When business owners sign a personal guarantee for a merchant cash advance (MCA), they may not realize the potential risks to their personal assets. The lenders can claim that they are personally liable for the MCA debt. In the face of a UCC lien enforcement action, what can borrowers do to protect themselves?
Understanding UCC liens and personal liability
When a lender takes enforcement action on a UCC lien against a business, it can have serious consequences. An enforcement can lead to the repossession of business assets. If a borrower signed a personal guarantee, below are some personal assets that may be at risk:
- Real estate: The lender may try to put a lien on a borrower’s property or even foreclose on it to satisfy the MCA debt. The level of protection for a home depends on a state’s homestead exemption laws.
- Savings and checking accounts: The lender may also try to seize personal bank accounts, including savings and checking accounts.
- Wages: The lender may obtain a court order to garnish the borrower’s wages, seizing a portion of their income to collect on the MCA debt.
- Personal property: The lender may also try to seize other personal property, such as a borrower’s car, jewelry or other valuable assets.
To protect their personal assets, a borrower can challenge the validity of the MCA debt and the enforceability of the personal guarantee. They can do this through dispute, negotiation, mediation or litigation.
Developing a strategy to address the UCC lien enforcement
Navigating a UCC lien enforcement can be a daunting task, especially when business and personal assets are at risk. By seeking legal counsel, a borrower may make informed decisions and protect their interests. In addition, having a legal advocate on their side may help them develop a strategy to move forward with confidence.