MCA Funders After Bankruptcy: 5 Legal Developments to Prepare For

If you owe money on an MCA, bankruptcy can change everything. First, the day you file, the MCA has to stop taking money and sending collection notices. But bankruptcy courts in 2026 changed their treatment of MCAs. Now the courts are more willing to treat MCAs as loans, which can make the debt uncollectible because of usury laws and also allow “clawback” of past payments. One thing’s sure: MCA funders fight back.

Before you file, consider these five developments.

• First, collections must stop the day you file.
• Second, some judges are deciding earlier and without a trial, just from the words of the contract, that the MCA is a loan.
• Third, usury waivers in the contract may not save it.
• Fourth, you may be able to recover some or all of what you’ve paid.
• And fifth, the debt limit in a Subchapter V bankruptcy may change.

Under 11 U.S.C. § 362(a)(6), an MCA or other creditor must stop taking withdrawals from the account on the date the case is filed. It has to stop calling, sending letters, or taking any other actions to get its money. This does not necessarily mean the MCA obligation goes away forever. If the funder tries to collect, you can call their lawyer and point this out. In the best of times, they will stop. In tougher cases, you will need to file a motion for violating the stay.

In Louisiana, a judge recharacterized an MCA without a trial. The judge looked at the contract’s own words, declared the MCA a disguised loan, and put the receivables in the bankruptcy estate. The court found that it was not an agreement to purchase future receivables as the company claimed. To determine the repayment term, the judge divided the amount owed by the fixed payment. (In re Crosby Marine, Bankr. E.D. La., June 2026.)

Whether your contract falls under the recharacterization rule matters a lot. Sales don’t have payment terms. Loans do. Under New York law, courts usually look at three things: whether there’s a real reconciliation clause; is there a set repayment schedule? and is there recourse against the debtor in bankruptcy or a guarantor?

But there are cases the funders win. In In re Global Energy Servs., a Maryland court found that the contract was a sale, not a loan. The court noted that the reconciliation clause was enforceable, and there was no default if the company declared bankruptcy. It dismissed all the usury claims against the funder. (In re Global Energy Servs., Bankr. D. Md. March 2025.)

Even if the MCA contract waives usury, the bankruptcy court might throw it out. A New York bankruptcy court (In re Greenwich Retail Group) denied the funder’s motion to dismiss even though the business agreed in the contract not to raise a usury defense. MCA contract waivers of the usury defense do not count, the court ruled. These funders often invoke New York law, which may not be their best friend.

Once an MCA gets recharacterized as a loan, different rules apply. Criminal usury law in New York caps rates at 25% a year. The funder may be barred from collecting on the loan. The funders claim may be rejected altogether. You may be able to get your past payments back. Take Apex Funding v. Williams Land Clearing (North Carolina, May 2025). In this case, the effective rate was 101.1%, which the court ruled was void from the start.

Once recharacterized, the MCA is also not a secured creditor. The same logic applies to objecting to a funder’s claim in bankruptcy. You may also use it in an adversary complaint against the funder.

In re Anadrill Directional Services is a case where a Texas bankruptcy court in January 2026 allowed fraudulent-transfer and recharacterization claims based on economic reality, not labels, without proof of intent. Separately, a trustee can claw back payments to a non-insider creditor in the 90 days before filing. If you operate a business, there is a floor to the preferences the trustee can get back. The value of the payments must be at least $8,575. These weekly debits add up quickly.

Subchapter V

Small-business bankruptcies may be streamlined under Subchapter V. In this type of bankruptcy, there’s no creditors committee or competing plans. You also don’t have to give up equity to the business. In this situation, a recharacterized funder is considered an unsecured creditor under your plan. There is a limit of $3,424,000 for cases filed since June 21, 2024. A bill that would raise the debt ceiling to $7,500,000 passed the House in September 2026 but has not been signed and is not retroactive. (H.R. 7730.) Subchapter V bankruptcy eligibility turns on your total non-contingent, liquidated debt at the filing date. Being near the line, how the MCA’s claims are counted can decide whether you qualify. Don’t assume you’re over the limit.

Subchapter V isn’t for every business. A larger company may need a full Chapter 11 bankruptcy. A business with no viable future may do better elsewhere. You still need to handle the MCA claims right. And the guarantee follows you either way. Also, an earlier SBA blanket lien can leave MCA funders with nothing to secure them.

The Debt Declared Nondischargeable in Bankruptcy

A funder can also ask to have the debt declared nondischargeable in bankruptcy. To do that, the creditor has to file a complaint within 60 days after the date first set for the creditors’ meeting (unless the court extends the time for cause). A personal guaranty can make your problem bigger. If you signed a personal guaranty, the business’s problems are already yours.

Before you file, get the whole agreement with every addendum, the confession of judgment and personal guaranty if any, the wire confirmation for the fee, your full bank statements and UCC-1 filings, and all letters to your customers about the payment. Check for the gap between the amount promised and what was wired (the fee). Look over their ledger, including any “late” or “extra” charges, to see if they square with yours. Never assume they’re right. Assume mistakes, and don’t let the lender say there are none. A funder in one case took out a legal fee 16 days after filing the bankruptcy. In another, the funder split the weekly debit into five days as the account was failing. A third kept a bounced payment on the books.

Waiting does not solve your problem. The filing stops the collections, confessions of judgment and letters to the company’s customers the same day. And every week of waiting is another payment gone.