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When Bankruptcy Becomes the Only Escape from Merchant Cash Advance Hell

You took out a merchant cash advance to get your business some fast cash, but now – those daily payments are crippling you. Every sale gets shaved, every single day, until you’ve repaid double or triple what you originally borrowed. It’s financial quicksand, slowly dragging you under.So, what do you do, when you can’t keep up with those punishing MCA payments? When you default, it opens the floodgates to a world of hurt:

  • Frozen bank accounts and assets seized, no warning
  • Personal guarantees triggered, putting your home at risk
  • Lawsuits, judgments, and a trashed credit record
  • Relentless harassment from aggressive collectors

And that’s just the start. The MCA company could even take control of your merchant accounts, diverting all future sales directly to them. It’s a brutal, soul-crushing situation that has driven countless businesses under.

When Bankruptcy Provides the Only Lifeline

For many business owners drowning in merchant cash advance debt, bankruptcy starts looking like the only lifeline. But can you actually use it to get out from under that MCA?The answer, like much in the legal world, is: it depends. Let’s explore the potential clash between bankruptcy’s debt-clearing powers and the aggressive collection allowed under most MCA agreements.

Bankruptcy’s Broken Promise

For individuals, bankruptcy can discharge debts like credit cards, medical bills, and certain loans. The same principle applies to businesses – Chapter 7 liquidates assets to pay creditors, while Chapter 11 allows restructuring.In both cases, bankruptcy creates an “automatic stay” halting any debt collection efforts. So in theory, it should stop those aggressive MCA collection tactics bleeding your business dry, right?Not so fast. Here’s the caveat: most merchant cash advances require a personal guarantee from the owner. By signing, you agreed to be personally liable if your business can’t pay.So while the business may be discharged from the MCA contract, you could still be on the hook as an individual. The lender can then pursue your personal wages and assets to collect, negating much of bankruptcy’s fresh start power.It’s a devastating loophole that leaves many small business owners with no way out of their MCA debt spiral.

See also  Arkansas MCA Defense Lawyers

When Bankruptcy Provides the Only Escape

However, not all is lost. In some cases, bankruptcy may provide the only escape from a merchant cash advance agreement:

  • If the MCA was truly a disguised loan, violating usury laws
  • If the funder engaged in deceptive, fraudulent, or illegal practices
  • If the agreement’s terms were so one-sided as to be unconscionable

An experienced bankruptcy attorney can review your MCA contract and circumstances. If they identify any violations or legal issues, you may be able to get the entire agreement discharged in bankruptcy.It’s an uphill battle, but could allow your business to survive and move on from the MCA debt trap. However, you’ll need to act quickly before the lender takes further collection actions.

The Harsh Reality: No Easy Outs

Let’s be blunt: there are no easy ways out of a merchant cash advance gone wrong. These agreements are specifically designed to be brutally enforced, no matter what.If you’re struggling with payments, renegotiate terms immediately and be prepared to settle for a lump sum. But if you’ve already defaulted, bankruptcy may truly be your only option to escape the relentless collections machine.Even then, a personal liability guarantee could leave you still owing the debt individually. It’s a messy, high-stakes situation no business owner wants to face.The moral of the story? Be extremely cautious before taking an MCA, and make sure you can absolutely afford the payment schedule. Otherwise, you may find yourself trapped in a debt spiral with no easy exit ramp.

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Our team is available always to help you. Regardless of whether you need advice, or just want to run a scenario by us. We take pride in the fact our team loves working with our clients - and truly cares about their financial and mental wellbeing.

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