Can Merchant Cash Advance Debt Be Restructured in Bankruptcy?
Merchant cash advance obligations may be addressed in Chapter 11 or Subchapter V, but their treatment depends on the agreement’s substance, applicable law, collateral, payment mechanics, and whether the transaction is characterized as a true receivables purchase or a loan.
Why Characterization Matters
An agreement labeled a purchase may still be disputed as a financing transaction depending on its terms and governing law. Courts may examine reconciliation rights, recourse, collection risk, fixed repayment features, and control over receivables.
The Automatic Stay and Daily Withdrawals
A bankruptcy filing generally stays collection of prepetition claims against the debtor. Daily ACH withdrawals, lockbox arrangements, UCC liens, and account control should be reviewed promptly so that cash-collateral and unauthorized-transfer issues can be addressed.
Treatment Through a Plan
A plan may propose treatment based on the allowed amount, priority, collateral value, and claim classification. A secured claimant may seek adequate protection, relief from stay, or other remedies. Feasibility requires the business to show it can operate under the proposed payment structure.
Pre-Filing Records to Gather
The business should preserve the agreement, payment history, bank statements, reconciliation requests, funding communications, UCC filings, broker communications, and receivables data. Multiple advances may create additional lien and cash-flow disputes.
Frequently Asked Questions
Does bankruptcy automatically void an MCA agreement?
No. Bankruptcy affects enforcement and claim treatment but does not automatically determine characterization or eliminate valid rights.
Can daily withdrawals continue after filing?
Collection of prepetition obligations is generally stayed, but counsel should act quickly regarding payment processors, banks, cash collateral, and any post-filing transfers.
Related Bickham Law Resources
Learn more about Chapter 11 bankruptcy, business reorganization, Subchapter V, and continued business operations.
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This article provides general information and is not legal advice. Outcomes depend on current law and the facts of each case.