Chiropractic and Physical Therapy Practices: 6 Questions About MCA Debt and Insurance Receivables

If you provide physical therapy, chiropractic or other healthcare treatment, and you’ve taken out a merchant cash advance, then the question that keeps you up at night is usually simple: can the funder take away my insurance payments? If it’s a Medicare patient or payment, the answer is generally no. With Medicare as the primary insurer, Medicare won’t pay the power of attorney or any other third party, absent a court order requiring a reassignment. So the funder - or merchant advance lender - will not have the ability to compel Medicare. Private insurers are not obligated to make payments to third parties, such as funders. The lien can attach to the claim. The takeaway is that the funder will not be able to compel any insurer to make payments to him first. The funds will land in your bank account, and there the funder will use his collection tools and tricks to secure payment.

The other question that everyone wants to know is how much will the funder settle for? That’s a complicated question. This answer depends on a few variables. Are you in default? Have they already filed suit? How much can you realistically afford? These are all good questions that will affect the ultimate settlement amount. There’s no one answer for all MCA cases.

Loan or Not

Classifying a merchant cash advance is tricky. Technically, it’s a sale of future receivables. The fact is that the courts don’t look at it that way. At least, not always. Normally, it is the facts and circumstances of each individual case that determine whether an MCA transaction is a loan or not. New York courts usually weigh three factors in determining whether the funding contract is a loan or not.

• Is there a reconciliation provision?
• Is the term finite?
• Does the funder have recourse if the merchant goes bankrupt?

In Crystal Springs Capital v. Big Thicket Coin, the 2d Department Appellate Division in New York reviewed the fact pattern. The advance called for a fixed $4,000 daily debit amount. The debits were not keyed to any calculations of sales. The court found the arrangement to be criminally usurious, and dismissed the funder’s claim.

Default Under the Financing Agreement

Some debt relief programs tell people to stop paying off merchant cash advances. Others instruct clients to block ACH debits. Many MCA agreements treat that conduct as a default under the financing agreement. The funder may then demand the full balance, add fees, notify payment processors, pursue the guarantor, sue or take other actions. The bottom line here is that you should not make a business decision like this without reviewing your agreements with an attorney.

Before enrolling in any debt relief program, ask who will negotiate on your behalf and who will defend you if the creditor sues. Make sure you get an estimate of all fees and services covered before enrolling in a program.

While scary, keep in mind that a filed suit is still an opportunity to work out a settlement with the funder. If you start talking with the funder or settlement company, keep in mind that these negotiations do not postpone the deadline for responding to the court. Also, keep the summons, and any other paperwork you got, along with notes on when and how the service took place. Get the documents reviewed by a lawyer right away.

A confession of judgment needs to be reviewed carefully. A funder in New York can file a confession of judgment against you at any time within three years of your signing the affidavit. In New York, that can be done only in the county where the business lived at the time of signing or lives at the time of filing. A business lives wherever it has a place of business. Since the 2019 amendment, a confession of judgment for money can generally be used in New York only if the business lives or has a place of business in a New York county, so most out-of-state practices are protected.

When It’s Time to Settle

The settlement agreement needs to be carefully reviewed. Say whether the balance is to be paid in lump sum, weekly or monthly payments. What happens if the funder keeps ACHing debits? Make sure to get something in writing that the debits end and the date they end. Every payment should be confirmed. The release document should name the business and the guarantors. The final agreement should name who files the lawsuit dismissal, the UCC termination, and the date that the documents will be filed. Keep documentation of every payment.

Did you get more than one advance? If so, keep in mind that each funder has its own claim and generally will require its own agreement. Also, settling with one funder does not resolve the claim of any other funding company. Make sure your business can handle the entire schedule. It might be smart to bring in a lawyer who can look at all of the claims at one time, to make sure that there’s a schedule that works for your business and the funders.

Note that debt that you settle for less than the face value is usually taxable as income, but canceled debt in a bankruptcy case is not. Ask a professional who knows how the tax rules work before signing a settlement agreement. If you are weighing bankruptcy, since April 1, 2025, if your countable debt is $3,424,000 or less, you can pick the “subchapter V” small business Chapter 11, though the Senate has passed a bill that would raise it to $7.5 million, not yet sent to the President.

Before doing anything else, put together one file. You’ll need it for the attorney, and anyone else helping you. Gather up the originals or copies of every MCA agreement, every guaranty, every default letter, notice to confess judgment, and bank statements. Get copies of any recorded UCCs. Any court documents. Any letters or emails showing the balance claimed. Any contracts with debt relief providers.