Is a merchant cash advance (MCA) a personal or business debt? The answer matters in credit reporting, bankruptcy, consumer protection statutes, and taxes. In almost all of these systems, a MCA is considered a business debt even if you have signed a personal guarantee.
How you end up personally liable is covered in our post Am I Personally Liable for My Business MCA Debt?
Is MCA Personal or Business Debt If You Signed a Personal Guarantee?
While you may be personally liable, the purpose of the MCA (which is how the debt is usually classified) was for business purposes. For example, in bankruptcy, a consumer debt is “incurred by an individual primarily for a personal, family, or household purpose.” 11 U.S.C. § 101(8). Courts have read this to mean that a debt incurred with a profit motive or in connection with a business transaction is not a consumer debt. Further, “a guaranty of a business debt is generally not a consumer debt.” In re Grillot. Because a contingent right to payment is a claim, you have incurred a debt at the moment you sign the guaranty.
| Type of System | How the MCA and Guaranty Are Treated | Effect on You? |
|---|
| Credit Reporting | The funder can pull your personal report because you will be liable. | Hard inquiries on your personal credit report; civil judgments are no longer reported. |
| Bankruptcy | Non-consumer (business) debt | May take you out of the Chapter 7 Means Test; no Chapter 13 Codebtor Stay. |
| Consumer Protection Laws | Business purpose, so mostly outside the FDCPA and TILA | No federal APR disclosure; California is a major exception for guarantors. |
| Taxes | Depends on how your entity is taxed | Forgiven balance may be taxable to the entity or to you. |
Does an MCA Show Up on Your Personal Credit Report?
A MCA will generally not be reported on your personal credit report. However, the personal guaranty will give the funder legal reasons to pull it. The FTC staff has stated, “An application for business credit does not create a permissible purpose for obtaining a consumer report, except for a consumer report on an individual who will be personally liable for the debt.” FTC staff report (2011). A civil judgment against you will not appear on Equifax, Experian, or TransUnion reports as of July 1, 2017, though a personal bankruptcy can stay on your report for up to ten years.
Is MCA Debt a Consumer Debt in Bankruptcy?
Generally, a MCA is not a consumer debt in bankruptcy. First, the Chapter 7 Means Test only applies to “an individual . . . whose debts are primarily consumer debts.” 11 U.S.C. § 707(b)(1). If your guaranty exposure is large in relation to your mortgage and credit cards, you may not be required to calculate the Means Test, which currently uses presumption figures of $10,275 and $17,150 over sixty months. A personal Chapter 7 can discharge the guaranty, though the funder can object under section 523(a)(2) of the Bankruptcy Code if you provided false bank statements.
As of April 1, 2025, you can only file for Chapter 13 bankruptcy if you have “noncontingent, liquidated . . . unsecured debts of less than $526,700 and . . . secured debts of less than $1,580,125.” 11 U.S.C. § 109(e). After a default, the guaranty alone may take you over that unsecured limit. Further, the Chapter 13 Codebtor Stay only applies to “a consumer debt of the debtor.” 11 U.S.C. § 1301(a). Thus, a spouse who co-signed your MCA guaranty is not protected.
Do Consumer Protection Laws Cover an MCA Guarantor?
Generally, no. Most consumer protection laws are limited by statute to debts incurred for personal, family, or household purposes. For example, the FDCPA’s definition of debt has this limitation and the 9th Circuit held that a guaranty does not transform a non-consumer debt into a consumer debt, see Bloom v. I.C. System. Similarly, the Truth in Lending Act expressly excludes credit that is “primarily for business, commercial, or agricultural purposes.” That is why there is no federal APR disclosure in MCA transactions, and the FTC’s ban on confessions of judgment in consumer credit contracts does not reach them either. Because these exemptions turn on purpose, not on the receivables structure, TILA and the FDCPA would not apply even if a court recharacterizes the MCA as a loan.
California is an important exception to this general rule. California enacted SB 1286, which amends the Rosenthal Fair Debt Collection Practices Act to apply to commercial credit transactions of $500,000 or less that are owed by a natural person (i.e., a guarantor or sole proprietor) and that were entered into, renewed, sold, or assigned on or after July 1, 2025. However, Pennsylvania is not one of the 10 states to enact commercial financing disclosure laws. Since the Consumer Financial Protection Bureau’s May 2026 final rule, merchant cash advances are excluded from its small business data rule, 12 C.F.R. § 1002.104(b)(7). However, the Federal Trade Commission Act applies to MCA funders.
Who will owe tax on the canceled debt, the MCA debtor or the guarantor?
Whichever party is the debtor for tax purposes, which depends on how the debtor’s business is taxed. Canceled debt is taxable income, 26 U.S.C. § 61(a)(11), and must be reported even if the creditor does not provide a 1099-C. If the MCA debtor is a multi-member LLC taxed as a partnership, the exclusions are applied at the partner level; for an S corporation, at the corporate level. A single member LLC is disregarded, so the owner will be taxable on the canceled debt. To the extent the taxpayer is insolvent (liabilities exceeding the value of his assets, including retirement accounts, immediately before the discharge), the canceled debt will not be taxed, in exchange for reducing tax attributes on IRS Form 982. See also, 5 Exemptions That Shield Business Owners in MCA Cases.
What questions do clients frequently ask?
If I’m a sole proprietor, is the MCA a personal debt?
Even though you are personally liable for the debt (because there is no entity), the debt was incurred for business purposes. Therefore, the analysis for the means test and for the FDCPA would be the same as if you owned an LLC and guaranteed the MCA.
If my company files for bankruptcy, am I still liable as a guarantor?
Yes. The automatic stay, 11 U.S.C. § 362(a) and the bankruptcy discharge, 11 U.S.C. § 524(e) do not affect a non-debtor guarantor.
If I’m a guarantor, will I get a 1099-C if the MCA is settled?
The IRS instructions to Form 1099-C state that the lender is not required to file a form for a guarantor or surety. Whether a 1099-C goes to the business varies among MCA funders. However, even if no 1099-C is filed, the canceled debt must still be reported.