Small businesses that lack access to traditional sources of funding often rely on merchant cash advances. In the event of default, the funder can seize the owner’s personal and business assets. While filing for bankruptcy may be an option, it is wise to consult with a debt from merchant cash advance lawyer before you do anything.
If your business is struggling under the terms of a merchant cash advance (MCA) agreement, turn to ReconcileMyMCA.com. We represent business owners nationwide to protect their interests and the businesses they’ve worked so hard to create. Contact us today to get started.
How Does Bankruptcy Work? – Debt From Merchant Cash Advance Lawyer
Generally, there are three types of bankruptcy, Chapter 11 bankruptcy, Chapter 7 bankruptcy, and Chapter 13 bankruptcy.
If your business is viable, Chapter 11 bankruptcy allows you to reorganize your business debts. The process involves filing a petition with the bankruptcy court and proposing a reorganization plan with a set time period – usually 3 to 5 years.
The bankruptcy court will only approve the plan if you can show that the business will generate enough revenue to cover the repayment plan. The court must also find that the plan is in the best interests of the creditors.
If the plan is approved, the debt burden of your business can be significantly reduced. However,
creditors have the ability to propose an alternative plan or ask the court to dismiss the case and convert the bankruptcy to a Chapter 7 liquidation.
In a Chapter 7 bankruptcy, some of your property may be sold to pay off as much of your unsecured debt as possible, such as:
- Credit cards
- Personal loans
- Debts arising from lawsuits/civil judgments
Any remaining debt will be discharged, with the exception of student loans, spousal maintenance (alimony), child support, and criminal fines.
In addition, certain types of property are exempt from being sold in a Chapter 7 liquidation, such as a certain amount of equity in a primary residence, personal property, pensions, retirement plans, and one vehicle. If you intend to keep your home or car, however, you must affirm the debt with the lender, meaning that you are required to continue making mortgage and auto loan payments.
To qualify for Chapter 7 bankruptcy, your income must be lower than the median income in the state in which you reside. If your income is above the median, you must pass a “means test.” This test will determine whether or not your disposable monthly income will cover your debts.
Disposable income is your remaining income after paying your monthly expenses, such as housing costs, utilities, child care, taxes, and insurance. If you pass the means test, you can proceed with a Chapter 7 filing. If you don’t, you must file for Chapter 13 bankruptcy.
Chapter 13 bankruptcy allows you to establish a plan to repay your debts, typically over a 3-to-5 year period, and keep your property. But you must have the income to keep up with the payment plan. There is also a means test that determines how much disposable income is available to pay off your debt.
In short, Chapter 13 bankruptcy allows you to combine payments of secured debt into the payment plan, pay off a percentage of your unsecured debt, or eliminate unsecured debt entirely. Finally, a bankruptcy trustee will be appointed by the court to manage your case. Once the bankruptcy is approved, you make monthly payments to the trustee who then distributes payments to your creditors.
Alternatives To Bankruptcy
If you are at risk of defaulting on a merchant cash advance, bankruptcy should be a last resort. A properly structured MCA agreement should include a reconciliation clause that requires the funder to restructure the payment plan if your business experiences a downturn.
At the same time, these agreements typically include onerous provisions such as a confession of judgment (COJ) and a personal guarantee. These provisions allow MCA providers to seize both business and personal assets. The best way to protect your business is to work with the team at ReconcileMyMCA.com.
Our experienced debt relief specialists can help to reconcile your merchant cash advance by negotiating with the MCA provider on your behalf. You should know that under the terms of your MCA agreement, you are required to notify the funder of a receivables shortfall. In addition, you must be able to show that your business will be able to return to profitability.
If reconciling your cash advance is not feasible, we can explore other options, such as a debt consolidation loan or a refinance. Above all, we will work closely with you to protect your business and your personal assets.
Contact ReconcileMyMCA.com to Help Avoid Bankruptcy Today
A merchant cash advance can provide you with working capital to grow your business and cover unexpected expenses, but if you cannot meet the payment terms, you may be forced into bankruptcy. Our debt from merchant cash advance lawyer can help you avoid bankruptcy, reconcile your merchant cash advance, and protect your business. Complete the convenient intake form now to get started.