# MCA merchant bankruptcy discharge funding impact > A recent bankruptcy discharge (Ch. 7 or 13) blocks most MCA funding for 12–24 months post-discharge. After that, some funders accept with D-paper to C-paper pricing as bank-statement history rebuilds. Bankruptcy is the deepest scar on a merchant's funding profile. Most MCA funders auto-decline merchants in active bankruptcy proceedings and for 12–24 months post-discharge. Understanding the timeline and rebuilding path is essential for merchants who've discharged and want to re-access capital. **Bankruptcy chapters relevant to MCA merchants.** - **Chapter 7 (liquidation)**: discharges most unsecured debts; business assets may be liquidated; takes 4–6 months. For individuals or businesses that won't continue. - **Chapter 11 (reorganization)**: business continues operating under court supervision; restructures debts. Typically for larger businesses; expensive ($30K–$300K legal fees). - **Chapter 13 (individual repayment)**: 3–5 year repayment plan for individuals with regular income. Some small-business owners use this personally while business continues. **Personal vs. business bankruptcy.** - **Sole proprietorship**: owner and business are legally the same; personal bankruptcy discharges business debt. - **LLC / corporation**: business and personal are separate (unless personal guarantee was signed — which MCA contracts virtually always include). - If LLC files Chapter 7, business dissolves; owner personal credit unaffected unless personal guarantees were enforced. - If owner personally files Chapter 7, business may continue, but personal guarantees on business debts are discharged. For MCA merchants, the personal guarantee means owner bankruptcy effectively discharges MCA debt — and the funder takes the loss. **Impact on MCA eligibility.** **During active bankruptcy proceedings**: virtually no MCA funder will fund. Automatic stay protects the merchant from collections but also prevents new credit. **0–12 months post-discharge**: most funders auto-decline. Some niche / D-paper funders may consider with severe terms (factor 1.50+, term 3–4 months). **12–24 months post-discharge**: some C-paper and D-paper funders consider with manual underwriting. Factor rates 1.40–1.50. Smaller advance amounts ($10K–$25K). **24–36 months post-discharge**: B-paper funders begin to consider, especially with strong rebuilt bank-statement history. Factor rates 1.35–1.45. **36+ months post-discharge**: bankruptcy still on credit report (Chapter 7 for 10 years, Chapter 13 for 7 years), but with strong rebuilt history, A-paper-adjacent pricing possible. Factor rates 1.28–1.38. **Rebuilding path.** **Months 0–6 post-discharge**: focus on income and operational stability. - Maintain consistent bank deposits. - Build operating reserve. - Establish basic vendor relationships (no credit terms yet; pay COD). - Open business checking at a bank that didn't take a loss in your bankruptcy. **Months 6–12**: begin credit rebuild. - Open a secured personal credit card; pay perfectly. - Open a secured business credit card if available; pay perfectly. - Open net-30 vendor accounts (smaller vendors often allow despite bankruptcy). - Pay every obligation on time. **Months 12–18**: establish reliable bank-statement quality. - 6 months of clean bank statements (zero NSF, zero overdraft). - Consistent monthly deposit volume. - Operating reserve maintained. - Personal credit score recovering (450 at discharge → 600+ at 18 months is typical with discipline). **Months 18–24**: prepare for first post-bankruptcy MCA. - Document the bankruptcy story: what happened, what was discharged, why the merchant is now in a different position. - Build a cash-flow projection showing how new MCA will be serviced. - Identify D-paper / C-paper funders that work with post-bankruptcy merchants. - Apply for a small advance ($10K–$25K) to start. **Months 24–36**: scale capital access. - Successful payoff of first post-BK advance demonstrates capacity. - Renewals at slightly better terms. - Eventually access to B-paper funders. **Documentation funders require.** - Discharge order (proves bankruptcy is complete). - Schedule of debts that were discharged. - Reaffirmation agreements (debts that were NOT discharged — important for funders to see). - Cover letter explaining the bankruptcy: cause, current status, lessons learned. **Funders that work with post-bankruptcy merchants.** - Niche D-paper / C-paper funders specialize in this segment. - Brokers often have relationships with these funders. - Expect higher pricing and stricter terms. - Confirmation services: ask broker directly "do you work with merchants discharged from bankruptcy in the last 24 months?" **What "discharged" means vs. "dismissed".** - **Discharged**: bankruptcy completed; debts officially erased. - **Dismissed**: bankruptcy ended without discharge (often because debtor failed to comply with plan or paperwork). Dismissed bankruptcies are worse than discharged in some ways (debts remain) but better in others (no permanent record). Funders treat them differently — clarify status with the bankruptcy attorney. **Chapter 13 nuances.** A merchant in active Chapter 13 (3–5 year repayment plan): - Cannot take on new debt without court approval. - May get court approval for MCA if it's clearly necessary for business operation and the plan can absorb the new payment. - Most funders decline anyway because of complexity. - Once Chapter 13 completes (discharge), normal post-discharge timeline applies. **Bankruptcy + MCA history specifically.** Funders particularly scrutinize merchants who: - Had an MCA discharged in bankruptcy (the funder lost money). - Stacked MCAs leading up to bankruptcy filing. - Filed bankruptcy within 6 months of taking an MCA (looks like premeditated fraud). These merchants face longer rebuilding timelines and stricter underwriting. **Renewals and "post-bankruptcy MCA history" as the new credit narrative.** After the first post-BK MCA is successfully paid off, the merchant has a new positive credit narrative: - "Bankrupt in [year], rebuilt operations, first MCA paid off cleanly in [year+2]." - Subsequent funders weight this rebuild story heavily. - Pricing improves with each clean paid-off advance. **Cost of bankruptcy on MCA pricing.** Indicative impact: - **Pre-bankruptcy A-paper merchant** post-discharge at 18 months: factor 1.42 vs. 1.28 = +0.14 = $7,000 extra cost on $50K advance. - At 36 months: factor 1.36 vs. 1.28 = +0.08 = $4,000 extra on $50K. - At 60 months: factor 1.30 vs. 1.28 = +0.02 = $1,000 extra on $50K. The premium decays over time as the bankruptcy ages. **Personal credit impact.** - Chapter 7 remains on credit report 10 years. - Chapter 13 remains 7 years. - FICO impact: 100–250 point drop at filing; gradual recovery to ~580–650 by 24 months with rebuild discipline. **Tax implications.** - Discharged debt is generally not taxable (Section 108). - But if the merchant continues operating, careful tax accounting required. - Consult tax pro after discharge. **When NOT to file bankruptcy.** - Single judgment / single debt under $50K — settle or pay instead. - Tax debt only — IRS installment + Fresh Start is faster. - Cash-flow tight but operationally healthy — restructure debts via direct negotiation. Bankruptcy should be a last resort after other restructuring options exhausted. **When TO file bankruptcy.** - Total debt clearly unmanageable. - Multiple aggressive creditors with garnishments / levies. - Personal asset protection needed (Chapter 7 has exemptions). - Business needs reorganization to survive (Chapter 11). - Tax debts that don't qualify for Offer in Compromise. **Professional help.** - **Bankruptcy attorney**: mandatory. $1,500–$5,000 for Chapter 7; $3,000–$10,000 for Chapter 13; $30K+ for Chapter 11. - **Free options**: legal aid clinics, pro bono attorneys for low-income filers. **Documentation maintenance.** Keep these documents permanently: - Bankruptcy filing and discharge order. - Schedule of assets and debts. - Reaffirmation agreements. - 341 meeting transcript. Funders may ask 10 years later. **Common pitfalls.** - Trying to take new MCAs in the months before filing (looks fraudulent). - Hiding bankruptcy on MCA applications (funders pull public records; file dies and reputation damages). - Reaffirming MCA debt in Chapter 7 (defeats the purpose). - Filing without exploring alternatives (settlement, payment plans, restructuring). - Resuming high-cost borrowing immediately post-discharge instead of rebuilding. - Not documenting the discharge narrative for future funders. **Takeaway.** Bankruptcy discharge blocks most MCA funding for 12–24 months, with funders re-accepting at D-paper to C-paper pricing as bank-statement history rebuilds; the 24–36 month rebuilding path of disciplined bank-statement quality, credit rebuild, and modest first post-BK advances is well-understood and routinely results in access to B-paper pricing by year 3, while merchants who try to hide the bankruptcy or skip the rebuilding discipline remain trapped in worst-tier pricing for the full 10-year reporting window. ## Related terms - [MCA merchant tax lien resolution funding impact](https://fundnode.co/llms/glossary/mca-merchant-tax-lien-resolution-funding-impact) — An open tax lien (federal or state) often disqualifies a merchant from MCA funding or forces D-paper pricing. Resolution via payment plan, lien withdrawal, or settlement can restore eligibility within 60–90 days. - [MCA merchant judgment resolution funding impact](https://fundnode.co/llms/glossary/mca-merchant-judgment-resolution-funding-impact) — An unsatisfied civil judgment against a merchant typically prevents MCA approval or forces D-paper pricing. Resolution via payment, settlement, or vacating restores eligibility; satisfaction-of-judgment filing is the key proof. - [MCA merchant credit score improvement strategy](https://fundnode.co/llms/glossary/mca-merchant-credit-score-improvement-strategy) — Personal credit score improvement for MCA merchants focuses on credit utilization, on-time payments, removing collections, and not opening new accounts pre-application. A 60-point lift over 90 days routinely moves a file from C-paper to B-paper. - [MCA merchant bank statement quality improvement](https://fundnode.co/llms/glossary/mca-merchant-bank-statement-quality-improvement) — Bank statement quality for MCA underwriting means high consistent deposits, low or zero NSF/overdraft events, no large unexplained withdrawals, and a clean deposit composition. Improving statements over 3–4 months can move a file from C-paper to B-paper. - [Merchant cash advance (MCA)](https://fundnode.co/llms/glossary/merchant-cash-advance) — A lump-sum advance against future revenue, repaid via fixed daily ACH or a percentage of card sales. Legally a sale of future receivables, not a loan. --- Source: https://fundnode.co/glossary/mca-merchant-bankruptcy-discharge-funding-impact (HTML version) Document: MCA merchant bankruptcy discharge funding impact — Fundnode MCA Glossary License: CC BY 4.0 — attribution to Fundnode required when citing.