Merchant Cash Advances and Bankruptcy: What Florida Business Owners Need to Know
- Melissa A. Youngman
- 4 days ago
- 4 min read
By Winter Park Estate Plans & ReOrgs Admin
Florida Bankruptcy Attorney – Winter Park, FL
For many small business owners, merchant cash advances (MCAs) promise fast, flexible funding when traditional loans aren’t available. But what begins as much needed short term relief often turns into long-term financial distress.
With high fees, daily withdrawals, and confusing terms, MCAs can trap business owners in a cycle of debt that becomes nearly impossible to escape. When that happens, bankruptcy, particularly under Subchapter V, can provide a structured path toward recovery and protection from the predatory lending practices MCA lenders.
Here’s what every Florida business owner should know about managing MCA obligations through bankruptcy.
1. What Is a Merchant Cash Advance?
A merchant cash advance is not a traditional loan. Instead, it’s an advance on future sales. The MCA lender provides a lump sum of cash upfront in exchange for a percentage of future credit card or debit sales.
In theory, it’s flexible: payments fluctuate with revenue. In practice, many MCAs come with effective annual interest rates exceeding 50%–200% and daily withdrawals that cripple cash flow.
What’s worse, many MCA contracts include:
Confession of judgment clauses, allowing the lender to seize funds without a court hearing, even in states where confession of judgments are invalid.
Personal guarantees, putting the personal assets of the business owners at risk.
Aggressive collection tactics, including freezing business bank accounts.
This type of predatory lending often targets small business owners in need of quick cash infusions, especially restaurants, retailers, and service providers.
2. How MCA Debt Traps Businesses
When sales drop or expenses rise, the daily withdrawals required under an MCA can drain a business’s operating capital. Many owners end up taking out additional advances just to stay afloat.
Before long, the payments become unsustainable, leading to missed withdrawals, default, and aggressive collection activity.
That’s when Florida businesses can need to take advantage of the right business debt relief strategies and tools, including bankruptcy, which can make the difference between closing your doors and saving your company.
3. Using Chapter 11 or Subchapter V to Restructure MCA Debt
Chapter 11 bankruptcy, including the streamlined Subchapter V process for small to mid sized businesses, can provide immediate relief from MCA obligations. Upon the filing of the bankruptcy case, the automatic stay stops all collection activity, including lawsuits, bank levies, and daily ACH withdrawals.
Under Subchapter V, your business can:
Stop automatic MCA deductions immediately.
Consolidate debts into one affordable monthly payment.
Negotiate reduced repayment terms through a court-approved plan.
Retain ownership and continue operating.
Unlike traditional Chapter 11 cases, Subchapter V is designed for small to midsize businesses, with simpler rules, faster timelines, and lower costs.
4. Challenging Predatory MCA Contracts
An experienced bankruptcy attorney can also challenge the validity of certain MCA contracts.
In many cases, what’s labeled as a “sale of receivables” is actually a disguised loan, one that violates state usury laws or fair lending standards. If the MCA operates more like a loan than a true receivable purchase, the agreement may be subject to regulation and challenge in bankruptcy court.
Courts and trustees are increasingly scrutinizing these arrangements, especially when MCA companies engage in aggressive or deceptive collection tactics.
5. The Subchapter V Advantage
If your business owes less than $3,424,000 in total debt and your obligations are primarily commercial, you may qualify for Subchapter V protection.
Subchapter V allows:
Plan confirmation without a minimum number of creditor votes.
Fewer procedural hurdles and lower legal costs.
Ongoing operations under owner control while the case is pending.
For many Florida small business owners burdened by MCAs, Subchapter V provides a realistic, court-supervised way to rebuild and recover.
6. Building a Plan for True Recovery
A successful MCA debt relief strategy requires more than stopping payments. It requires a sustainable plan for long-term solvency.
Your reorganization plan under Chapter 11 or Subchapter V should include, among other things:
A detailed budget reflecting post-bankruptcy operations.
Cash flow projections showing feasibility
Payment terms that treat creditors in a fair and non-discriminatory manner.
Negotiated terms with creditors.
The goal isn’t just to eliminate debt, it’s to stabilize your business and prevent future financial traps.
The Bottom Line
Merchant cash advances may seem like a lifeline, but they often become a financial disaster. If you’re facing overwhelming MCA debt or aggressive collections, bankruptcy under Subchapter V can provide both protection and a path forward for your Florida business.
At Winter Park Estate Plans & ReOrgs, we help Florida entrepreneurs achieve business debt relief, stop predatory lenders in their tracks, and build a feasible plan for long-term success.
If you’re ready to regain control of your business finances, we’re here to help.
Get organized before you file and explore whether Subchapter V is right for you. Download the Checklist (PDF)
Call 📞 (407) 765-4327 or use the "Book Now" button below to schedule a free online/phone consultation.
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