When Is Bankruptcy an Option for Merchant Cash Advance Debt?

Are you a business owner who is worried about making your daily payments on a merchant cash advance? Many entrepreneurs face financial pressure when multiple MCAs stack up, and they wonder whether bankruptcy is the only path that remains. At DelanceyStreet.com, we focus on all types of unsecured business debt, and our goal is to share clear, easy-to-follow information, so you can see if bankruptcy might be an option for you. Keep reading to understand how bankruptcy works in the context of merchant cash advance debt, the legal consequences you could face, and how we would defend you. We are DelanceyStreet.com – a top tier business debt relief company based out of NYC, that helps clients nationwide.

Understanding Merchant Cash Advance Debt A merchant cash advance (MCA) is a type of financing that was designed to let businesses get fast money in exchange for a portion of their future credit card receipts. This can be a simple solution that was intended to solve short-term cash flow issues, yet many business owners realize that daily or weekly MCA deductions can become overwhelming. A company that was previously able to handle normal operating costs might suddenly lack enough cash flow to pay staff, rent, or other debts.

If you fail to repay an MCA, the lender might sue you, file a Confession of Judgment (COJ) if one was included in your contract, or seize assets. This could lead to notices of default from your lender, which can seriously harm your business. That’s why it’s crucial to consider whether bankruptcy is a viable plan for addressing these types of obligations.

Types of Bankruptcy That Might Affect MCA Debt According to the United States Courts official website, there are several types of bankruptcy, but small businesses typically look at Chapter 7 or Chapter 11:

1. Chapter 7 (Liquidation): A business that was unable to stay open might choose Chapter 7 so that it can sell off its assets to pay creditors. A trustee will take over the liquidation process. If you have no way of reorganizing your debt, this might be an option. The consequence of filing Chapter 7 is that you might lose significant assets, but you could gain relief from creditor actions.
2. Chapter 11 (Reorganization): A company that wants to continue operating might pursue Chapter 11, which is a way to restructure your debts. The business that was struggling can propose a plan to reduce or spread out payments, so it can keep functioning. The consequence of Chapter 11 is that you need to follow a strict repayment plan, which can be complex and time-consuming.

Will Bankruptcy Discharge MCA Debt? Debt that was used for business operations could be discharged, depending on the type of bankruptcy and whether any fraud was involved. If the court finds that your MCA was tied to false statements, or if there was misrepresentation about your financials, the debt might not be discharged. In some cases, the MCA provider will argue that you owe the full amount. The bottom line is that no lender wants you to file bankruptcy, because they lose out on money, which is why they might fight aggressively to prove any wrongdoing.

Penalties, Crimes, and Punishment Related to MCA Debt A debtor who was unable to pay an MCA is not automatically a criminal. However, there are crimes that can arise if there was fraud. For example, a borrower who was deliberately hiding assets or lying about revenue could face legal trouble. The crime that was committed might lead to charges under federal statutes, which can result in severe penalties.

• Bankruptcy Fraud: Bankruptcy fraud can occur if you lie about your assets, income, or debts in your filings. Under 18 U.S.C. § 152, a person who was found guilty of bankruptcy fraud may face fines or even up to five years in prison. This can lead to consequences that are lifelong, such as a criminal record and large financial fines.
• Wire Fraud or Bank Fraud: If your MCA application involved misrepresentations, there are additional statutes that might apply. A lender that was deceived might claim you committed fraud. This can cause a serious lawsuit or even criminal charges.

It’s crucial to note that many individuals who are simply in over their heads financially are not guilty of crimes. The business owner who was honest about debts and revenue might avoid punishment. Regardless – we can help you by reviewing your documents and explaining how to handle these issues.

Strategies on How We Would Defend You When you choose DelanceyStreet.com to help, we explore every angle:

• Negotiation with the Lender: We are often able to contact the MCA provider and work out a settlement that was intended to reduce your total debt or stretch out your repayment terms. If a lawsuit is threatened, we might propose a plan that saves your business from default.
• Investigating Your Contract: We review the MCA agreement that was signed, checking for hidden fees or improper disclosures. A contract that was unfairly written might be challenged in court. This can result in a favorable outcome that includes reduced debt or dismissed claims.
• Protecting You from Fraud Allegations: If you face accusations that revolve around fraudulent behavior, we examine all relevant details, including bank statements and communications. This can reveal that you had no criminal intent, which can protect you from severe punishment.
• Helping You Evaluate Bankruptcy: Our team can help you decide if Chapter 7 or Chapter 11 is right for you. We look at your assets, liabilities, and cash flow. Then we discuss the long-term consequences that each option can bring.

Flow Chart: Potential Paths with MCA Debt Situation A -> Your MCA is stacking up -> You cannot pay your daily payments -> You risk default -> Default triggers lawsuits or COJs -> You consider debt settlement -> You realize that you still can’t pay -> You look at bankruptcy -> Chapter 7 or Chapter 11 may apply -> You speak to DelanceyStreet.com -> We evaluate your case -> You find relief or reorganize

Each step in this chain can lead to a fresh outcome that might let you continue running your business, or it can lead to a forced closure, which is why it’s so important to figure out your next moves carefully.

Crimes That Could Arise If You Misrepresent Your Finances

• Falsification of Documents: Documents that were doctored can be grounds for criminal charges. The consequence is that you might face fines, restitution, or incarceration.
• Deceptive Transfer of Assets: Assets that were secretly transferred can be viewed as a violation of the bankruptcy code. The consequence is that your case might be dismissed, and charges might be filed.
• Perjury in Court Filings: Statements that were false in your bankruptcy petition can be prosecuted by the U.S. Department of Justice. This can lead to imprisonment plus steep fines.

Checklist Table: Items to Review Before Filing Bankruptcy

Item	Why It Matters	Consequence If Ignored
MCA Contract Terms	Check for hidden fees or unusual terms	You might sign a deal that was more costly than expected
Personal Guarantee Clauses	See if you are personally liable	Your personal assets may be at risk
Debt Amount vs. Asset Value	Evaluate how much you owe vs. what you own	Filing a wrong chapter can lead to dismissal
Any Potential Fraud Allegations	Determine if lender claims you lied about finances	Risk of criminal prosecution and legal penalties
Other Outstanding Liabilities (Tax, Vendors)	Acknowledge all debts in your plan	Omitting them can lead to more problems

When you check these items, you gain clarity on whether bankruptcy is the right way to fix your merchant cash advance debt problems. If you skip these steps, you can face unexpected disputes with your lenders.

FAQ Quick-Reference Table

Question	Short Answer
Will all MCA debt be wiped out in bankruptcy?	It depends on your bankruptcy chapter, and whether fraud is alleged
Are there criminal penalties for defaulting?	Default alone is not a crime. Fraud or deception could be criminal
Can I keep my business if I file Chapter 7?	Usually no. Assets that were owned might be sold to pay creditors
Is Chapter 11 too expensive?	Chapter 11 can be complex, but it allows reorganization
Can DelanceyStreet.com help with negotiations?	Yes. Our team that was experienced in debt settlement can help you

Possible Consequences If Evidence Is Thrown Out During a Fraud Case Evidence that was illegally obtained may be deemed inadmissible. If that evidence is thrown out, it can create a problem that undermines the lender’s legal argument. That result might lead to a better settlement offer for you, or even a case dismissal. The bottom line is that a creditor who was trying to accuse you of wrongdoing might be forced to rely on weaker claims, which reduces their leverage in negotiations.

Consequences of Declaring Bankruptcy Bankruptcy that was filed to address MCA debt can offer benefits, but it also carries long-lasting effects:

• Credit Damage: Your credit score might drop significantly, which can lead to higher interest rates for future loans. This might limit your ability to expand your business or buy new equipment.
• Asset Liquidation: If you go through Chapter 7, the court might decide to sell assets that were non-exempt. This can cause you to lose property, vehicles, or equipment.
• Public Record: A bankruptcy filing that was made becomes part of the public record, which might affect your reputation with clients and suppliers.
• Peace of Mind: On the positive side, you might get an automatic stay that stops collection efforts, which can relieve major stress. This can help you refocus on your core business or personal life.

How DelanceyStreet.com Helps Businesses Nationwide Here at DelanceyStreet.com, we pride ourselves on delivering business debt relief solutions. Our team that was dedicated to helping clients with MCAs will:

1. Assess Your Financials: We analyze your cash flow, your last 6 months of business bank statements, and your P/L statements.
2. Devise a Game Plan: We explain options such as consolidation, debt settlement, or bankruptcy. We discuss the pros and cons of each path and how each might affect your monthly payment.
3. Represent You in Negotiations: If creditors or their attorneys come after you, we speak on your behalf. We aim to reduce the principle you owe or extend your payment term.
4. Explain Legal Ramifications: If you fear crimes or punishment, we can highlight your potential risks. We then address them by presenting accurate facts and defending your actions in the best possible way.
5. Coordinate with Our Sister-Law Firm: We have direct access to legal counsel who can protect you if litigation arises. A case that was mishandled by an inexperienced party might lead to unnecessary liability, but our approach can mitigate those issues.