Is an MCA a Secured Claim in Bankruptcy: 5 Questions About the UCC Filing

If the MCA funder has a lien on your LLC, does that mean they’re a secured creditor in bankruptcy? The answer is they might be, but maybe not fully. They have a UCC-1 filed that they hope links them to your LLC, but it doesn’t just magically make them fully secured. They’re only secured up to the value of whatever collateral they’re linked to. Everything above that becomes unsecured debt. A UCC-1 doesn’t disappear because you filed for bankruptcy protection. Whether the funder is actually secured largely depends on the particulars of that filing.

The whole reason a funder asks for a UCC-1 is to put a claim on specific assets. Those assets could be receivables, inventory, equipment, deposit accounts, or even future processing proceeds. Bankruptcy gives you a forum to test whether those liens are valid and how far they extend, plus you can contest the funder’s priority.

Sale or Loan Classification

When you read what a financing contract says it actually does, it’s a bit confusing. Many say they’re buying future payments, not lending. One would think if it’s an outright sale then there’s no debt, no creditor, and nothing to “settle.” And yet, the funders file a UCC-1 lien. What gives? Article 9 of the UCC covers outright sales of accounts as well as loans.

Some courts may treat these financing deals as disguised loans. New York courts have established a pattern of questions to determine whether the deal looks more like a real sale than a financing. Is there a reconciliation clause? Does it have a set repayment term? Is there recourse against the seller (here, you) in bankruptcy, or against a personal guarantor? The sale or loan classification matters. It can affect how a funder’s claims are treated, what defenses can be raised, and which usury arguments can apply.

In 2025 the Maryland bankruptcy court issued an interesting ruling in the Global Energy Services case. The financing they reviewed survived scrutiny as a true sale and not merely a financing. Their reconciliation clause was enforceable, there was no time limit, and it held that the funder shouldered the risk of the business going under. It’s important to note that not every MCA is treated the same. Not every judge will see things the same way.

Properly Perfected

The next question is whether the UCC filing is any good in the first place. Did you grant it? Did you give permission for it to be filed? Is the collateral listed accurately? Did they file in the right state? Is it properly perfected?

An overlooked piece of the UCC’s Article 9 covers timing. A filing lasts 5 years unless a continuation statement is filed. Moreover, under the Bankruptcy Code, any lien perfected more than 30 days after the date it first became effective counts as a transfer at perfection. This then falls within the rules of what is and isn’t a preference. The trustee may be able to recover payment made to non-insider creditors within 90 days before filing. Some other conditions must apply, but in the end, the trustee could recover that money.

Even if a lien is valid, who else got to the finish line first? Whoever holds the lien on collateral filed first (and perfected it) usually ranks ahead. If the financing company filed their lien after your bank, for example, they’ll probably rank behind the bank, even though their lien is valid. What’s the collateral actually worth? Secured status depends on that answer. Multilayered MCAs can get even weirder. With several funders each filing their own lien, the value question remains key. In 2025, the Butler Trucking decision came out, and this Ohio bankruptcy court treated MCA claims as wholly unsecured. The ruling was that the senior lien claimed all collateral value. This was on the condition that the court later ruled the MCAs were simply debt instruments.

The Automatic Stay Kicks In

Whenever you file, the automatic stay kicks in and stops the funding company from enforcing or collecting on its lien in estate property. The funder can make a motion and ask for relief from the stay, though. Even so, creditors may keep withdrawing from your account after you file bankruptcy. To stop this, your attorney may need to contact each funder, your bank, and any other service involved. The automated debits might stop on their own, but it’s not guaranteed.

If your funder has a lien on cash or bank deposits, you can’t use it to run the business, or pay your bankruptcy lawyer, payroll, vendors, or contractors without the consent of the holder(s) of the interests in the cash or after court approval after notice and hearing. If your company makes receivables after filing, the funder’s lien usually doesn’t attach to them. That is, unless those new receivables are proceeds of whatever it was they had already. A Florida bankruptcy court in 2025 said in IVF Orlando that your funder doesn’t get to grab your new receivables. The court said the financing company didn’t get any future receivables, just a hope of them.

If you personally guaranteed an MCA, the company’s bankruptcy usually won’t wipe that out. The automatic stay that comes with your LLC’s bankruptcy also doesn’t necessarily cover your debt. You may need to talk to a bankruptcy attorney on your own about Chapter 7 or Chapter 13. These are possible if you qualify.

Not every situation calls for bankruptcy. When there’s only one main funder and you have steady cash flow, a settlement might be more practical. Bankruptcy may become more useful when you have several MCAs collecting at once.

Before you file, gather up every MCA agreement, UCC-1 filing, and your bank statements. You should also gather any lawsuit or threatening paperwork your MCA funders sent. The last thing to do is to not move assets around or hide revenue. Ask your bankruptcy lawyer if the funders really have valid and perfected liens on your assets.