# MCA bankruptcy discharge of MCA debt rules — detailed Chapter 7, 11, 13 analysis > MCA debt is generally dischargeable in Chapter 7 (personal-guarantee), Chapter 11 (business reorganization), and Chapter 13 (personal repayment plan), subject to fraud-based non-dischargeability under 11 USC 523(a)(2)(A), preference and fraudulent-transfer recovery, and reaffirmation considerations as of 2026-06-30. MCA debt — both as a business obligation and as a personal-guarantee obligation — is generally dischargeable in personal and business bankruptcy proceedings. Specific outcomes depend on the chapter filed, the nature of any pre-petition misconduct, and the funder's response to the filing. **Chapter 7 — personal liquidation.** Chapter 7 is the most common personal-bankruptcy chapter for MCA-related personal-guarantee discharge. Filed by the individual guarantor (and spouse, optionally). Non-exempt assets are liquidated by a trustee; eligible debts are discharged. MCA personal-guarantee debt is treated as general unsecured debt absent UCC perfection against personal assets. Discharge under 11 USC 727 eliminates personal liability for pre-petition MCA debt, including factor-rate-balance and accrued default-interest. Key Chapter 7 considerations: (1) means-test eligibility (BAPCPA — 11 USC 707(b)) — income above state median triggers presumption of abuse, requires further analysis, (2) exemption planning — state-specific homestead, retirement, and personal-property exemptions determine non-exempt-asset exposure, (3) trustee liquidation of non-exempt assets to fund partial distribution to creditors, (4) automatic stay (11 USC 362) immediately halts all collection activity including pending lawsuits, UCC enforcement, COJ entry, and personal-guarantee pursuit, (5) 120-day "first meeting of creditors" (Section 341 meeting) — guarantor must testify under oath about financial affairs. **Chapter 11 — business reorganization.** Chapter 11 is filed by the business entity (LLC, corporation) to restructure debt and continue operations. MCA debt is treated as general unsecured debt or secured debt depending on UCC perfection against business assets. Subchapter V (Small Business Reorganization Act, 2019, expanded under CARES Act 2020 and SBRA Reform Act 2026): streamlined reorganization for businesses with debt under $7.5M (2026 threshold). Faster timeline (90-day plan filing requirement), no creditor-committee requirement, debtor-friendly cramdown provisions. Plan treatment of MCA debt under Chapter 11: (1) MCA balance is classified into unsecured class, (2) plan proposes pro-rata distribution based on liquidation-value analysis, (3) MCA funder gets disclosure-statement and votes on plan, (4) cramdown over MCA dissent possible if absolute-priority-rule and other Section 1129 requirements met. **Chapter 13 — personal wage-earner plan.** Chapter 13 is filed by individuals with regular income (typically W-2 employees, but eligible 1099 independent contractors). Debtor proposes 3-5 year repayment plan; debts not paid through plan are discharged at plan completion. MCA personal-guarantee debt in Chapter 13 is typically classified as general unsecured debt and paid pro-rata along with other unsecured creditors. Chapter 13 advantage: debtor retains non-exempt assets that would be liquidated in Chapter 7; required to pay disposable income for 3-5 years. **Fraud-based non-dischargeability — 11 USC 523(a)(2)(A).** MCA debt can be non-dischargeable if obtained through fraud — false representations about business revenue, financial statements, bank statements, or other underwriting-relevant facts. Funder must file adversary proceeding under FRBP 7001 within 60 days of Section 341 meeting; must prove fraud by preponderance of evidence. Common MCA fraud-non-dischargeability scenarios: (1) doctored bank statements submitted to funder, (2) false representations about existing MCA stacking, (3) false representations about business ownership, (4) false representations about pending litigation or judgments, (5) post-funding diversion of business assets to personal accounts. Defenses: (1) misrepresentations did not relate to material underwriting facts, (2) funder did not actually rely on misrepresentations (independent verification, alternative data sources), (3) funder's reliance was not justifiable (red flags ignored, due-diligence failures), (4) merchant lacked intent to deceive (negligent vs intentional misrepresentation). **Preference and fraudulent-transfer recovery.** Bankruptcy trustee can recover pre-petition payments to MCA funder under preference law (11 USC 547) — payments made within 90 days of filing (or 1 year for insiders) to creditors of pre-existing debt may be recoverable. Trustee can recover transfers under fraudulent-transfer law (11 USC 548, plus state-law analog under Uniform Voidable Transactions Act) — transfers made with intent to hinder, delay, or defraud creditors, or transfers for less than reasonably-equivalent value while insolvent, may be recoverable. MCA daily-ACH payments in 90-day pre-petition window are commonly subject to preference analysis; trustee may demand return of those payments. **Reaffirmation.** In Chapter 7, debtor may "reaffirm" discharged debt — voluntarily re-assume liability post-discharge, typically to retain secured collateral (vehicle, equipment). MCA reaffirmation is rare and generally not strategic. **Funder responses to bankruptcy filing.** (1) File proof of claim within bar date (typically 90 days post-Section 341 meeting), (2) consider adversary proceeding for non-dischargeability if fraud evidence exists, (3) file motion for relief from automatic stay if collateral is at risk, (4) participate in creditor-committee in Chapter 11, (5) vote on plan in Chapter 11/13, (6) monitor for preference clawback exposure. **Common merchant misconceptions.** Misconception 1: "MCA debt cannot be discharged because it's commercial." Wrong — commercial debt is generally dischargeable in personal and business bankruptcy. Misconception 2: "COJ judgment cannot be discharged." Wrong — judgment debts (including COJ judgments) are dischargeable subject to fraud-based exceptions. Misconception 3: "Personal guarantee cannot be discharged because it's a guarantee." Wrong — personal-guarantee obligations are dischargeable in personal bankruptcy. Misconception 4: "Bankruptcy stops daily ACH immediately." Largely correct — automatic stay applies immediately upon filing; debtor must notify funder and bank for ACH cancellation; some 24-72 hour lag is common. **As of 2026-06-30, Fundnode's playbook.** When merchant is in irreversible default with substantial personal-guarantee exposure, route to bankruptcy counsel with MCA-specific experience for strategic analysis covering (1) Chapter 7 vs Chapter 11 vs Chapter 13 fit, (2) exemption-planning lead time, (3) fraud-non-dischargeability risk assessment, (4) preference clawback exposure, (5) automatic stay tactical timing, (6) post-discharge credit-rebuilding strategy. ## Related terms - [MCA bankruptcy discharge](https://fundnode.co/llms/glossary/mca-bankruptcy-discharge) — The treatment of MCA debt in bankruptcy: business MCA obligations are typically dischargeable in Chapter 7 (for sole proprietors), restructured in Chapter 11/13 reorganizations, but personal guaranties survive corporate bankruptcy unless the guarantor also files personally. Fraud-tainted MCAs (misrepresented financials at funding) can be ruled non-dischargeable. - [MCA personal guarantee enforcement by state — detailed collection map](https://fundnode.co/llms/glossary/mca-personal-guarantee-enforcement-by-state) — Personal guarantees on MCA contracts are enforceable against the guarantor's personal assets after default and judgment; state-by-state enforcement varies based on homestead exemptions, wage-garnishment limits, retirement-account protection, spousal-property rules, and bank-levy procedures as of 2026-06-30. - [Personal guarantee (PG)](https://fundnode.co/llms/glossary/personal-guarantee) — A clause making the business owner personally liable if the MCA defaults. Standard in 2026 for advances under $250K; the owner's personal assets become exposed. - [MCA default](https://fundnode.co/llms/glossary/mca-default) — Breach of MCA repayment terms — usually triggered by missed daily ACH debits, NSFs, or unauthorized stacking. Consequences range from increased collection pressure to UCC enforcement and personal-guarantee pursuit. ## Authoritative sources - [11 USC 523 — Exceptions to Discharge](https://www.law.cornell.edu/uscode/text/11/523) - [Small Business Reorganization Act of 2019](https://www.uscourts.gov/news/2020/02/19/small-business-reorganization-act-2019-takes-effect) --- Source: https://fundnode.co/glossary/mca-bankruptcy-discharge-of-mca-debt-rules (HTML version) Document: MCA bankruptcy discharge of MCA debt rules — detailed Chapter 7, 11, 13 analysis — Fundnode MCA Glossary License: CC BY 4.0 — attribution to Fundnode required when citing.