Preference Actions Against MCA Funders: 5 Rules for Recovering 90 Days of Debits

In some cases, payments to an MCA funder can be clawed back. As far as bankruptcy is concerned, the question is whether the contract is a loan, or a true sale of future receipts. If it is a loan, then the Chapter 7 trustee may be able to recover the payments. If it is a sale, then the payments are not “on account of an antecedent debt,” and not recoverable. In J.P.R. Mechanical, decided in May 2025, a federal bankruptcy judge ruled the MCA agreements actually disguised a loan, not a sale of future receivables. The court approved a clawback of over $3 million the business had paid the lender.

Ninety-day Window

First rule of preference avoidance: the ninety-day window. The trustee can reclaim any payments to pay off a debt, while insolvent, that paid the lender more than it would get in a Chapter 7 liquidation, if payment is within 90 days before filing. Insolvency is presumed during that ninety-day window. The bankruptcy trustee in a Chapter 7 case can bring preference claims. If the business files Chapter 11 instead, the trustee’s role is filled by the debtor-in-possession, and those powers include reclaiming preferences paid.

More Like a Loan than a True Sale

Second rule: it’s not the label on the contract that controls. Judges, trustees, and lawyers can look past the label and see the substance. Does the owner sell the right to collect on receivables, or is there a loan repaid with current receipts? If the funder was collecting its own property, no clawback, but if it was a disguised loan, then there may be a preference. Companies who buy future receivables collect them because it’s their property; lenders collect payments because they’re owed the money.

Third rule: Read the contract the way a judge would read it. Every month in J.P.R. Mechanical the owner would get only one chance to make an adjustment request, and the funder would never be required to give back too much money. That’s not much of a reconciliation. The court called the “reconciliation” clause largely illusory.

Do the math, and it’s obvious when the payback had to end. If the business could reliably predict the pay-off date, that looked more like a loan than a true sale. Any interference with collection made the whole balance due immediately, just like a loan. The funder’s right to sue the owner and the company’s risk of collection all suggested a real debt instead of a sale of future receivables.

The funder also filled out a claim form calling itself a creditor, which might be seen as admitting that’s what it is. A real reconciliation should be able to give back actual money, and a true sale should not bind the seller with any personal guarantees.

By contrast, the Maryland court in the Global Energy case ruled the reconciliation language was enforceable, the funder expressly took the risk of an insolvency, and the business’s bankruptcy was not a default. It found a true sale. Courts may reach different results depending on the facts.

The Funder Has the Burden to Prove the Defenses

Fourth rule: It is possible to avoid the trustee’s preference clawback, but it’s up to the funder to prove the defense. The trustee has to show the payments were avoidable. In J.P.R. Mechanical, the funder did claim the ordinary-course defense, but the court said the payments didn’t come close to ordinary. The trustee has some homework to do first, but that doesn’t mean the funder can sleep in and skip the early part of the case. The funder in J.P.R. Mechanical allowed too much time to go by, fell afoul of court deadlines, and gave up several defenses as a result.

Fifth rule: not every preferential payment can be recovered. Transfers in a business case to one lender for less than $8,575 can’t be clawed back. If the payments total more than the $8,575 limit, but less than $31,425, then the trustee must file a separate claim in the court where the funder is. The funder can’t be dragged to the main bankruptcy court far away if the amounts are small. In a business case, the deadline for filing any action, small or big, is two years after the order for relief, or sooner if the case is closed or dismissed.

The J.P.R. Mechanical case was not the last decision on the subject. In July 2026, the same bankruptcy court ruled on Kossoff PLLC, which involved 19 MCA agreements, and the court found them all to be disguised loans. In that case, the door was opened to recovery of about $8 million in payments already made.

Do your homework and understand what the contracts say. Do all the reconciliation provisions work? How many years or months are left on the terms? Are any guarantors also signing the contract? When something big happens, you’ll want to know the answers in a hurry.