Written by Steven E. Cowen, Esq.
Attorney, Debt Solution Law Group | State Bar of California #132988 | Full attorney bio →
It’s one of the most common questions business owners ask when they first start researching a way out of merchant cash advance debt — and it’s also one of the most misunderstood.
The short answer: yes, in many cases, bankruptcy-related reorganization can significantly reduce or completely eliminate merchant cash advance debt in California. But the type of bankruptcy matters enormously, and most people researching this topic don’t know there’s an option built specifically for situations like theirs.
Why “Bankruptcy” Scares Most Business Owners
When most people hear “bankruptcy,” they picture liquidation — closing the doors, selling off assets, walking away from everything they built. That’s Chapter 7, and it’s not what we’re talking about here.
The Option Most People Have Never Heard Of: SBRA
The Small Business Reorganization Act (SBRA) — Chapter 11, Subchapter V — was created specifically for small and medium-sized businesses that need to restructure debt while staying open. It’s faster and less expensive than traditional Chapter 11, and it was built with businesses exactly like yours in mind.
Under the SBRA, a business can:
- Continue operating normally throughout the case
- Propose a repayment plan based on what the business can actually afford — not what the MCA lender originally demanded
- Often reduce unsecured debt, including MCA debt, far below the original amount
- Stop collection calls, withdrawals, and lawsuits immediately once filed
Does Merchant Cash Advance Debt Qualify?
In most cases, yes. MCA agreements are typically treated as unsecured debt in this kind of filing, which means they’re often subject to significant reduction — sometimes elimination entirely — depending on the overall financial picture of the business.
Will I Lose My Business?
No. This is the opposite of what most people assume. The SBRA was designed to let business owners keep running their business while the debt gets restructured around what’s actually sustainable.
Is My Business Eligible?
Generally, businesses with total debt under $3,424,000 in aggregate noncontingent, liquidated secured and unsecured debts (excluding debts owed to affiliates or insiders) that bring in enough revenue to cover ongoing operating costs are well-positioned to use this option. Every situation is different, which is why a free consultation is the fastest way to get a real answer.
Schedule a free consultation to see if your business qualifies →
