Louisiana Businesses Tracing an MCA Account Restraint

A freeze is information, not just a problem

When a Louisiana business discovers its account has stopped working, the first instinct is to treat it as an obstacle to be cleared. It is also a piece of evidence, and read properly it narrows the situation considerably.

A restraint is an enforcement step. Enforcement presupposes a judgment. So the freeze is telling you, without saying so, that something has already been entered against the business or against you — and the useful work is finding out what, where, and how.

The instrument on the bank

CPLR § 5222 allows a restraining notice to be issued by the clerk of the court or by the judgment creditor's attorney as an officer of the court, and served on any person holding property in which the judgment debtor has an interest.

That is why nobody called first. The notice is served on the holder of the property, not on the debtor, and a bank receiving one has no discretion to decline it. Arguing with the branch is time spent on the only party in the chain with no authority.

Three ways the judgment got there

Practically speaking, a merchant cash advance judgment arrives by one of three routes. Identifying which one is the single most valuable thing to establish, because the options are different for each.

1. A case that was defended and lost

Least common in this area, and the hardest to disturb. There was a complaint, an appearance, a contest, and an adverse result.

2. A default

A complaint was filed and served, nobody appeared, and the plaintiff applied for judgment. Under CPLR § 3215, where a defendant has failed to appear or plead and the claim is for a sum certain, application may be made to the clerk within one year of the default, and judgment is entered on the requisite proof.

If this is the route, the questions become how service was effected and whether the default is excusable.

3. No lawsuit at all

A judgment entered on a confession. CPLR § 3218 permits a judgment by confession without an action, on an affidavit executed by the defendant stating the sum, authorising entry, stating the county where the defendant resides, and setting out concisely the facts showing the sum is justly due. Subdivision (b) permits filing only with the clerk of the county where the affidavit said the defendant resided when it was executed, or where the defendant resided at the time of filing.

If this is the route, the affidavit and the county of filing are where the examination starts.

How to find out which

Ask the bank, in writing, for three things: the judgment creditor's name, the county, and the index number. With those, the court file can be pulled, and the docket answers the question directly — whether a complaint was ever filed, whether anyone appeared, and whether the judgment followed an application or an affidavit of confession.

Everything after that is informed. Everything before it is guesswork.

What not to do while you find out

Do not move money between accounts, and do not open a new account and redirect receipts into it. It is the most common reaction to a freeze and it converts a collection problem into a conduct problem, which is a worse category to be in.

What to do first, from Louisiana

1. Email the bank and ask for the creditor, county and index number in writing.
2. Find your copy of the advance agreement, including any affidavit or page headed confession of judgment.
3. Work out which of the three routes applies before forming a view about remedies.
4. Leave the banking arrangements alone until someone has read the judgment.

A restrained account covers the mechanism, a confession of judgment covers the third route in detail, and how an MCA lawsuit is defended covers the first two.