Filing for bankruptcy under Subchapter V is usually the better option if your total debt is $3,424,000 or less, funders are draining or freezing your accounts, and at least one funder isn't willing to negotiate. Settling with your funders may be better if you have more than $3,424,000 in debt, have only 1-2 funders, or need to protect a personal guaranty.
For why settling may suit most owners, see 5 Reasons Why MCA Settlement May Be Better Than Bankruptcy.
Do you qualify for MCA Subchapter V bankruptcy with stacked advances?
Yes, if you have non-contingent, liquidated debts of $3,424,000 or less (excluding insider and affiliate debts, for a case filed now), at least half of your debts come from business activity, and you aren't a single asset real estate company or a company that files with the SEC. See U.S. Trustee Program; 11 U.S.C. § 101(51D).
Bloomberg Law reported that a small business with 21 stacked advances totaling $3.6 million filed for chapter 11 in December 2025. That's over the Subchapter V cap. Whether "debt" for the purchase of your receivables is liquidated is a question for bankruptcy counsel.
What does the automatic stay (11 U.S.C. § 362(a)) do?
The automatic stay goes into effect immediately upon filing. It bars funders from suing the company, enforcing pre-petition judgments (including confessions of judgment) or liens, debiting or levying your bank account, or telling your customers to pay the funder. See, e.g., Crosby Marine (Bankr. E.D. La. 2026) (injunction stopping a funder from collecting receivables directly from the debtors' customers).
The stay only protects the company that filed, so funders can still sue you on a personal guaranty.
How are MCA claims treated in a Subchapter V bankruptcy case?
MCA claims are usually treated as partially or completely unsecured. Because funders file UCC-1s claiming a lien on your receivables, you may not spend them without their consent or a court order under 11 U.S.C. § 363(c)(2), so a cash collateral motion usually comes early in the case.
Under 11 U.S.C. § 506(a), a lien secures a claim only up to the collateral's value. Other liens (e.g. a bank's blanket lien or an IRS lien) take priority, so in a restaurant or retail business without many receivables on hand, the funder may not have a secured claim at all. Moreover, under 11 U.S.C. § 552(a), a pre-petition lien won't attach to most property acquired post-petition. See, e.g., Butler Trucking (Bankr. N.D. Ohio 2025) (post-petition receivables were estate property; recharacterized advances were completely unsecured).
Recent cases have recharacterized MCAs as loans. Under New York law, MCAs were recharacterized in Crosby Marine, Williams Land Clearing, and JPR Mechanical but not in Global Energy Services. If your MCA is recharacterized, you may be able to raise usury defenses and claw back payments made in the 90 days before bankruptcy, or in the two years before as fraudulent transfers. This isn't a sure thing; each case turns on its own facts.
Under 11 U.S.C. § 1191(b), if the unsecured creditors vote against your plan, you can still get it confirmed if you commit all of your projected disposable income over 3-5 years. Under 11 U.S.C. § 1181(a), the absolute priority rule doesn't apply, so you can keep your equity as long as each creditor receives as much as it would in a chapter 7 liquidation.
Another cram down issue: the discharge under Section 1192 carries the exceptions to discharge listed in Section 523(a), including money obtained by fraud or a materially false written statement. A funder could argue it was fraudulently induced and its claim survives.
How long does Subchapter V take and how much does it cost?
A status conference will be set within 60 days of filing, and the deadline to file a plan is 90 days. If the plan is not consensual and is crammed down, it will last for 3-5 years.
| Item | Subchapter V |
|---|
| Court filing fee | $1,738 |
| U.S. Trustee quarterly fees | None pursuant to 28 U.S.C. 1930(a)(6)(A) |
| Disclosure statement/creditors' committee | Not required unless ordered by the Bankruptcy Court |
| Subchapter V trustee | Paid hourly out of the bankruptcy; amount varies |
| Payments to creditors | Projected disposable income for 3-5 years if the plan is crammed down |
Owners often overlook how much a cram down costs in payments versus the lump sum needed to settle and obtain releases. Without spare cashflow for three to five years of payments, a cram down may not be an option.
When does Subchapter V beat an MCA settlement?
Subchapter V is likely better than settling if:
- funders are levying accounts or redirecting customers;
- there are multiple funders and one or more will not settle (a cram down binds all funders; a settlement binds only those who agree);
- the contracts contain indicators of a loan and recent payments have been substantial;
- the debt is under the cap and there is enough cashflow to make payments for three to five years.
Settlement is likely better than Subchapter V if:
- the cap will be exceeded;
- a lump sum is available;
- releases of guarantors are a priority;
- one or more of the funders are alleging fraud.
If SBA loans, leases and vendor debt are also involved, see whether it is better to settle business debt or file bankruptcy.
Frequently Asked Questions About Subchapter V
If my company files Subchapter V, can the funder still come after me personally on my guaranty?
Yes. The automatic stay protects the debtor, not guarantors, and the company's discharge doesn't release guarantors under Section 524(e). Guarantors are usually protected by negotiated releases or their own bankruptcy filing.
Does the pending $7.5 million debt limit bill help if I file now?
No. The Senate passed S. 3977 on August 3, 2026 and the House passed H.R. 7730 on September 16, 2026, but the bill is not yet law and will only apply to cases filed after enactment. For now, the cap remains $3,424,000.
If I settle with one funder and then file bankruptcy, can the settlement payment be clawed back?
If the advance is recharacterized as a loan, a lump sum settlement paid to one funder within 90 days of filing could be a preferential transfer under Section 547(b) and clawed back. The floor for business debts under Section 547(c)(9) is $8,575.
What happens if the merchant cash advance funder doesn't file a proof of claim?
If the claim is scheduled as disputed, contingent or unliquidated, the funder must file a proof of claim to vote or receive payment under Bankruptcy Rule 3003(c)(2). Some funders won't file one, to avoid the Bankruptcy Court's jurisdiction. If one is filed, the debtor can object to the claim and seek recharacterization.