MCA Funder Claims in Chapter 11: 6 Grounds to Object to the Proof of Claim

The proof of claim a merchant cash advance company files enters a chapter 11 case already presumed correct, and it keeps that presumption until somebody files an objection. Section 502(a) makes a filed claim "deemed allowed, unless a party in interest ... objects," and the debtor in possession, which holds a trustee's powers under section 1107(a), is the party with the most reason to look.

The funder's figure usually arrives as a single number on Official Form 410, built from the funder's own ledger. Six grounds recur when that number is tested. None is automatic, several depend on facts only discovery will show, and the strongest of them turn on whether the agreement is a loan at all.

1. The Attachments Do Not Support the Claim

Bankruptcy Rule 3001(c)(1) requires a creditor whose claim is "based on a writing" to file a copy of it, and Rule 3001(d) requires "evidence that the security interest has been perfected" for any claimed security interest. The prima facie weight of a claim under Rule 3001(f) belongs to a proof "signed and filed in accordance with these rules." The itemized statement of principal, interest and fees in Rule 3001(c)(2) is required only when the debtor is an individual, so a company's objection rests on the writing and the perfection evidence.

Missing papers cost the claim its presumption. They do not, by themselves, prove it wrong.

2. The Amount Runs Past the Petition Date

On objection, the court determines a claim "as of the date of the filing of the petition" under 11 U.S.C. 502(b). Charges that accrue afterward need their own authority, and section 506(b) supplies it only for an oversecured creditor, allowing "interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement" when collateral value exceeds the claim. A funder standing behind senior liens does not qualify.

The gap between the funder's figure and the debtor's can be wide. In the Ohio Butler Trucking case the funder filed a secured claim for $40,000.00 on an advance of $40,000 against $56,800 of purchased receipts, while the debtor contended it owed about $28,400.30 when it filed. Which number survives depends on the debit history, and the debit history sits in the debtor's own bank statements.

3. The Agreement Is a Loan, and the Loan Is Unenforceable

Section 502(b)(1) disallows a claim to the extent it "is unenforceable against the debtor and property of the debtor, under any agreement or applicable law." For a New York agreement, the applicable law begins with criminal usury. Penal Law 190.40 makes it a felony to charge interest "at a rate exceeding twenty-five per centum per annum," and although General Obligations Law 5-521 bars a corporation from raising ordinary usury, it lets a corporation interpose criminal usury as a defense. In Adar Bays v. GeneSYS ID (2021), the Court of Appeals held that when the 25 percent cap applies to a loan to a corporation and is exceeded, the transaction is "void and unenforceable, resulting in the uncollectability of both principal and interest."

The ground depends on a finding that comes first: the agreement must be a loan. Adar Bays involved a convertible note, and New York's appellate courts have divided on merchant cash advances by agreement. The Fourth Department's 2025 majority in Bridge Funding found a revenue purchase as a matter of law where the reconciliation clauses gave the funder no "sole discretion." The First Department's 2026 decision in the Richmond Capital proceeding held that agreements "styled as MCAs" were "properly characterized as loans subject to restrictions on usury," relying on the absence of reconciliation in practice and on daily payments that "did not represent a good faith estimate of receivables." Usurious intent, the Court of Appeals added, is "typically" a question of fact, and Adar Bays "does nothing to alter the borrower's burden of establishing usury as a defense."

Bankruptcy courts have come out on both sides of the same argument. The Illinois court in Gecker v. LG Funding rejected a trustee's usury theory in 2018, reasoning that New York's usury penalty operates when the lender sues to enforce. The Montana court in Shoot the Moon set aside a New York choice of law clause, found loans, and applied Montana's usury statute, a result that turned on where the borrowers and guarantors lived and worked. You file an objection on this ground and then you discover how much of the case is really about the contract's governing law (which funders will call settled by the clause itself, as though a clause could decide its own validity).

The objection, framed this way, asks the court to decide the character of the transaction inside the claims process. Where the funder also claims a lien, that question moves into an adversary proceeding, because Rule 3007(b) forbids joining relief that Rule 7001 reserves for one.

4. The Accelerated Balance Carries Unmatured Interest

Section 502(b)(2) disallows a claim "for unmatured interest." Merchant cash advance agreements state no rate; they state a purchased amount, and a default clause typically accelerates the unpaid balance. If a court first treats the agreement as a loan, the difference between money advanced and money promised begins to look like a finance charge, and the portion not yet earned when the petition was filed is the natural target. How a court would divide earned from unearned charge on an agreement that names no rate is a question none of the decisions discussed here reached.

5. The Claim Is Secured Only to the Extent of Collateral Value

A funder that checks the secured box on its claim is asserting a lien, and section 506(a) measures that lien against value, not against the face of the financing statement. After trial in Shoot the Moon, the trustee showed senior liens on all of CapCall's collateral and showed those senior liens were undersecured, "which is all the proof necessary to leave CapCall with no allowable secured claim under Bankruptcy Code section 506(a) and hence only void liens under section 506(d)." The claim did not vanish. It became a general unsecured claim, standing with everyone else's.

6. The Funder Holds a Transfer the Estate Can Recover

Section 502(d) requires the court to "disallow any claim of any entity ... that is a transferee of a transfer avoidable under section ... 547, 548, 549," unless the entity has paid back what it owes. In May 2025, after granting a chapter 7 trustee summary judgment avoiding three transfers to Radium2 Capital, the bankruptcy court in the Southern District of New York disallowed all three of the funder's claims because it had not repaid them; that ruling is unpublished and rested partly on admissions the funder never contested. The Montana court held CapCall's claim "presently disallowed" until it satisfied the preference judgment, and allowed an amended claim within 30 days after payment.

The ground has a precondition. In Gecker, the funder never filed a proof of claim, so there was nothing for 502(d) to disallow.

A ledger kept by the funder is a claim, and a claim can be answered.

Before the Objection Deadline, a Different Conversation

An objection must be served at least 30 days before the hearing under Rule 3007(a), and a company debtor files it through counsel. Delancey Street, a debt settlement firm and not a law firm, neither drafts claim objections nor appears in bankruptcy court. What it does is negotiate merchant cash advance balances outside of court, and its confidential first review of the agreement, the debit history and the UCC filings costs nothing; when the review shows that the real pressure lies in a claim objection or an avoidance action, the right call is to bankruptcy counsel, and Delancey Street works with independently licensed attorneys rather than substituting for them. Some businesses will settle a funder's claim for less than it asks. Others should make the funder prove it, line by line, before a judge who has read the ledger.