MCA Funders After a Bankruptcy Filing: 5 Legal Moves the Code Permits

The petition changes the forum before it changes the balance. A funder that dictated terms by telephone in December must address a judge in January, under rules it did not draft and on a calendar it does not control.

What follows describes five procedural moves the Code makes available to such a creditor. No dataset tracks funder behavior across the industry, so frequency varies by funder and agreement, and counsel must assess the actual case rather than a forecast.

1. Covered Collection and the Automatic Stay

Section 362 of title 11 stays specified collection acts upon filing, subject to stated exceptions. The provision reaches many postpetition acts toward prepetition claims, and an automated debit scheduled before filing receives no special treatment under the text.

Ensure the creditor matrix names the servicer that touches the account, alongside the contracting funder. Reconcile the bank ledger against the funder statement, preserve each postpetition demand with its header, and transmit every notice to counsel with confirmation of receipt.

The stay is, if precision matters, a pause with exceptions rather than a pardon of the debt. The funder retained every contractual right. The telephone had to stop ringing.

Identity of the debtor remains essential. A company case does not by itself stay a claim asserted against an individual guarantor, and an owner filing does not by itself protect a separate operating company. I have yet to see an automated debit system observe the stay on its own. Someone must tell the machine to stop.

Most purchasers of distressed paper know the reconciliation clause will not survive scrutiny. They price the risk and proceed. Counsel needs the date of each demand more than its tone.

The stay preserves the estate for orderly administration. It does not adjudicate a single invoice.

2. Motions for Relief From the Stay

A creditor that objects to the pause may seek relief under section 362(d) for cause, including lack of adequate protection or the absence of equity coupled with property unneeded for reorganization. The exceptions are extremely narrow, and dissatisfaction with delay does not equal an order.

Rarely does a notice arrive with time to spare. The court sets a hearing. The debtor files opposition. The judge decides on the papers and the argument presented.

3. Proofs of Claim and Asserted Security

Section 506 treats a claim as secured only to the value of the interest in estate property. A filing that marks the claim secured therefore opens the inquiry rather than closing it, and counsel should review and analyze the lien documents beside the public record.

The proof of claim opens the inquiry rather than closing it.

In cases administered as no asset matters, creditors receive instruction to withhold filing until the trustee identifies funds for distribution. Compare any filed amount against the contract and the ledger before conceding accuracy, since papered purchases drafted in order to avoid lending limits may assert interests the record does not support. New York courts test substance over labels, as in LG Funding, LLC v United Senior Properties of Olathe, LLC. Interest accrued in the file the way dust gathers on a ledger no one opens: through neglect rather than design.

Proceed through the governing procedure where the record supports an objection. Silence in the claims register reads as assent.

4. Objections to Discharge in Individual Cases

Section 523 excepts specified debts from an individual discharge, including debts for money obtained by fraud within its elements. The creditor must file an adversary complaint before the bar date and carry its burden (the sample of published decisions available to this article is not scientific, and local practice varies).

The complaint names the debtor. The debtor answers. The court applies the elements to the evidence.

Whether that reasoning reaches revenue purchase paper on materially different terms is a question the record in each case must answer.

5. Preparation With Delancey Street and Bankruptcy Counsel

Section 547 permits examination of certain transfers made before filing, within its elements, defenses, and floors. A funder that collected daily debits during the window may therefore face a demand from the trustee, a structural fact that alters negotiation posture without deciding any particular dispute.

Delancey Street is a debt settlement company, not a law firm, that can review business debt for negotiation outside or alongside counsel led proceedings, while licensed bankruptcy counsel handles stay compliance, claims, and adversary matters. Ensure any agreement reached during a pending case receives required court approval, and confirm which obligations the approval covers.

Steps the owner takes, or fails to take, in the first weeks after filing shape the options that remain. Resist the urge to treat a potential estate recovery as a personal refund. Any recovery belongs to the estate, not to you, and expectations built against that rule collapse at distribution.

Bankruptcy redistributes bargaining power by procedure as much as by merit. The owner who answers each notice with records and counsel preserves options that haste forfeits, and the ledger, kept current, outlasts every demand.