Merchant Cash Advances

They say they bought your receivables. Do the division.

A merchant cash advance is written to look like a sale. But if you divide what you owe by what they take out every week, you get a number of weeks — a term. Sales don't have terms. Loans have terms. In 2026, courts started saying so out loud.

Run your own numbers Nothing is sent to us
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$
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Fill in the three figures above and the arithmetic will run here.

This is a rough illustration using the same arithmetic bankruptcy judges have been applying in 2026 — total owed divided by the fixed payment gives the built-in term; the rate is the annualized internal rate of return on the money you actually received. It is not a legal opinion, not an APR calculated under any statute, and not a prediction about your contract. Your agreement's actual language controls.

What the contract says, and what it does

Every MCA we read is drafted to avoid one word: loan. Here is the translation.

The paper saysWhat it actually does
"Purchase of future receivables." You sold us something. This is not a loan.
No specific customer, invoice, or account is ever identified. You can't sell what nobody can name. The obligation to pay is yours, not the receivable's.
"Reconciliation." If sales drop, we'll adjust — so we share your risk.
Read it again. Reconciliation moves when you pay. It never reduces how much you owe. The total is fixed on day one.
"Specified percentage" — we take 4% of your daily receipts.
Then why is the same dollar figure debited every week regardless of receipts? A percentage that never varies is not a percentage.
"No interest rate is charged under this Agreement."
And yet: an origination fee off the top, 24% judgment interest, and a discount if you pay early. Only loans get cheaper when you pay early.
"Non-recourse. We assume the risk that your business fails."
Personal guaranty. Blanket lien on everything. Confession of judgment. Acceleration on default. Where, exactly, is the risk?
"If you default, the full balance comes due immediately."
A real buyer of future receipts would have to wait for them. Accelerating proves there was a maturity date all along.

Stacking is the part that could kill your company. One advance rarely stays one advance. The first funder's broker may sell your file, and within a year there are four, five, nine agreements, each debiting weekly, each with a guaranty, each secured by the same receivables. Payments consume revenue before payroll. If you are stacking to make last week's payment, the business is already insolvent and the clock is running. Call before the confession of judgment lands, not after.

What changed in 2026

For years, funders won by arguing this was too fact-bound to decide early. That argument is failing.

Three recent bankruptcy court decisions have changed the playing field. We read all of them the week they issued, and we have built defenses to MCA claims against companies like yours around them.

  • A Louisiana bankruptcy judge decided it on summary judgment — as a matter of law, on the contract's own unambiguous words — that the agreement was a disguised loan and the receivables belonged to the bankruptcy estate. No trial, no dueling experts. The court computed the built-in term by dividing the amount owed by the fixed payment: the same division at the top of this page.In re Crosby Marine Transp., LLC (Bankr. E.D. La. June 2026) (Grabill, J.)
  • A New York bankruptcy judge denied the MCA defendant's motion to dismiss even where the borrower "waived" the usury defense. Contractual waivers of usury are void against New York public policy. These MCA funders rely on New York law. But New York law may no longer be their best friend.In re Greenwich Retail Grp. LLC, 677 B.R. 473 (Bankr. S.D.N.Y. 2026) (Wiles, J.)
  • A Texas bankruptcy court sustained fraudulent-transfer and recharacterization claims built on economic reality rather than labels, without requiring proof of intent.In re Anadrill Directional Servs., Inc. (Bankr. S.D. Tex. Jan. 2026) (Rodriguez, C.J.)

What we do with it

We don't file an objection and hope. We reconstruct the transaction from the ledgers: what was wired, what cleared, what bounced, what the servicer charged after the petition. Then we plead the arithmetic — the built-in term, the effective rate, the fee taken off the top — and move for judgment on the contract's own text, the way Crosby did. A recharacterized MCA is not a secured creditor. Often it is not an allowed creditor at all.

The same work supports objections to proofs of claim, adversary complaints against the funders, and — where the funder kept debiting or charging fees after you filed — motions for violating the automatic stay.

What to bring us

Bring what you have. Don't wait until the file is complete — the calendar rarely waits.

  • Every MCA agreement, in fullIncluding addenda, exhibits, schedules, and the signature pages. The addenda are where the joint-and-several liability and the other merchants' names hide.
  • Personal guaranties and any confession of judgmentThese are usually separate documents. A COJ can produce a judgment against you without notice or a hearing.
  • The funding statement or wire confirmationWe need what actually hit the account, not the face amount. The gap between them is the fee — and the fee is evidence.
  • Complete bank statements from the first funding date forwardEvery page, every month, all accounts. This is the single most important item, and the one clients most often send partially.
  • The servicer's payment history or ledgerAsk for it in writing. Every debit, every reversal, every NSF, every fee, with dates.
  • Broker communicationsEmails and texts with whoever placed the deal — including what they told you the money would cost.
  • Every UCC-1 filed against the businessWe'll pull the search ourselves, but tell us who you think has a lien. Priority is often the whole ballgame.
  • Notices sent to your customersIf a funder wrote to your accounts telling them to pay the funder directly, we need that letter and the date.
  • Default notices, demands, and any lawsuit papersIncluding anything filed in New York or Utah on a New York choice-of-law clause.
  • Your other secured debt — especially an SBA or EIDL loanAn earlier blanket lien can leave the MCA funders with nothing to be secured by. That is not a technicality; it is leverage.

One thing to do today, before you call anyone: stop assuming the funder's ledger is right. Pull your own statements. We have found post-petition legal fees charged to a debtor sixteen days after filing, fixed weekly amounts split into five daily hits as an account was failing, and "payments" that reversed as insufficient funds but stayed on the claim. Nobody catches that but you and your lawyer.

If you're thinking about bankruptcy

MCA debt behaves differently in bankruptcy than almost anything else. That cuts in your favor — but only if the case is built for it.

Subchapter V

Subchapter V is a streamlined small-business reorganization: no creditors' committee, no competing plans, no disclosure statement, and you keep your equity. It is the best tool Congress has given small business in a generation, and it is where MCA recharacterization does its most useful work — because a funder recharacterized into an unsecured creditor gets treated as one under your plan.

Eligibility turns on your total noncontingent, liquidated debt as of the filing date. That ceiling stands at roughly $3.42 million right now; bipartisan bills pending in Congress might raise it to $7.5 million. If you are near the line, the number matters enormously, and how the MCA claims are counted can decide it. Ask us before you assume you're over.

Chapter 11, Chapter 7, and doing nothing

Not every business belongs in Chapter 11 or Subchapter V. A larger company files an ordinary Chapter 11. A business with no viable future may be better served by other options — and the MCA claims still have to be dealt with correctly, because the guaranty follows you personally either way.

The option that never works is waiting. Filing stops the debits, stops the confessions of judgment, and stops the letters to your customers, the same day. Every week you wait is another payment gone and another creditor with a judgment.

A warning: be skeptical of anyone marketing "MCA debt relief," "reverse consolidation," or "we'll settle your advances". Reverse consolidation is another advance. Debt-settlement outfits collect fees while judgments enter against you. And if you are considering bankruptcy, understand that your guaranty means the business's problem is already your problem.

Talk to someone who has read the contract before

Lakelaw is a bankruptcy boutique. David P. Leibowitz has practiced bankruptcy law for more than fifty-two years and litigates merchant cash advance recharacterization in the Northern District of Illinois. The first conversation costs nothing and is confidential.

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Law Offices of David P. Leibowitz, LLC
3352 N. Sheffield Avenue, Chicago, IL 60657
312-662-5750
dleibowitz@lakelaw.com

Attorney advertising material. This page is general information about merchant cash advances and bankruptcy law. It is not legal advice, and reading it does not create an attorney-client relationship. Every case turns on its own contracts, records, and facts.

The decisions described above were reached in other cases, on other records, against other funders. Nothing here is a promise, guarantee, or prediction about the result in any matter, and prior results do not guarantee a similar outcome. Bankruptcy relief is available only to those who qualify. The calculator is an illustration only and does not analyze your agreement.

Debt limits, statutory thresholds, and case law change. Figures stated are current as of the date of publication.

© 2026 Law Offices of David P. Leibowitz, LLC. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.