Get Out of Business Debt Fast: 5 Decisions That Preserve Your Options

When bankruptcy is in the air, you may be desperate to pay whatever it takes to make your creditors back off. Unfortunately, decisions made under pressure end up making things harder down the road. You have more options than you think. But not all ways out work the same way, and time may be limited. Five decisions keep your options open:

• Don’t count a funder’s judgment as final.
• Don’t judge an MCA by its label.
• Do treat payroll taxes carefully.
• Do talk to the government early.
• Do choose the right kind of bankruptcy.

None work for you if you decide you’ve already failed.

With an MCA, you get a lump sum at the start and pay the funder with a share of future sales. The funder usually pulls a fixed amount from your bank account daily or weekly. The price can be far higher than a loan. And when your sales fall behind, the funder often moves fast: a lawsuit, a judgment, or maybe a confession of judgment you signed at the start. You may think a judgment means the fight’s over.

Consider the June 2026 decision in Black Pearl Vision, LLC v. G & G Funding Group, LLC. Black Pearl, a manufacturer, sold “future receivables”. In about six months, it had paid more than $233,000 on about $192,000. The funder sued in New York and won a default judgment. Black Pearl filed Chapter 11.

Black Pearl then asked the bankruptcy court to “unwind” payments as constructively fraudulent transfers. Section 548 lets a company “claw back” money paid when insolvent, without reasonably equivalent value in return. The funder argued the state judgment had already settled everything. The judge disagreed: the power to unwind transfers in bankruptcy only exists once a bankruptcy is actually filed. If you get hit with a judgment, it’s not necessarily the last word.

The funder won a narrow point. The corporate borrower couldn’t use New York criminal usury law to void the deal. However, the court wouldn’t let the default judgment decide if the deal was a sale of receivables or a very expensive loan.

Calling an MCA a purchase of future receivables doesn’t make it a sale. Judges don’t care as much about how a funder labels a deal; they look at how it actually functions in reality. Determining the true “economic reality” of a MCA is very fact-heavy. It isn’t usually decided at the earliest stage of a case.

In Black Pearl, the borrower was a corporation. Owners who’ve signed personal guarantees may stand differently. The bankruptcy freeze applies to suits against the business that filed, not necessarily the owners.

Payroll taxes are different. Suppose you collected payroll taxes and withheld them for the government. You then used those taxes for business expenses and didn’t pay them over to the government. If it can be proven you did it willfully, you can be personally liable for a penalty equal to the full unpaid tax amount.

If you have a COVID Economic Injury Disaster Loan (EIDL), you may be in limbo with a program meant to help. The SBA hardship accommodation cuts your monthly payment in half for six months. It may feel like relief, but interest still builds. Your balloon payment grows. Be 120 days delinquent and your debt may end up in the Treasury Offset Program. You can use a SBA 7(a) loan to refinance current business debt, up to $5 million. The IRS’s online short-term plan (180 days or less) only works for individuals, including sole proprietors.

If you settle with a creditor and they forgive any debt, that forgiven amount is generally taxable income. However, there is an exception up to the amount by which liabilities exceeded fair market value of all assets just before the cancellation. Your creditor usually reports debt of $600 or more on Form 1099-C.

The bankruptcy path depends on the type of business. A corporation, LLC or partnership can’t use Chapter 7 and get a discharge at the end; only individuals can do that. They can use a streamlined Chapter 11, usually called Subchapter V. It’s designed for smaller companies and is usually quicker and cheaper. It lets you stay in control, and you can challenge MCAs. If that’s an option, it’s often a good one. The Chapter 11 filing fee is currently $1,738.

The Subchapter V debt limit is $3,424,000. A bill to raise it to $7.5 million passed Congress as of September 30, 2026, but hadn’t become law. It wouldn’t be retroactive, but only apply to cases filed after it becomes law. Be sure you check for the most current figure.

In Subchapter V, only you may file a plan, and it’s due within 90 days of your case starting. Extensions are only allowed if the delay isn’t your fault. The court can confirm a plan over objecting creditors if it’s fair and equitable, and commits your projected disposable income for 3 years (up to 5 if the court sets longer), as long as payments are feasible.

The MCA that seemed the only answer and the judgment that looked like the last word may both be open to challenge if you file bankruptcy. Keep options open; choose carefully.