do not. A defendant who has filed a counterclaim is a party who might win money, not just avoid losing it. That is a different kind of leverage.
Ignoring the Personal Guarantee Exposure
Business owners sometimes focus on the corporate liability and fail to fully assess that the personal guarantee means their personal assets are at risk. Defending the corporate entity while ignoring the personal guarantee claim produces a partial result. Both claims need to be addressed in the answer, and both need to be analyzed for defenses specific to each theory of liability.
Treating Settlement as a Last Resort
The mistake is not settling. The mistake is settling from a position of maximum weakness, either before the answer is filed, before defenses are preserved, or before the funder has had to assess its own litigation exposure. A settlement reached after a well-pleaded answer, a usury defense, and a counterclaim is a fundamentally different negotiation than a settlement reached the week after the summons arrives.
Every favorable settlement in this category of cases was preceded by some version of the same sequence: the defendant engaged, preserved defenses, forced the funder to evaluate its position, and then negotiated. The sequence matters as much as the outcome.
A first conversation about your agreement and your options costs nothing.
