7 Things to Do in the First 48 Hours After an MCA Freezes Your Bank Account

Many MCAs contain confessions of judgment, which authorize the merchant cash advance company to obtain a court order to freeze the company's bank accounts in the event of non-payment. If you have learned that your bank account is frozen, it may not be a mistake.

But bank freezes don't always come from judgments. Some banks will freeze or close a business account on their own initiative, based on a pattern of ACH returns or repeated funder activity in an account. Others freeze based on third party legal process. This article covers the legal process, how to distinguish a restraint from a bank closure, and what to do on day one.

Establish why your account is frozen

On a typical timeline, the business finds out it's frozen before it sees the judgment. Payroll or a vendor payment bounces, the office calls the bank, and the branch tells you "the account is restrained." They don't usually tell you who issued the restraint, or whether it's the first step in a levy - money about to be removed - or a response to an internal fraud alert, which is not a legal action at all. No lawyer can vacate that; call a specialist in de-banked merchant services for it.

Post-judgment restraint usually happens for one of three reasons.

The funder had you sign a confession of judgment at closing

This document authorized the lender to file a judgment if you missed payment. If you're in New York, new rules on COJs make some merchant advances - particularly those involving out-of-state businesses - subject to attack even if you did sign the form.

The funder obtained a judgment after suit

It sued you (the LLC, or just the personal guarantor) after a default, and either the business didn't respond, so the funder filed for a default judgment, or you lost the case. A notice comes with a dollar amount, often higher than you expect, and usually in New York state courts.

A tax or judgment creditor you do not recall

Check whether an old judgment or IRS levy just hit the account. IRS levies require a notice, but a court levy can be quick, especially in states with streamlined post-judgment collections. Older trade debts sometimes resurface. The post office keeps mailing judgments to whatever business address it has on file; sometimes you just moved, never knew, and the judgment was signed and entered three months ago. Online court search can verify this.

Mistakes do happen, too - though funders are less likely to send a restraint in error, because their documents pre-authorize enforcement.

Assemble every contract and bank document

Two documents form the basis of most settlement negotiations after a freeze. The advance agreement outlines the purported obligations and how the daily payment terms are structured. The guaranty or COJ forms the other. Be prepared for reconciliation challenges, particularly if the COJ amount and the claimed default differ, or if you need to invoke New York's specific usury law exemptions to challenge the underlying rate.

Ask the bank for whatever paperwork is connected to the freeze, and specifically request any legal process documents - subpoenas, court orders. Do not assume your local branch will proactively tell you which party placed the hold or why. Sometimes it takes follow-up to the compliance department or main office.

The purpose is not just to have documentation but to compare dates. What did the contract call for on daily debits, what payments have you made, what's the true-up or reconciliation if any, and what paperwork does the funder rely on when demanding the higher number on the notice.

Deal with payroll and cash flow before calling the funder

Ensure payroll gets made promptly, using either an unrestrained account or another lawful method. Moving money after receiving notice of a freeze may result in a contempt citation or fraudulent conveyance claim - coordinate with counsel on how to manage vendor payments and accounts.

Never deposit fresh receivables into the restrained account. Funds sent in after the date of the notice often aren't claimable by the funder unless a subsequent court order grants an extended period to collect later deposits. Route transactions to authorized accounts, coordinating with the parties sending the money. If a check bounces because of a freeze, tell employees about the problem before the checks bounce rather than after. Handle tax accounts separately from vendor payments.

If you cannot service multiple daily advances and face additional ACH returns from stacked funders, triage immediately. Inform funders you will pause further payments, preferably in writing, prior to default - not after a bounced debit triggers a pile-on. You don't want three new judgments joining a single restraint, each with additional default penalties and legal fees.

What a lawyer can (and cannot) do about the judgment

A post-judgment restraint gives the funder an edge, but it is not a guaranteed outcome. It is possible to file a motion to vacate the judgment - particularly useful if the funder's amount is inconsistent with contractual or reconciliation provisions, if the judgment was entered improperly under state law, or if you can establish a factual dispute regarding the contract.

Counsel must act within the appropriate state law time limits. Courts view compliance with prior notices favorably; failing to respond to an original notice weakens the argument for lifting a freeze that has now caused hardship.

Communicate with the funder appropriately

By the end of day two, a company's response to a freeze usually fits one of two categories: preparation or reaction. Some owners have a plan, an attorney on call, all documents ready. Others hope the freeze will pass. Hope is not a strategy. While the account remains restrained, additional funders may move, other defaults can compound, and payments to vendors start to bounce.

Write to the funder rather than calling, after securing your records. Emails are easier to document than calls and give counsel a starting point if legal action is necessary. Demonstrate good faith while being mindful that it's not an admission, not a demand for an amount you can't pay, and not a blank check authorizing collection of an unsubstantiated default claim.

Many MCAs are very tough to negotiate, and the funder's only play is often "take our deal or go to court." But courts sometimes don't accept their defaults at face value. Courts can, and do, apply fact-based arguments for contested defaults or lower the daily rate if a true-up was demanded and refused or the stated amount doesn't match the contract. Documentation is key. Consult counsel before you say yes to an immediate settlement if a longer negotiation could result in a lower number - especially if your payment comes with a new contract or affidavit.

Don't give in to fear

Fear drives panic. Many owners facing frozen accounts immediately go into crisis mode, shifting money between accounts and engaging with vendors before consulting counsel. Every third party who contacts the funder might receive conflicting messages about who is authorized to negotiate. Don't do that. Get everything in writing, keep records clean, avoid excess communications. Merchant cash advance enforcement is high stakes, but legal strategies exist.