So, you want to close your business. Will you be personally responsible for any remaining MCA debt? Generally, the answer is no, but there are some exceptions.
We talk about what happens to the MCA debt itself in What Happens to the MCA Debt If I Close My Business?
Does Closing a Business With MCA Debt Trigger Your Personal Guarantee?
Many merchant cash contracts do not treat your going out of business as a default. One agreement filed with the SEC says: “Any Merchant going bankrupt, going out of business, or experiencing a slowdown in business or a delay in collecting Receivables will not on its own without anything more be considered a breach of this Agreement.” Cedar Advance, Section 14.
Why would they do this? New York courts look at whether the funders have any recourse if the merchant goes under in deciding whether the MCA is actually a loan. In the NewCo decision (Fourth Department, June 2026), a provision that going bankrupt or out of business, “in and of itself, does not constitute a breach” helped the funder win. On the other hand, in People v Richmond Capital Group (First Department, February 2026), a breach included a merchant that “dissolve[d] or terminate[d]” its business, which let the funders pursue the personal guarantees. The court held the MCAs were loans, vacating a $77,289,631 judgment for further proceedings.
So, look at your contract. If it says closing will not be a default, and you close honestly, the personal guarantees of performance should not be triggered. If it says closing will be a default, the guarantee should be triggered, but that’s strong evidence that the MCA is actually a loan, which will give you a usury defense.
What Turns an Honest Shutdown Into a Personal Claim Against You?
Cedar says closing is not a breach “on its own without anything more.” What’s the “something more”? Events of default in the Cedar agreement include:
- a representation that was intentionally false when made;
- blocking ACH collection without advance written notice and an alternative form of payment;
- intentionally failing to do any act necessary to let the funder collect;
- stop payment returns with no reasonable explanation within two business days.
Any of those lets the funder go after the guarantee and, under Cedar, add liquidated damages of 25% of the unpaid balance.
Funders have also gone after owners personally for fraud. In Avion Funding v. GFS Industries, 99 F.4th 223 (5th Cir. 2024), the funder advanced $190,000 for $299,800 of receivables. The merchant said it did not anticipate bankruptcy but filed two weeks later, and the Fifth Circuit allowed the funder to pursue a nondischargeability action for fraud. In CoVenture-Burt v. Coleman, a 2023 Delaware case, an owner was sued personally for fraud after his companies took 33 advances in about six months, and the fraud in the inducement claims moved forward.
In Pennsylvania, an officer can be held personally liable for misfeasance, but not mere nonfeasance, Wicks v. Milzoco Builders, Inc., so using receivables the funder purchased, or lying on your application or bank statements, may be a problem.
Can I Move Business Assets or Pay Myself Before Closing?
Probably not, as both moves could be undone and imputed to you personally. Section 273 of the New York Debtor and Creditor Law (Pennsylvania’s 12 Pa.C.S. 5104 is similar) makes a transfer made with actual intent to hinder, delay or defraud any creditor voidable, and lists “badges of fraud” that are evidence of that intent. Here is how common closing moves can match them:
| Wind-down move | Badge of fraud it can match |
|---|
| Transferring assets to a new LLC that you own | Transfer to an insider, or you keep control of the property |
| Starting a new company at the same location with the same customers | You continue in possession or control of the property |
| Selling your business assets to a friend for a low price | No reasonably equivalent value |
| Moving out your business assets after your funder threatened to sue | You have been sued or threatened with a lawsuit |
| Selling all of your business assets privately | Substantially all your assets, with intent to conceal |
Even if a transfer is not fraudulent, state law may require that assets go to creditors first. Section 704 of the New York Limited Liability Company Law says the assets of an LLC being wound up go “First, to creditors, including members who are creditors.”
Will Dissolving My LLC or Filing for Bankruptcy Help?
Dissolving your LLC will have no impact on your liability to the funder. Under 15 Pa.C.S. §8834(a), a member is not liable for the company’s obligations “solely by reason of” being a member, whether or not the company has been dissolved. If you guaranteed the debt, dissolution doesn’t change that, and sole proprietors were always personally liable.
Bankruptcy also does not help much. Companies cannot receive a chapter 7 discharge (11 U.S.C. §727(a)(1)), and even if they could, it would not release you as guarantor (§524(e)). In your own bankruptcy, the funder can seek to have the guarantee debt ruled non-dischargeable if you committed fraud, made a materially false written statement about your finances (think changing bank statements), or committed a willful and malicious injury (think diverting receivables they purchased), under §523(a). And if you move or conceal property within a year before filing, your entire discharge could be denied under §727(a)(2).
Frequently Asked Questions
Can the funder sue me for fraud for closing my business shortly after being funded?
They can try, and closing shortly after signing would make their case stronger. In Avion, the merchant filed two weeks after stating it did not anticipate bankruptcy, and the fraud claim moved forward.
Will closing my business bank account be considered a default?
It could, depending on your agreement. Cedar makes it a default to block an ACH attempt without advance written notice and an alternative way to collect. Merely closing is not a default.
If my company files for chapter 7 bankruptcy, will that release me from my obligation?
No. Companies cannot receive a chapter 7 discharge, and a debtor’s discharge does not release the guarantor under 11 U.S.C. §524(e).
Should I ask the funder to reconcile my account before I close my business?
Yes, in writing, while your revenues are dropping. In Apollo Funding v Dave Reilly Construction (2d Dept. 2025), a merchant that had not requested a reconciliation could not later argue the provision was illusory.
What if my contract states that dissolving my company is a default?
Then closing may trigger your guarantee, but as Richmond found, a clause like this is evidence the advances were really loans, so you may have usury defenses.