MCA Debt Relief Options in Michigan

If your Michigan business is stuck with merchant cash advances it can’t keep up with, you have ways forward. Start by requesting a reconciliation from the funder to clarify the situation. If that doesn’t work, consider renegotiating directly with the funder or restructuring existing contracts. Seeking consolidation or new financing might also be viable options to lower daily or weekly payments to match the business’s cash flow. And when new financing can’t be had, bankruptcy is a last resort.

Michigan’s Usury Law

A merchant cash advance is legally a purchase of future receivables, not a loan, and so Michigan’s usury law usually doesn’t apply. Michigan’s usury law calls any interest over 25% per year on a loan usury, and it’s a crime. But some courts have recharacterized MCAs as loans where repayment was absolute. Why does usury law matter? Well, if a court calls it a usurious loan, the lender can’t collect any interest, fees or costs. In 2026, though, a Michigan bankruptcy court rejected that argument, reasoning that criminal usury law couldn’t be used to get affirmative relief.

The logical response might be to just stop paying, but stopping on your own may trigger default. Default for you could look like the funder telling your customers or card processor to pay it, not you. If the funder gets a judgment, your bank account could be frozen, too.

If the funder sues, the lawsuit is often filed in New York. Because of the personal guarantee, it may name you personally, too. New York has barred confessions of judgement against out-of-state debtors since August 2019. But any judgement a New York court enters may also be filed in a Michigan court. Once that’s done, it has the same effect in Michigan as a Michigan judgement. And funders have 6 years to sue for breach of a contract.

Personal guarantees are a legal booby trap because they can cause funders to come after you personally if you’ve done anything that could be considered a breach. Some typical breaches are blocking repayments or diverting receivables. If your business just fails in good faith, you usually don’t face the personal guarantee problem, but whether your situation qualifies for that varies.

A Safer Order

Instead, read the contract first to see if it has a reconciliation clause. Then ask for an adjustment in writing, documenting what you lost. Back up the new estimates with bank statements. Take these steps before you change banking accounts or revoke ACH authorization. Talk to an attorney. The funder may refuse, but an attorney can also negotiate new terms and tell you if legal risk is too close. Negotiating can be complicated and you might also need a court’s help.

Restructuring means renegotiating the existing contracts. It doesn’t usually add new debt or debtors. But consolidation is a type of refinancing. In the simplest version, new financing is put together to pay off the old cash advance. It can be different from restructuring by raising the total amount owed. Note that the new money still has to work with the business’s cash flow. Restructuring that avoids bankruptcy typically takes 9 to 12 months. A reconciliation with a single funder can resolve in weeks. Then you have to weigh the potential fees and possible lawsuits while you wait for resolution.

If the clock is running down, your business can also consider Chapter 11 Subchapter V. It’s only for small businesses, and the limit on debt is $3,424,000 for cases filed since June 21, 2024. By October 2026 Congress had passed a bill to raise the limit to $7.5 million for good, but it still needed the President’s signature. Plans usually take several months to get confirmed. But talk to an attorney to see if the debts involved will qualify.

Consumer Credit Rating

Merchant cash advances normally aren’t reported to the consumer credit bureaus like Experian. So restructuring without a bankruptcy often doesn’t affect your consumer credit rating. But the debt can be reported, for example, if a judgement is filed, a personal guarantee is triggered, or a bankruptcy happens. Business credit is another matter: reports from Dun & Bradstreet or Experian Business, for example, can show judgments or UCC filings.

Also see if your settlement affects your tax status. The IRS normally treats forgiven debt as income. But you can exclude it from gross income by filing IRS Form 982 if it’s canceled while in a bankruptcy proceeding or when you are insolvent.

If you do hire help, make sure the provider discloses its fees up front. That means what they are and when you will owe. You want licensed attorneys involved in the negotiations. Be sure nobody takes fees before results where state law forbids that.

You don’t need to figure all this out at once. Asking for a reconciliation is a good way to get the process moving. You’ll better understand the lay of the land, and the funder may even restructure the contract. That all comes before the risky step of missing a payment, with all the time pressure. Because in the end, you’re looking for a cash flow situation you can handle.