How to Object to an MCA Funder's Proof of Claim in Bankruptcy

When an MCA funder files a proof of claim in your bankruptcy case, that filing does not automatically establish what the business owes or whether the claim is properly secured. A proof of claim can be challenged, and in a Chapter 11 or Subchapter V case, that challenge can materially affect how the reorganization plan works.

Three terms anchor everything that follows:

• Proof of Claim is the formal statement a creditor files in bankruptcy identifying what it claims it is owed and how that claim should be treated.
• Prima facie validity refers to the evidentiary presumption that can attach to a properly completed proof of claim. Supporting evidence can challenge that presumption.
• Recharacterization is the process of looking past the label "purchase of future receivables" and asking whether the MCA actually functioned more like a loan.

Singer Law Group works with businesses anywhere in the United States on MCA issues. The business itself does not need to be located in New York. When Singer represents a business in an MCA lawsuit, that lawsuit must be filed in New York. Bankruptcy cases have their own venue rules and can be filed elsewhere depending on the circumstances.

What Is an MCA Funder's Proof of Claim and Why It Matters

An MCA funder's proof of claim states what the funder says it is owed and how it believes that claim should be treated in the bankruptcy case.

That classification matters. A funder claiming secured status is asserting rights tied to collateral. An unsecured funder is generally treated with the other unsecured creditors under the plan.

The difference can affect how much the funder receives and whether the proposed reorganization works.

The Proof of Claim and Its Evidentiary Presumption

A proof of claim generally identifies the creditor, the amount claimed, the basis for the claim, and whether the creditor asserts that the claim is secured.

The filing should include the documents necessary to explain the debt and any claimed security interest.

A properly supported claim can receive an evidentiary presumption. That does not make the claim untouchable. If the debtor or another party in interest produces evidence showing that the amount, classification, or supporting documentation is wrong, the claim can be challenged.

The proof of claim is the starting point, not the last word.

Secured vs. Unsecured Treatment: Why the Distinction Matters

A funder's secured status depends on more than checking a box on a form.

The underlying security documents, UCC filing, collateral, lien priority, and collateral value all matter.

If the funder has a valid security interest but there is not enough collateral value left after senior liens are accounted for, some or all of the claim can be treated as unsecured.

That distinction can materially change the proposed plan.

MCA Claims in Subchapter V Cases

MCA claims can become especially important in Subchapter V bankruptcy because the business is trying to reorganize while dealing with several creditor claims at once.

The merchant cash advance defense questions that existed before bankruptcy do not disappear after the petition is filed.

They show up in a different form.

Was the claimed balance calculated correctly? Does the funder actually have a secured claim? Does the UCC filing support the collateral position being asserted? Did the MCA operate more like a purchase of receivables than a loan?

Those questions belong in the proof-of-claim review.

What Are the Grounds for Objecting to an MCA Funder's Proof of Claim?

The grounds for objection depend on what the claim says and what the supporting records actually show.

Common issues can include missing documents, problems with secured status, an overstated balance, lien priority issues, post-petition charges, and recharacterization of the MCA as a loan.

One claim can present more than one problem.

Missing Attachments and Supporting Documents

If the claim is based on an MCA agreement, the agreement should be part of the supporting record.

If the funder claims a security interest, the debtor should also be able to identify the security agreement and UCC filing supporting that position.

If important documents are missing, the debtor needs to determine whether the claim has enough support for the status the funder is asserting.

Do not accept "secured" simply because the funder checked the box.

UCC Priority and Collateral Value

A UCC filing can establish that a creditor perfected a security interest.

It does not guarantee that the creditor has meaningful collateral value.

If another lender or creditor has an earlier lien against the same collateral, the MCA funder's position can be junior. If the senior debt consumes the available collateral value, the funder's secured position can be significantly reduced or eliminated.

That is why you need to review lien priority and collateral value together.

Balance Overstatement: Fees, ACH Entries, and Post-Petition Charges

Check the balance listed on the proof of claim against the business's own records.

Start with the bank statements.

Compare the funder's claimed balance with the actual amount funded, ACH debits, reversed transactions, credits, fees, and payments made before and after bankruptcy.

Don't start with the funder's ledger and assume it is correct. Use the independent bank records and work forward.

That is often where discrepancies appear.

Recharacterization: Arguing the MCA Is a Loan, Not a Receivables Purchase

If the MCA had fixed payments, reconciliation did not work in practice, and the funder had broad recourse regardless of business performance, the transaction can raise a recharacterization issue.

The agreement label does not answer the question.

Did the payments actually move with revenue? Could the business use reconciliation? Did the funder take a real risk if receivables dropped?

If the MCA operated more like a loan and New York law applies, recharacterization can affect the funder's claim and add defenses to the case. Singer Law Group's discussion of whether MCA agreements are legal addresses that distinction in more detail.

The Six-Step Objection Process

A strong proof-of-claim objection starts with the documents.

The claim needs to be audited, the UCC position checked, the payment history reconstructed, any recharacterization issue evaluated, and the objection supported with records showing exactly where the funder's claim is wrong.

Step 1: Audit the Proof of Claim Immediately Upon Filing

Pull the funder's proof of claim and every attachment.

Confirm whether the filing includes the MCA agreement, any security provisions, the UCC filing, and documents supporting the amount claimed.

Look for missing pages, incomplete schedules, unexplained fees, and inconsistencies between the claim and the underlying agreement.

Do not wait until plan confirmation to find the problem.

Step 2: Run the UCC Priority Search

Identify all UCC filings against the debtor.

Look at when they were filed, which creditors filed them, what collateral is covered, and where the MCA funder sits in the priority stack.

A properly perfected junior lien can still have little or no secured value if senior liens already consume the available collateral.

That analysis can change how you should treat the MCA claim.

Step 3: Reconstruct the Transaction Ledger from Independent Records

Get the debtor's bank statements covering the life of the MCA.

Compare every ACH debit with the funder's claimed balance.

Flag reversed debits, post-petition withdrawals, unexplained fees, and discrepancies between what the business actually received and what the funder says is owed.

The debtor's bank records show what actually happened.

That is the record the claim needs to be tested against.

Step 4: Evaluate Recharacterization Arguments

Review the MCA's economic structure.

Was there a fixed payment schedule? Was reconciliation genuine? Did payments move when revenue changed? Did the owner or business remain responsible even if receivables fell?

A transaction written as a sale can still operate differently in practice.

If recharacterization is a legitimate issue, evaluate it before the debtor accepts the funder's claimed status in the bankruptcy case.

Step 5: File the Objection With Supporting Evidence

The objection should identify exactly what is wrong with the claim.

That can include the claimed amount, secured status, supporting documentation, lien priority, post-petition charges, or the legal characterization of the transaction.

Attach the records supporting the objection.

A vague statement that the funder's claim is "wrong" is not enough. The objection should show where the claim breaks down.

Step 6: Consider Separate Relief for Post-Petition Collection Activity

If the funder continued taking ACH payments or engaged in other collection activity after the bankruptcy filing, that issue can require separate legal analysis.

The automatic stay generally restricts covered collection activity once the bankruptcy case begins.

You should also examine any post-petition debits when calculating the amount of the funder's claim.

For businesses dealing with MCA litigation and bankruptcy together, Singer Law Group's analysis of MCA lawsuits and Chapter 7 bankruptcy explains how those problems can overlap.

How Recharacterization Works and Why It Matters

Recharacterization changes how the court views the MCA.

Instead of accepting that the funder purchased receivables, the court examines whether the transaction really functioned like a loan that had to be repaid.

That question can affect claim treatment, usury issues when applicable, and whether the funder can continue asserting rights as a purchaser of receivables.

The Built-In Term Question

One issue is whether the agreement effectively created a fixed repayment period.

If the purchased amount divided by the required periodic payment produces a predictable number of weeks or months, that can raise questions about whether the agreement really depended on future receivables.

A true receivables purchase should involve some uncertainty because future revenue is uncertain.

A payment structure that looks fixed from day one can point in another direction.

That is one fact, not the entire analysis.

Reconciliation Provisions: Genuine vs. Illusory

Many MCA agreements contain a reconciliation clause.

The important question is not whether the word "reconciliation" appears in the contract. It is whether the business could actually use the provision.

Was there a clear process? Did the business request an adjustment? Did the funder respond? Did payments actually change when revenue dropped?

If reconciliation existed only on paper, that can matter in a recharacterization dispute.

What Recharacterization Means for Plan Confirmation

If an MCA funder is treated as a creditor rather than the owner of purchased receivables, its rights in the bankruptcy case can change.

The next question becomes whether the claim is secured, unsecured, partially secured, disputed, or subject to other defenses.

That treatment can affect whether a proposed Chapter 11 or Subchapter V plan is workable.

A successful claim objection combined with MCA restructuring can materially change what the business needs to pay through the plan.

Common Mistakes to Avoid When Challenging MCA Proofs of Claim

• Accepting the secured designation without reviewing the attachments. A checked box is not enough. Look at the security agreement, UCC filing, collateral description, and priority.
• Skipping the UCC priority search. A perfected lien can still have little or no secured value if senior liens consume the collateral first.
• Using the funder's ledger as the starting point. Start with the debtor's bank records. Compare those records with the funder's numbers and identify the differences.
• Ignoring post-petition ACH debits. Any withdrawals after the bankruptcy filing need separate review and should not be rolled into the funder's claimed balance.
• Waiting until plan confirmation to raise the problem. The earlier you identify a disputed MCA claim, the easier it is to structure the plan around the correct numbers and classifications.
• Treating recharacterization as something to consider only after everything else fails. If the agreement operated more like a loan than a genuine purchase of receivables, that issue belongs in the initial review.

MCA Proof of Claim Objections and Subchapter V Eligibility

How MCA claims are calculated can matter when a business is evaluating Subchapter V bankruptcy.

Eligibility rules depend on the debtor's debt structure and the statutory requirements in effect at the time of filing.

That means businesses should review claim amounts carefully before assuming they qualify or do not qualify.

How the Debt Calculation Works and Where MCA Claims Fit

The debt calculation for Subchapter V looks at the debtor's obligations as of the relevant filing date under the requirements then in effect.

If an MCA funder's claimed balance is overstated and a successful objection reduces that amount, the correction can affect the debtor's overall debt calculation.

Changing a claim from secured to unsecured differs from reducing the debt amount itself.

Don't confuse the two.

Check the Current Subchapter V Eligibility Rules Before Filing

Subchapter V eligibility rules and debt thresholds have changed over time.

A business considering a filing should use the statutory requirements in effect when it files, rather than relying on an older blog post, a prior threshold, or proposed legislation.

Singer Law Group can evaluate whether Subchapter V or a traditional Chapter 11 filing fits the company's current debt structure.

Strategic Timing of Objections Relative to Plan Confirmation

Do not wait until late in the plan process to decide whether a major MCA claim is wrong.

A disputed claim can affect plan negotiations, feasibility, creditor treatment, and the business's overall restructuring strategy.

The better practice is to audit material MCA claims early enough that the business knows what numbers it is actually building the plan around.

For the broader restructuring analysis, see Singer Law Group's discussion ofChapter 11 bankruptcy for small businesses.

Common Myths About MCA Proofs of Claim in Bankruptcy

Some of the biggest mistakes start with assuming the funder's claim is stronger than it actually is.

Myth: "The Funder Checked 'Secured,' So the Claim Is Secured"

Checking the secured box does not settle the issue.

Look at the security agreement, UCC filing, collateral, lien priority, and collateral value.

A claim is only as strong as the documents and assets supporting it.

Myth: "A Filed UCC-1 Guarantees the Funder a Secured Claim"

A UCC filing can establish perfection.

It does not guarantee that the funder has collateral value available to support the entire claim.

If senior creditors are ahead of the funder, the remaining collateral value can be reduced or eliminated.

The filing date starts the priority analysis. It does not finish it.

Myth: "The Funder's Claimed Balance Is the Correct Balance"

The claimed balance is the funder's number.

Use the debtor's bank records to test it.

Compare ACH withdrawals, reversed transactions, fees, payments, and any post-bankruptcy activity.

Suppose there was pre-bankruptcy enforcement involving a confession of judgment; that also needs its own review. Singer Law Group's guide to fighting a confession of judgment in New York addresses that issue.

Myth: "If No One Objects, the Funder Gets Paid in Full"

An allowed claim is not the same thing as a guaranteed full recovery.

How much a creditor receives depends on its classification, collateral, the bankruptcy chapter, the plan, and the other facts of the case.

That is why secured versus unsecured treatment matters so much.

Frequently Asked Questions

What is an MCA funder's proof of claim, and why does it matter in bankruptcy?

A proof of claim is the document the MCA funder files stating what it believes the business owes and how that claim should be treated.

It matters because the amount and classification can affect the reorganization plan.

If the funder claims secured status, the business must determine whether the security documents, UCC filing, lien priority, and collateral value support that position.

Do not assume the form decides the issue.

What documents should support an MCA funder's proof of claim?

The claim should include enough documentation to support the obligation and any claimed security interest.

For an MCA claim, that generally means reviewing the MCA agreement, security provisions, UCC filing, and documents supporting the amount claimed.

If those records are incomplete or inconsistent, that can become part of the objection.

Can an MCA funder's secured claim be reduced to zero in bankruptcy?

Potentially.

A funder can have a perfected lien but still have no meaningful secured value if senior creditors already consume all available collateral.

The claim does not disappear simply because the secured value is zero. Instead, depending on the facts, some or all of the claim can be treated as unsecured.

That is why you must check lien priority and collateral value before accepting the funder's secured designation.

What is recharacterization, and how does it affect an MCA funder's proof of claim?

Recharacterization is the argument that an MCA written as a purchase of future receivables actually functioned more like a loan.

The analysis can include fixed payments, whether reconciliation really worked, whether the funder took genuine risk, and what happened if revenue fell.

If the court treats the MCA as a loan, that can affect the funder's rights and claim treatment in bankruptcy and can also raise usury issues under New York law.

What happens if an MCA funder kept debiting my account after I filed for bankruptcy?

Those post-petition debits need immediate review.

Bankruptcy generally imposes an automatic stay against covered collection activity. If the funder continued taking money after the petition was filed, counsel needs to determine what happened, whether the funder had notice of the bankruptcy, and what remedies are available.

Those debits should also be checked against the amount listed on the proof of claim.

How does an MCA proof of claim objection affect Subchapter V eligibility?

It depends on what the objection changes.

If the objection reduces the actual amount of an MCA claim, that can affect the debtor's overall debt calculation.

If it only changes the claim from secured to unsecured without changing the amount owed, the total debt can remain the same.

Subchapter V eligibility should be evaluated under the requirements in effect when the case is filed.

The Firm's Approach

J. Singer Law Group handles both MCA defense and business restructuring, which matters when a proof-of-claim dispute is only one part of a larger debt problem.

Jeb Singer clerked for Judge Stuart M. Bernstein in the U.S. Bankruptcy Court for the Southern District of New York. Ira Reid, the firm's restructuring partner, previously clerked for Judge Goetz in the U.S. Bankruptcy Court for the Eastern District of New York and spent approximately twenty years as a restructuring partner at Baker McKenzie.

That background informs the firm's approach to MCA proof-of-claim disputes. Start with the claim. Check the documents. Reconstruct the ledger. Review lien priority. Evaluate recharacterization. Then determine what those findings mean for the reorganization plan.

Singer Law Group works with businesses anywhere in the United States on MCA issues. When Singer handles an MCA lawsuit, that lawsuit must be filed in New York. The business involved can be located anywhere in the country. Bankruptcy cases have their own venue rules and should be evaluated separately.

Do Not Build a Reorganization Plan Around an MCA Claim You Have Not Checked

A proof of claim is the funder's version of what the business owes.

Before that number becomes part of a Chapter 11 or Subchapter V plan, check it.

Pull the agreement. Review the UCC filing. Look at lien priority. Reconstruct the ACH history from the business's bank statements. Identify post-petition activity. Determine whether reconciliation actually worked. And if the MCA functioned more like a loan than a purchase of receivables, evaluate what that means for the claim.

The goal is not to object simply because an MCA funder filed a claim. The goal is to make sure the bankruptcy plan is built around the debt the business actually owes and the rights the funder actually has.

If your business is in Chapter 11 or Subchapter V and an MCA funder has filed a proof of claim, call J. Singer Law Group at (917) 905-8280 before the plan is built around that number.