Merchant Cash Advance Debt Relief in Tennessee: How We Wiped Out $2 Million of MCAs in Bankruptcy Court
- Robert J. Gonzales
- Aug 4
- 4 min read
Updated: 4 days ago
by Robert J. Gonzales, Business Bankruptcy & Restructuring Attorney, EmergeLaw, PLC
Merchant cash advances (MCAs) can feel like a lifeline when your business needs cash fast. But for many Tennessee business owners, that lifeline quickly becomes a crushing weight. Daily withdrawals, sky-high effective interest rates, and aggressive collection tactics push companies deeper into distress.
We recently represented a business with 12 different MCA lenders draining $17,000 per day from its operating accounts and even contacting customers to divert payments — a situation that seemed impossible to escape.
What many owners don’t realize is that the very predatory features that make MCAs so destructive also make them vulnerable in Bankruptcy Court. In this article, we’ll explain why, and share how we used the Bankruptcy Code’s equitable subordination powers in a recent Subchapter V case to wipe out nearly $2 million in MCA debt.
Why MCA Debt Gets Worse Over Time
Merchant cash advances aren’t traditional loans. On paper, they’re “purchases of future receivables.” In reality, they’re predatory financing arrangements that function like ultra-high-interest loans, often with these features:
Effective interest rates often exceeding 100%, with some over 400% APR.
Daily ACH withdrawals that bleed operating accounts dry.
Personal guarantees tying the owner’s personal assets to the debt.
Aggressive collection tactics, including contacting your customers directly and demanding payment.
Because repayment is tied to revenue — but without flexibility when sales drop — the financial pressure compounds quickly. Many businesses end up stacking multiple MCAs just to keep up, digging the hole deeper.
Using Merchant Cash Advance Debt Relief Strategies in Bankruptcy Court
Most business owners think bankruptcy means shutting down. In reality, Chapter 11 — especially Subchapter V — can be one of the most powerful tools for merchant cash advance debt relief, allowing you to go on offense against MCA lenders.
Under the Bankruptcy Code, courts have the power to:
Stop collections immediately with the automatic stay.
Separate MCA claims from other unsecured creditors.
Subordinate MCA claims under Section 510(c) of the Bankruptcy Code, reducing or eliminating them entirely if their conduct was inequitable.
This means that bankruptcy isn’t just a defensive shield — in the right circumstances, it’s a sword.
Case Example: Nearly $2 Million in MCA Debt Wiped Out
In a recent Subchapter V case, our client owed nearly $2 million to 12 different MCA lenders. The repayment terms were crippling. The lenders’ tactics — including contacting customers to redirect payments — threatened the company’s survival.
We proposed a Plan that:
Separated MCA claims into their own class.
Equitably subordinated those claims to the general unsecured creditors.
Paid nothing to the MCA class, effectively wiping out the debt.
The court confirmed the Plan.
The Confirmed Plan Language on MCA Claims
Here’s the relevant excerpt from the confirmed Plan (identifying details removed):
ARTICLE XVIII – TREATMENT OF MERCHANT CASH ADVANCE CLAIMS: EQUITABLE SUBORDINATION PURSUANT TO 11 U.S.C. § 510(C)
18.1 Purpose and Scope. This Article addresses the classification and treatment of Claims arising from merchant cash advance agreements entered into by the Debtors with MCA lenders prior to the Petition Date. The Debtors proposed that these Claims be equitably subordinated to the Claims of General Unsecured Creditors pursuant to section 510(c) of the Bankruptcy Code. This treatment was based on the circumstances surrounding the MCA Agreements and their impact on the Debtors and other creditors.
18.2 Basis for Equitable Subordination. The Debtors submitted that equitable subordination was warranted because of:
(a) Onerous and unconscionable loan terms with effective APRs from 33% to 418%, depleting cash flow.
(b) Oppressive repayment structures requiring significant and frequent payments.
(c) Incomplete perfection of security interests that undermined their validity and priority.
(d) Aggressive and harmful collection tactics, including contacting the Debtors’ clients and directing them to send payments to the MCA lenders.
Why This Works in Bankruptcy Court
Equitable subordination under Section 510(c) is a rarely used but extremely powerful tool. To succeed, you must show:
Inequitable conduct by the creditor.
Harm to the debtor or other creditors caused by that conduct.
That subordination is consistent with bankruptcy law.
In the MCA context, exorbitant interest rates, suffocating repayment schedules, incomplete perfection of liens, and aggressive customer contact can meet this standard — especially when there’s a pattern across multiple lenders.
FAQs About MCA Debt and Bankruptcy
Q: Can MCA lenders contact my customers if I file bankruptcy?
No. The automatic stay stops all direct contact with your customers, protecting your receivables.
Q: Is equitable subordination common?
It’s rare — but when the facts justify it, as in our recent case, it can completely eliminate MCA debt.
Q: Will bankruptcy ruin my business?
Not in Chapter 11 or Subchapter V. These processes are designed to keep your business operating while restructuring debt.
Q: How quickly can I stop daily withdrawals?
Immediately upon filing — the automatic stay stops all ACH debits from MCA lenders.
Could This Work for You?
If MCA lenders are draining thousands from your account every day and threatening your customer relationships, there may be a way to not just stop them — but wipe them out entirely.
Contact EmergeLaw to see if your business qualifies for a Subchapter V strategy that could end the MCA cycle for good.
Robert Gonzales is a Nashville-based business bankruptcy and restructuring attorney with EmergeLaw, PLC. He represents small and mid-sized businesses in Nashville, across Tennessee and nationwide in Chapter 11, streamlined Subchapter V restructurings, and out-of-court workouts. Robert is especially experienced in helping companies break free from predatory merchant cash advances, using advanced bankruptcy tools such as equitable subordination.