How MCA Funders Reach Money Held by Third Parties
Turnover Proceedings

A judgment creditor with an unpaid MCA award holds a right against the named debtor, and no automatic claim upon money in the hands of anyone else.

The bank that froze the operating account, the processor holding a reserve, the customer sitting on an unpaid invoice: each holder answers a question the judgment never decided. Counsel begins with the turnover papers rather than the collection history, because the papers name the property, name the holder, and state the showing the creditor must still carry.

A Judgment Is Not a Transfer Order

The judgment is final. It settles almost nothing about the funds.

Two tracks divide the work. Where the debtor holds the property, the creditor proceeds by motion on notice. Where another person holds it, or received it as a transferee, the creditor commences a special proceeding and carries the heavier burden. This is where most collection budgets collapse.

The proceeding targets, if we are being precise, the property rather than the person, though the papers name both. Counsel gathers and reviews the file to learn which track the creditor chose before advising on anything else. Often the track assignment decides the outcome before the merits are reached.

Property in the Possession of the Debtor

Long after the advance funded, the dispute narrows to a single account and the question of who controls it. Under the turnover procedure for property in debtor hands, the court orders payment of money sufficient to satisfy the judgment, with delivery of other personal property to a designated sheriff where money falls short.

The court may also order any person to execute the documents necessary to effect payment or delivery. A signature compelled by that order carries the authority the demand letter lacked.

A debtor who treats the motion as another collection letter invites the result the letter held out as a threat. The response timetable belongs to the court papers. Negotiation with the funder does not extend it.

The frozen account draws daily attention the way a boarded storefront draws eyes. Nobody enters and everybody calculates, which explains why holders act before debtors instruct them.

The ledger the debtor kept during the advance matters less than the accounting the creditor now demands. The sheriff named in the order receives the property, and no other payee satisfies it.

Money in the Hands of Another Person

Where a third party holds the funds, the creditor commences a special proceeding against the holder or transferee and must show the debtor entitled to possession or rights superior to those of the transferee. A statement that the judgment remains unpaid carries no weight on its own. The creditor frames the holder as a mere custodian in order to collapse the ownership question into the collection question, and the holder record either supports that frame or defeats it.

Most holders release funds at the first letter, and funders count on that peculiar reflex. A bank holds setoff rights of its own. A processor holds reserve rights under its agreement, which in most cases controls the reserve question. A customer owes its own defenses on the invoice. The debtor cannot waive those positions by instruction, and counsel should not promise their surrender for the sake of appearing cooperative.

Retain the reserve agreement, the invoice file, and the transfer records showing the consideration that changed hands. Ownership argued from memory loses to ownership shown on paper, and paper assembled after the freeze reads as preparation rather than record, and extremely few holders understand the distinction in time.

Resist the urge to direct the holder to release or relocate the funds while process stands. Any communication with the holder, even briefly, can alter the posture of the case. Simply state that all questions must go to the attorney, and place every instruction through counsel.

The negotiation budget must separate accessible cash from contested funds. A proposal that pledges the same dollars the proceeding pursues pledges what the debtor cannot deliver, and the resulting default poisons the next proposal with the same creditor.

The holder keeps records the debtor never sees. Ask counsel to obtain them.

Notice and the Rights of Other Claimants

Notice of the special proceeding reaches the debtor in the manner of a summons or by registered or certified mail with return receipt requested, and the court may permit the debtor to intervene. An adverse claimant may intervene as well, with rights determined under the referenced procedure. Most debtors retain counsel after the freeze. I understand the delay.

Whether the holder asserted an interest of its own or yielded from caution is a question the papers may never answer.

Costs of the proceeding run against no holder that raised no dispute over the interest or the right to possession. Independent counsel ensures the response addresses the correct holder with the correct records. I have yet to see a holder improve its position by improvising a response to process, though many attempt one before calling counsel. Whether local practice adds requirements beyond the text is a question I cannot answer from this desk.

File every notice with its envelope and date of receipt.

Settlement Review While a Proceeding Pends

Delancey Street can review the MCA obligation through its merchant cash advance settlement service, which offers a free, confidential initial review. Disclose the turnover proceeding and identify the funds it concerns.

The company is a debt settlement provider, not a law firm. Independently licensed counsel handles legal representation and should address the proceeding, the ownership dispute, or any request for relief. Delancey Street ensures the negotiation record stays complete while counsel reviews and tests the ownership claims, because settlement on an extremely short timetable still requires knowing which dollars stand free before promising any of them.

The proceeding ends where it began, with an accounting. The ledger the creditor demanded at the start becomes the ledger both sides sign at the close, and the holder at last learns whose money it held.