Can Bankruptcy Eliminate MCA Debt?
Yes. MCA debt can be discharged in bankruptcy. Despite the MCA industry’s argument that advances are purchases rather than debt, bankruptcy courts have consistently treated MCA obligations as dischargeable claims. But bankruptcy has significant consequences and should not be the first option.
Chapter 7 vs. Chapter 11 vs. Chapter 13
Chapter 7 Liquidation
A trustee sells your business assets to pay creditors, and remaining debts are discharged. For businesses that are not viable, Chapter 7 provides a clean break. If you personally guaranteed the MCA, the guarantee survives unless you file personal bankruptcy as well.
Chapter 11 Reorganization
Your business continues operating while you restructure debts under court supervision. MCA obligations are treated as unsecured claims and can be reduced through a confirmed plan. Daily ACH withdrawals stop immediately due to the automatic stay.
Chapter 13 (Sole Proprietors)
Allows restructuring both personal and business debts into a 3-to-5-year repayment plan.
The Automatic Stay
Filing bankruptcy immediately stops all collection activity including daily ACH withdrawals, pending lawsuits, UCC lien enforcement, customer contact attempts, and COJ enforcement.
Alternatives to Bankruptcy
Before filing, explore MCA debt settlement at 30 to 60 cents on the dollar, contract renegotiation, legal challenges to the MCA agreement, and consolidation or refinancing. These alternatives preserve your credit and avoid the public record of bankruptcy.