8 Restructuring Standards That Decide What a Funder Can Reach (2026)
San Francisco Professional Services Firms

The funding agreement promises a river of future receipts. The law answers with a lien, a judgment, and the exemptions that survive both.

Picture a hypothetical design partnership south of Market with four advances, a blanket filing, and guarantees signed by every principal. That summary opens the analysis. The eight standards below decide what a funder can reach from a firm shaped like that one.

Seizure Requires a Judgment or a Lien

A funder without a judgment and without a lien owns words on paper, since enforcement tools belong to judgments and liens. An unsecured funder sues and waits. A judgment creditor commands the enforcement machinery of the state.

In LG Funding, LLC v United Senior Properties of Olathe, LLC, 181 AD3d 664, a New York appellate court tested substance over labels, weighing reconciliation, a finite term, and bankruptcy recourse, as preserved in the Second Department decision. That ruling remains New York authority rather than a national rule. A reconciliation clause alone decides nothing about enforceability.

The filing perfected the interest. It proved nothing about the balance. Exceptions exist, though the ones that matter arrive with facts this article cannot supply.

Self Help Stays Peaceable

A secured party may take possession of its collateral after default only without breach of the peace. The limitation, if we are being precise, governs retrieval rather than ownership, and it appears in the full text of the repossession provisions of UCC article 9, a New York enactment rather than a California rule.

Most funders recite the limitation without error and examine their agents with less precision. Often we see the limitation honored in training manuals and forgotten in parking lots. Presence is not possession, and no inspected source authorizes a private funder to bar the doors of a practice or to carry equipment out by force.

The Lien Follows Collateral Into Proceeds

Months before any partner considered restructuring, the filed financing statement had fastened on invoices the firm had not yet issued and on the proceeds those invoices would become, which is why the first task is an inventory of filings. You sign the funding agreement and then you learn what the funding agreement means.

Under the New York proceeds statute, a security interest continues in collateral despite disposition unless the secured party authorized a free and clear transfer, and it attaches to identifiable proceeds subject to stated exceptions (a technicality to industry defenders, though it decides which dollars remain reachable). Federal supervisors treat receivables finance as collateral based lending whose soundness turns on quality and concentration, with dilution hollowing both, in the OCC account of receivables and inventory finance. Counsel inventories the filings, measures the descriptions, and constructs a position that covers both the lien maze and payroll.

Satisfaction alone clears nothing on the public record. New York procedure conditions termination on a signed debtor demand and imposes a twenty day duty on the secured party once stated conditions hold. The lien sits on the ledger like frost on glass: thin, transparent, and extremely expensive to remove. Omit the filed termination and the cloud survives the settlement.

The Federal Floor Beneath Earnings

But partner earnings sit above a federal floor. Judicial garnishment of disposable earnings stops at the lesser of twenty five percent or the excess above thirty times the federal minimum wage, under the federal garnishment ceiling. States remain free to shield more. The section governs process issued by courts rather than debits taken by agreement.

Paper promises the funder everything. Procedure decides what the promise is worth. Whether partner draws count as earnings turns on the compensation structure, and the experience behind any general answer here is real though the sample is not scientific.

California Homestead Protection

California protects a dwelling exemption keyed to the countywide median sale price, within a statutory floor and ceiling, under the California homestead section. Judgments for the purchase price stand excepted. Figures adjust over time, so no amount appears here. The shield is extremely partial. It guards the residence rather than the practice, its receivables, or the guarantee.

Pension Benefits and Alienation Limits

Pension plan benefits have federal protection. The plan must bar assignment and alienation, with defined exceptions including qualified domestic relations orders, under the ERISA anti alienation rule. Contract language cannot override that bar.

Individual retirement accounts receive no equivalent federal shelter as a rule, and their protection turns on state law counsel must check. Collection correspondence blurs the two, though no provision I have read treats them as identical. A spring packet from a funder based, if I recall, south of Market blurred them across eleven pages. Most owners call after the levy posts. I understand the delay.

Transfers That Invite Avoidance

Asset movement among related entities draws scrutiny under standards that vary by state. The representative tests ask whether a transfer was made with intent to hinder creditors or without equivalent value while the debtor stood insolvent or became so, under the Washington enactment of the uniform act (other states use different numbering, and New York relief sits in a separate article). A partner moving unbilled time into a new entity on the eve of negotiation should expect the tests to apply in any action brought against the new entity.

Owners should disclose the position and ensure every transfer occurs at documented value. What a creditor records, or omits, still binds the file. Transfers made in order to frustrate collection may return through avoidance at greater cost.

California Disclosure Duties and Complaint Channels

Since 2022, California disclosures have reached merchant advances alongside loans, with funding amount, finance cost, annual percentage rate, and the payment information behind them among the mandated figures. An April 2025 state advisory bars unfair, deceptive, or abusive practices and invites complaints from businesses, described in the DFPI advisory to small businesses. A federal court sustained the disclosures against challenge in December 2023.

Simply bring the agreements before the spreadsheets. Counsel prices the position from the collateral descriptions first.

A complaint does not itself cancel debt or suspend litigation, and the disclosure regime does not convert every advance into a loan. Owners should gather and preserve solicitations, disclosures, and the debit records that show what left the account. Any communication with the funder about what was disclosed, even briefly, can be used against the owner once positions harden. Resist the urge to narrate the complaint by telephone before counsel has read the documents.

Delancey Street is a settlement company, not a law firm, with a free confidential initial review, while independently licensed counsel handles legal questions. Consultation is where this conversation begins. We ensure each agreement is reviewed and analyzed before any position leaves the office. Practices that measure a funder by its remedies rather than its invoices negotiate from a ledger the contract never balanced.