Chapter 11 business bankruptcy allows companies to restructure their debts while staying open and continuing day-to-day operations. It forces creditors to renegotiate payment terms that the business can afford and can even help the owners resolve personal guarantee obligations, particularly in cases involving merchant cash advances (MCAs).
To see how Chapter 11 can eliminate MCA debt and help a business recover, read this case study detailing how The Lane Law Firm helped a healthcare-focused small business in Texas wipe out $555,136 in MCA debt through a strategic Chapter 11 filing.
Client: A Small Business in Texas Trapped by MCA Debt
Triniti DME Solutions, LLC is a provider of durable medical equipment for chronic pain management. While the owner devoted his career to delivering high-quality healthcare solutions to those who needed them, financial hardship struck the business. Seeking fast relief, the owner was lured into a merchant cash advance (MCA) debt trap by a predatory broker and lender.
Challenge: Overwhelming Debt & Predatory MCA Collectors
By the time Triniti DME Solutions contacted The Lane Law Firm, the business had accumulated nearly $1 million in MCA debt. After evaluating options, Chapter 11 bankruptcy was the most effective solution to restructure and eliminate MCA debt. Over $1.25 million in debt was restructured, including $555K+ reduction in MCA debt, resulting in a once again profitable and solid business model free from the high-interest debt trap.
However, one MCA lender waited until the bankruptcy case was resolved to file a lawsuit and pursue our client and his business! They justified this by stating that they didn’t file a proof of claim or participate in the bankruptcy.
Unfortunately, this isn’t uncommon. MCA collectors attempt to justify their actions by stating:
- They did not file a proof of claim or otherwise participate in the bankruptcy;
- The contract specifies that the business owner did not intend to file bankruptcy or that the business owner agreed that, even if bankruptcy was filed, he would still owe the debt;
- They don’t care about the business’s bankruptcy filing, and they plan to pursue the owner under the personal guarantee clause.
Solution: $1.25 Million in Restructured Debt, a Show Cause Motion & an Educated, Truthful Interpretation of MCA Contracts
Our client’s MCA lender didn’t back off with their lawsuit until told we’d file a "show cause" motion. When granted this compel an officer of the MCA company to come to Texas and tell the judge in person why that officer and the MCA company should not be held in contempt of court. Failing to show up for a show cause hearing can result in being arrested by a U.S. Marshal and being brought before the court in handcuffs.
Even if the MCA lender had shown up to the show cause hearing, there were plenty of reasons why they wouldn’t have succeeded in the lawsuit, including:
- Creditors cannot simply “opt out” of bankruptcy by choosing not to file a claim. If so, every creditor would.
- The lender was lying. Their contracts don’t trump federal bankruptcy law.
- It’s unlawful to pursue a guarantor (owner) when the borrower (business) is protected by the bankruptcy automatic stay provision, which also extends to confirmation or discharge injunction orders.
- It’s unlawful to pursue a guarantor (owner) if the borrower (business) is not in default. The business is not in when paying the court's newly determined amount. Moreover, when the amount is $0 it's impossible to be in default.
Results: $555,136 of MCA Debt Eliminated & Personal Guarantee Obligations Resolved
Once we threatened to file a show cause hearing, our client’s MCA lender dropped the lawsuit. Thanks to this approach, The Lane Law Firm was able to eliminate MCA debt and resolve all personal guarantee obligations for Triniti DME Solutions, LLC.
Our client was still left with other restructured debts from the Chapter 11 bankruptcy, but the amount was more manageable with the MCA obligations gone.
Conclusion: Chapter 11 Bankruptcy: A Way Out of MCA Debt and Personal Guarantee Obligations
MCA debt can be a nightmare for businesses in Texas, but there is a way out. As this case study illustrates, this business owner was able to wipe out over $555K of MCA debt and save his company from predatory lenders. Chapter 11 bankruptcy provides a proven legal path to eliminate MCA debt, resolve personal guarantees, and restore business stability.
If your business is overwhelmed by MCA loans or predatory lenders, don’t wait any longer. Contact The Lane Law Firm today for a free, no obligation consultation today. We'll find the best solution for your business and prepare you for future success. Help is here, and you may be able to save your business from closing down.
