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

An MCA claim doesn’t have to be allowed just because one was filed. When an MCA creditor files a claim against your business in Chapter 11, its claim counts as allowed unless you formally object. This means you should absolutely do that. And you have six strong arguments to raise in your formal objection: paperwork is wrong, the receivables never existed to be sold, the deal isn’t a true sale, the lien fails post-petition, the agreement is usurious, or the payments themselves are avoidable.

Evidence That Negates an Essential Fact

Once an MCA creditor files a proof of claim, that’s usually the ballgame unless you introduce actual contrary evidence. Which you can do! You just have to present evidence that negates an essential fact. Not two facts, not most, not many, one fact. Just that. If you disprove just one fact, the whole thing’s presumption goes away and the creditor is right back to the starting line, trying to prove its claim. To do that, file and serve an objection with the court at least 30 days before the hearing. In Chapter 11, the court sets the claims bar date. A funder that had to file before that date and didn’t is not a creditor on that claim for voting or distribution.

The first place to look in fighting an MCA claim is the paperwork. An MCA creditor can’t base its claim on an MCA agreement unless it files a copy of it. MCA funders claiming a security interest must file proof the lien was perfected. Check to see what the creditor filed. Is it the right one?

IVF Orlando

A recent case, In re IVF Orlando, Inc., shows just how far these arguments can take you. In the weeks before its Subchapter V case was filed, IVF Orlando, a fertility clinic, had taken out two advances from MCAs, one each from Fox Funding and Overton Funding. Fox Funding and Overton Funding both claimed they bought future receivables. Their claims are fine only if they did. In that case, they’d own post-petition revenue.

Future receivables are not like shirts in a warehouse, they are not a stockpiled asset ready to sell off now. IVF Orlando did not have a stack of invoices sitting somewhere unused. Future receivables like this are expectations of value. No one owns future receivables from future clients. Nothing is owned because it doesn’t exist yet. As such, MCA creditors didn’t own what they “purchased,” what they filed claims for. The receivables did not exist. The MCAs did not buy them. Nothing receivable, nothing sold.

MCA funders call their agreements a purchase of the business’s receivables, however, they really look like loans based on the borrower’s receivables. Courts call a transaction what it is, not what a contract says it is. They look to how the terms actually worked. The IVF court found that the agreement made this a loan on the basis of personal guarantees, acceleration clauses, resorting to court to prevent debtor from ceasing payments, and debtor authorized daily ACH withdrawals. The funders’ collateral was, in practice, a lien on all IVF Orlando’s accounts. The MCA funders kept no risk of nonpayment.

Courts applying New York law assess three factors to decide if a receivables purchase was really a loan: first, a working reconciliation provision; second, an indefinite repayment term; third, investor recourse if a debtor goes bankrupt. You’re not guaranteed a win. That same test can also cut against you. A Maryland bankruptcy court in 2025 said that an MCA in Global Energy Services was a true sale. The reconciliation clause in that contract was enforceable and there was no time limit. The funder had taken the risk of debtor insolvency.

MCA agreements on their face give the funder a security interest in all the business’ accounts and ownership of future receivables. That sounds really good. In Chapter 11 practice, however, that looks something different. Funders’ original claims failed because the MCA “purchased” revenue was earned after the Chapter 11 filing, thus it was property of the bankruptcy estate. (11 USC 541(a)(7)) IVF was a service provider, the receivables it got were not from prepetition assets. So nothing prepetition attached to them. The two sections work together: the first says whatever you earn after filing is now estate property, the second (11 USC 552(a)) says a lien can’t attach, so the funders are stuck.

Claim Disallowed

The bankruptcy code requires a court to disallow all claims if they are legally unenforceable. (11 USC 502(b)(1)) Once you show the true annual percentage rate, New York’s usury laws cut in. A debt that is knowingly charged at over 25% a year is criminal usury, a felony. New York lets corporations defend on usury, but only if it’s criminally usurious. The 2025 case of Williams Land Clearing is a good example of how the law could work. The court held that the MCA agreement was void from the start because the effective APR was 101.1%. It also held that the debtor could object to the funder’s bankruptcy claim and sue to get the money back.

Finally, “preferential” transfers of money or property within the 90 days before a bankruptcy is filed can be voided. Any MCA payment you made in the last two years before bankruptcy can be avoided if you were insolvent and you gave away something worth more than you got. A funder liable for an avoidable transfer gets its claim disallowed unless it pays the estate back.

The IVF Orlando court confirmed a reorganization plan over the objections of MCA funders who sought payment from future business revenue. This result in IVF Orlando may signal a growing acceptance of reorganizations designed around MCA creditors’ claims. Just because an MCA creditor has filed a claim doesn’t mean you have to accept it. Don’t let an MCA claim go unchallenged.