Are you worried about your merchant cash advance debt, and wondering if bankruptcy can help you? Many small-business owners often find themselves facing high-interest daily or weekly payments that were triggered by merchant cash advances. That debt, which was meant to help the business grow, can become overwhelming. If you feel like you can’t keep up, and you’re looking for a way to move forward, keep reading. This article will explain how bankruptcy might help you handle merchant cash advance debt, and we’ll explore the key differences in various bankruptcy chapters.

We are DelanceyStreet.com, a top tier business debt relief company that helps clients nationwide. Because we’re based out of NYC, we understand the challenges of both big-city and small-town businesses. Our philosophy is that knowledge can empower you, so our goal is to walk you through the basics of bankruptcy, from chapters to consequences, and then talk about ways we might defend you if things become complicated.

Disclaimer: Nothing here is legal advice. For specific guidance, you should speak to a qualified attorney or consult official government resources, like https://www.uscourts.gov/services-forms/bankruptcy or https://www.justice.gov/ust. Every situation is different, and there are always multiple possibilities to consider.

Understanding Merchant Cash Advance Debt
A merchant cash advance is not a traditional loan. It is an advance on your future credit card or business sales, which means the merchant cash advance provider collects a portion of your daily or weekly revenue until the debt is repaid. This debt, which seemed helpful at first, can quickly become a problem if your cash flow dips. That’s why many business owners come to us asking: “Is this something that can be wiped out through bankruptcy?”

Evidence that was illegally obtained in a criminal investigation against you can be suppressed. Similarly, debts that were improperly documented may be challenged. But you need to do things right. If you don’t follow the rules, you could face accusations of fraud. Fraud that was committed during a bankruptcy can lead to serious criminal penalties.

Which Bankruptcy Chapters Help?
When you file for bankruptcy, there are several chapters you can choose from, depending on your personal and business circumstances. Knowing which chapter of bankruptcy eliminates, or potentially discharges, merchant cash advance debt is important.

1. Chapter 7 Bankruptcy
   Chapter 7 can wipe out many unsecured debts, which means debts that do not have collateral. Merchant cash advance agreements are often considered unsecured, although some providers may file liens or require a personal guarantee. If your merchant cash advance debt is indeed unsecured, Chapter 7 might lead to a complete discharge of that debt.

   Statement: Chapter 7 will discharge eligible unsecured debts. Consequence: Once those debts are discharged, the creditors cannot sue you or garnish your wages for that specific debt. If your merchant cash advance provider tries to collect anyway, they could be held in contempt of the bankruptcy court’s order.

   However, Chapter 7 has an eligibility requirement known as the means test. If you fail this test, you might not qualify for Chapter 7, and that means you’d have to look at another option.

2. Chapter 13 Bankruptcy
   Chapter 13 focuses on a repayment plan over three to five years, letting you keep your assets while you pay back a portion of your debt. If your merchant cash advance debt is unsecured, Chapter 13 might still reduce what you owe. However, you’ll need a steady income to make those payments.

   Statement: Chapter 13 will restructure your debt into a payment plan. Consequence: You keep operating your business, but you must make regular payments to the bankruptcy trustee. Missing those payments can lead to a dismissal of your case, which puts you right back where you started.

3. Chapter 11 Bankruptcy
   Chapter 11 is often used by larger businesses. It allows you to reorganize your debts under a court-approved plan. If you have substantial merchant cash advance debt, you can propose new payment terms to your creditors, which could include lowering the amount owed or extending payment deadlines.

   Statement: Chapter 11 can reduce or restructure large debts. Consequence: You have to comply with strict court oversight and management of your finances. If you ignore court directives, you risk having your plan fail, which can lead to lawsuits from multiple creditors.

Penalties, Crimes, and Punishments
Bankruptcy is serious. The United States Code provides criminal penalties for individuals who commit bankruptcy fraud. You can find more information on penalties by visiting https://www.justice.gov/ust. Fraud that was perpetrated in bankruptcy can include hiding assets, lying on your forms, or transferring property to friends before filing.

Statement: Bankruptcy fraud is a federal offense. Consequence: You could be fined, and you might face jail time if found guilty. If you are found guilty, the judge might impose a sentence based on the facts of your case, potentially sending you to federal prison.

People who attempt to discharge debts dishonestly often face criminal investigations that are led by federal agencies. Prosecutors who handle these cases will review the entire bankruptcy filing. If they discover false statements, they might charge you under 18 U.S.C. § 152 (Concealment of Assets; False Oaths and Claims; Bribery). If convicted, you may face up to five years in prison and hefty fines.

Strategies on How We Defend You
At Delancey Street, we know that each bankruptcy situation is unique. We also know that lenders who gave out a merchant cash advance might become aggressive if they think you’re trying to avoid repayment. Here are ways we can help defend you:

• 1. Detailed Review of Your Debts: We gather all your loan and credit card agreements, including the merchant cash advance contracts, to see if they truly qualify as unsecured. If they do, we can argue they belong in your discharge.

  Statement: Having a thorough review helps us spot inaccuracies. Consequence: We can potentially challenge portions of the debt, which might reduce how much you have to pay.

• 2. Negotiation with Creditors: One of the most important things is trying to work out a settlement with your merchant cash advance provider before or during bankruptcy. Often, if they believe they’ll get nothing in Chapter 7, they might be open to an agreed-upon payoff.

  Statement: Negotiating can lower your overall debt. Consequence: You preserve your working relationship with certain creditors, which could help your business operations continue smoothly.

• 3. Safeguarding You from Criminal Accusations: If a creditor accuses you of hiding assets or filing false documents, we stand by your side and address those claims immediately.

  Statement: Defending against fraud claims is crucial. Consequence: You may avoid criminal charges and keep your personal freedom intact.

• 4. Avoiding Confession of Judgment Traps: Some merchant cash advance contracts include a confession of judgment clause. We know how to review that clause and see if it’s valid. If that confession of judgment is enforced without proper notice, we can potentially object in court.

  Statement: Challenging a confession of judgment can stop automatic bank account freezes. Consequence: You maintain more control over your funds, which can protect your daily business operations.

Sample Flow Path of How Bankruptcy Can Play Out
Here is a quick look at how the process might unfold. Think of it as a mini “flow chart,” designed to give you a general sense of what can happen:

• Step A → You file for Chapter 7
  Cause: Merchant cash advance debt is overwhelming.
  Result: Automatic Stay stops most collections.
  Next Move: Trustee reviews your assets and debts.

• Step B → Trustee sees your unsecured MCA debt
  Cause: MCA was documented without collateral.
  Result: Debt could be included in the discharge.
  Next Move: Creditors may try to object.

• Step C → You provide accurate financial records
  Cause: Trustee wants to ensure no fraud.
  Result: Trustee recommends discharge.
  Next Move: Court discharges your eligible debts.

Statement: Completing the entire process can lead to a fresh start. Consequence: Your business can function without the burden of old, toxic debt.

Possible Penalties for Misrepresentation
You should never hide property from the trustee or fail to mention all your financial liabilities. If you do, you could face penalties that are imposed by the bankruptcy court, which might include losing your chance at a discharge or, worse, being charged with bankruptcy fraud.

Statement: Bankruptcy fraud is a violation of federal law. Consequence: You may be placed under criminal investigation, which can involve the FBI or other agencies.

Checklist Table: Are You Ready for Bankruptcy?

Question	Check if Yes
Do you have primarily unsecured merchant cash advance debt?	[]
Have you reviewed personal guarantees or security agreements?	[]
Can you pass the means test (for Chapter 7)?	[]
Have you collected all financial statements and records?	[]
Are you prepared to disclose all assets and liabilities?	[]

If you can check “Yes” for most of these, you might be ready to speak to an attorney about filing for bankruptcy.

FAQ Quick-Reference

Question	Answer
Will Chapter 7 always wipe out MCA debt?	No. You must confirm that it’s unsecured and that no fraud is alleged.
Can I file Chapter 13 if I have no income?	Probably not. You need enough income to fund a repayment plan.
What if I’m accused of fraud?	Contact an attorney immediately. If proven, the penalties can be severe.
How do I check official bankruptcy info?	Visit uscourts.gov for details.
Does a personal guarantee affect discharge?	It depends. Some personal guarantees create secured or priority debt.

One More Thing: If Criminal Allegations Appear
Merchant cash advance lenders sometimes get aggressive. They might claim you took funds you never intended to repay. If you have any sign of possible criminal charges, you must handle that carefully. That means collecting all communications, preserving evidence that was relevant to the transaction, and contacting an attorney who was experienced in financial crimes.

Statement: Early legal intervention can prevent escalation. Consequence: You might avoid being indicted for fraud or misrepresentation.

Wrapping Up
There are times when merchant cash advance debt can be discharged under Chapter 7 or managed under Chapter 13 or Chapter 11. The right strategy depends on how the agreement was structured, what collateral (if any) was pledged, and whether you meet eligibility rules. If you choose to proceed with bankruptcy, you must follow all legal requirements carefully to avoid criminal penalties. Lying on your petition can lead to severe consequences, including fines or imprisonment.

We firmly believe that open communication with your attorney, your trustee, and your creditors is critical. When you’re transparent about your finances, you reduce the risk of accusations. At DelanceyStreet.com, we focus on helping you find practical, business-focused solutions that protect you and your future. Our team can guide you through a potentially complicated process, giving you the peace of mind you deserve.