How Can Representatives Determine if MCA Loans Are Enforceable Against a Probate Estate in North Carolina?

Detailed Answer

Merchant Cash Advance (MCA) agreements provide businesses with up-front funds in exchange for a share of future receivables or a fixed repayment schedule. Unlike traditional loans, MCAs often use daily or weekly remittances from credit card sales or bank deposits. When a business owner who enters into an MCA agreement dies or a probate estate becomes responsible, personal representatives must carefully analyze whether the estate bears liability under the contract and any related personal guarantees.

1. Review the MCA Agreement and Guarantee

Locate the original MCA contract and any separate guaranty documents. Key elements include:

Definitions of “default” or “breach,” such as missed payments or failure to maintain required accounts.
Business events triggering a guarantee, like dissolution, sale of assets, or change in ownership.
Acceleration clauses demanding full repayment upon default or death.

2. Identify Triggering Events

Contracts typically specify events that activate personal guarantees. Common triggers include:

Nonpayment of scheduled remittances.
Business closure or dissolution without lender approval.
Unauthorized transfer of receivables or assets.

If the decedent personally guaranteed the advance, the estate may owe the remaining balance once a trigger occurs.

3. Evaluate Contract Terms for Predatory or Unconscionable Provisions

North Carolina’s Uniform Commercial Code addresses unconscionability. Under N.C.G.S. § 25-1-302, a court may refuse to enforce contract terms that are unjust or grossly one-sided at the time of making. Watch for:

Excessive factor rates far above typical commercial lending costs.
Perpetual rollovers without a clear end date.
Daily withdrawals that exceed actual receivables.

4. Challenge Fraudulent Transfers

If the decedent transferred business assets to shield them from creditors, personal representatives can seek to void those transfers under the Uniform Fraudulent Transfer Act:

N.C.G.S. § 39-23 defines transfers made to hinder, delay, or defraud creditors.
A court can recover assets or receivables back into the estate.

5. Seek Judicial Guidance and Protect the Estate

When uncertainty exists about enforceability, file a declaratory judgment action in probate or superior court. A judge can interpret contract language and decide if the estate owes the advance. Prompt action prevents estate assets from being improperly drained and ensures fair treatment of all creditors under N.C.G.S. § 28A-15-1.

Key Steps for Representatives

Locate and review all MCA and guarantee documents.
Identify contract provisions defining default and guarantee triggers.
Assess whether terms violate N.C.G.S. § 25-1-302 on unconscionability.
Investigate potential fraudulent transfers under N.C.G.S. § 39-23.
Consider a declaratory judgment action to clarify estate liability.
Consult experienced probate counsel to safeguard estate assets and uphold creditor rights.

Contact Pierce Law Group

If you administer an estate facing MCA liabilities, act quickly to review contracts and protect estate assets. Pierce Law Group has experienced attorneys in probate administration ready to guide you. Email us at intake@piercelaw.com or call (919) 341-7055 to schedule a consultation.