Once you can no longer afford your Merchant Cash Advance (MCA) payments, your options in order of severity are:
- Request a Reconciliation in writing;
- Restructure the MCA;
- Settle the MCA; or
- File for Bankruptcy.
This order is our recommendation, not a legal requirement. If you have not yet defaulted, see your options before you default on an MCA.
What should you do first when you can't afford MCA payments?
Start by pulling out a copy of your MCA contract and request a reconciliation in writing, and attach any bank statements. Do it the day the payment bounces. In some contracts, missing a deadline to do this is a default. In NewCo Capital Group LLC v SPE Trading, Inc., 2026 NY Slip Op 04057 (4th Dept. June 26, 2026), an event of default in the MCA Agreement was failing to request a reconciliation "within one (1) business day" of a remittance being returned for insufficient funds. The Merchant did not, and the Appellate Division affirmed judgment and attorney's fees against the Merchant and the personal guarantor.
And in Apollo Funding v Dave Reilly Construction, 2025 NY Slip Op 05055 (2d Dept. 2025), the Second Department held that a Merchant who had not requested a reconciliation could not argue the reconciliation procedure was illusory. (This was recently repeated in Diesel Funding v Build Retail, 2026 NY Slip Op 02629 (2d Dept. April 2026)). Even with a reconciliation, you will still owe the full amount that was purchased, but on a different schedule. Read more in how to lower a daily or weekly MCA payment without defaulting.
Should you accept the funder's restructuring offer?
Make sure the modification paperwork does not include anything more than you are willing to accept. There is no statutory right to have your MCA modified, and you will most likely still owe the full amount purchased. The Modification documents may add a Confession of Judgment or Agreed Judgment, a reaffirmation of a Personal Guaranty, a waiver of usury or recharacterization, or additional fees that are added onto the balance.
Pennsylvania allows Confessed Judgments on commercial agreements, and once you are served with notice of the Confessed Judgment, you only have 30 days to file ONE petition to strike it or open it pursuant to Pa.R.C.P. 2959. Since August of 2019, Funders have been unable to file a Confession of Judgment in New York on out-of-state defendants pursuant to CPLR 3218. Since September 1, 2025, any contract for sales based financing that contains a Confession of Judgment in Texas is void, pursuant to Tex. Fin. Code 398.055.
Can I settle my Merchant Cash Advance if I cannot keep up with the payments?
Yes. Usually, a Funder will not consider a settlement until after you have defaulted. You will need a lump sum, or a quick payment plan. You need to negotiate a settlement with each Funder separately. You can read about whether you can settle your MCA before you miss a payment. Your leverage increases as it becomes more expensive for the Funder to collect, but you are also taking on more risk the longer you wait. Interest on judgments is 9% per year in New York pursuant to CPLR 5004.
Be sure the release lists the name of the company, yourself, and your spouse if your spouse signed the guarantee. If you are either in a bankruptcy case or are insolvent (liabilities exceed fair market value of assets) at the time the debts are discharged, there will be no tax on the discharged debt (if insolvent, only up to the amount of insolvency). See 26 USC 108.
When is bankruptcy the right choice for MCA debt?
Bankruptcy may be the best option if a levy has already been taken, you have a confessed judgment, or there are too many funders to settle with them all. A bankruptcy will stop any lawsuit, enforcement of a judgment or other collection of prepetition claims under the automatic stay; however, the stay does not return money already frozen in your bank account. Payments or levies within 90 days before filing may be recoverable as preferences, though the Funder can raise defenses, under 11 USC 547.
If you want to keep your business open and have no more than $3,424,000 (the $7.5 million limit expired on June 21, 2024) in noncontingent liquidated debt and at least 50% of your debt arose from your business activities, then you can use Subchapter V of Chapter 11. Subchapter V has no US Trustee quarterly fees and only you can file a plan, which you must do within 90 days. The court can confirm your plan without creditor votes so long as you commit all of your projected disposable income for three to five years.
A limited liability company or a corporation is not permitted to receive a discharge in Chapter 7 under 11 USC 727(a)(1). Also, the discharge of the company does not affect the liability of any other entity, including yourself as the guarantor, under 11 USC 524(e).
Which deadlines should you track?
| Event | Clock | Source |
|---|
| Payment returned for insufficient funds | Some contracts: request reconciliation within one business day | NewCo (4th Dept 2026) |
| Pennsylvania confessed judgment served | 30 days to file a petition to strike or open | Pa.R.C.P. 2959(a)(3) |
| Payments before filing bankruptcy | 90-day preference look back period (one year for insiders) | 11 USC 547(b) |
| Subchapter V plan filing | 90 days from the order for relief | 11 USC 1189(b) |
| Subchapter V plan length | 3 to 5 years of projected disposable income | 11 USC 1191(c) |
| New York judgment | 9% interest per annum | CPLR 5004 |
Frequently Asked Questions
Can I still request reconciliation on my Merchant Cash Advance?
You may be able to, depending on the terms of your contract, since some give you one business day after a returned debit. If you have missed your chance, you can still settle or defend.
If my company files for bankruptcy, will I still be liable for the debt?
Unless you file for bankruptcy or get a release, the answer is generally yes. The company's discharge does not affect the liability of any other entity, including you as the guarantor.
Do I have to pay taxes on the discharged debt if I settle my Merchant Cash Advance?
Unless the debts are discharged in a bankruptcy or you are insolvent, to the extent your liabilities exceed your assets, the answer is yes.
Is my Merchant Cash Advance funder part of the Yellowstone settlement?
Check the name of the company debiting your account against the list of 26 Yellowstone entities on the New York Attorney General's website. If your funder is on the list, then your debt was part of the $534 million of merchant debt automatically canceled by the settlement.