Can Merchant Cash Advance Debt Be Discharged in Bankruptcy?
Bankruptcy may allow you to discharge merchant cash advance debt, but the answer depends on the funding agreement, who is responsible for repayment, and which bankruptcy chapter applies. At Weintraub Zolkin Talerico & Liu LLP, our Los Angeles bankruptcy lawyers work with businesses and individuals facing creditor pressure, including disputes over financing agreements and personally guaranteed obligations. Understanding how your MCA is legally structured is the first step toward assessing debt relief.
What Is a Merchant Cash Advance?
An MCA provides a business with money upfront in return for a portion of future credit card sales or other revenue. Instead of regular loan installments, the provider commonly withdraws funds daily or weekly from the business bank account.
Although MCA companies may call these transactions “purchases of future receivables,” labels do not settle their legal treatment. Some agreements are genuine sales; others operate like loans.
Can You Discharge Merchant Cash Advance Debt?
If an MCA is legally considered a loan, its unpaid balance may be treated as a bankruptcy claim. An unsecured claim, one not backed by enforceable collateral rights, may be discharged if the debtor qualifies for debt relief. However, a secured MCA provider may retain rights to collateral even if the debtor’s personal liability is discharged.
If the agreement is structured as a true sale of receivables, the provider can claim ownership of purchased revenue rather than simply holding debt. Because bankruptcy does not automatically undo that ownership, courts will examine who bears the risk when sales decline, whether payment amounts can be adjusted, and what happens if the business closes.
This distinction may determine whether revenues belong to the bankruptcy estate and how much control a provider retains.
How Bankruptcy Helps With Merchant Cash Advance Debt
Chapter 7 bankruptcy allows for the liquidation of a business’s assets to pay creditors. However, corporations and LLCs do not receive a Chapter 7 discharge. Only eligible individuals or sole proprietors can discharge qualifying MCA obligations through personal Chapter 7 bankruptcy.
Chapter 11 may allow an operating company to reorganize debts under a court-approved plan and, when legally permitted, discharge qualifying obligations. Some smaller businesses may qualify for Subchapter V, a streamlined Chapter 11 process. This approach may help address burdensome advances without immediately closing the business.
A personal guarantee makes an owner potentially liable if the business does not meet its contractual obligations. Filing bankruptcy for an LLC or corporation generally does not eliminate a separate guarantee signed by the owner. Likewise, the automatic stay, which usually halts collection after filing, generally protects the filing debtor, not a non-filing guarantor.
Speak With a Lawyer About Discharging MCA
Bankruptcy does not erase every MCA obligation, but it can provide a viable path to financial relief. At Weintraub Zolkin Talerico & Liu LLP, our bankruptcy lawyers in Los Angeles can evaluate your MCA debt and help determine how bankruptcy can assist you. Call us at (310) 207-1494 or request a consultation with one of our bankruptcy lawyers to discuss your options.