Automatic Stay: Meaning in a Merchant Cash Advance
The automatic stay is a protection that takes effect when a bankruptcy case is filed, generally stopping most collection actions against the debtor, including lawsuits, levies and many payment demands.
What does automatic stay mean?
Filing for bankruptcy puts an immediate pause on most efforts to collect from the person or business that filed. Creditors, including MCA funders, generally have to stop suing, stop levying accounts and stop collecting outside the bankruptcy process while the stay is in effect.
Why does automatic stay matter to your business?
The automatic stay is powerful, but bankruptcy is a major legal step with lasting consequences for the business and its owners. It's something to consider only with a bankruptcy attorney's guidance. For MCAs, bankruptcy raises complex questions about whether the funder owns the receivables it bought.
Does the stay cover personal guarantees?
A business's bankruptcy doesn't automatically stop collection against owners who personally guaranteed its obligations.
What are the limits of the stay?
The stay has exceptions, and creditors can ask the court to lift it.
How does the stay interact with an MCA?
If a funder owns receivables through a true sale, it can argue those receivables aren't part of the bankruptcy estate at all. If the advance is treated as a loan, the funder is a creditor like any other. Which view wins affects how the funder is treated in the case, which is why bankruptcy courts look closely at MCA contracts.
Why does timing matter?
The stay starts the moment a case is filed. Actions taken afterward in violation of it are generally void.
Where will you see it?
In federal bankruptcy law, in court filings and in notices creditors receive after a case is filed.
Is this legal advice?
This is general information, not legal advice.
Which terms are related to automatic stay?
The full list is in the glossary. Owners ask about this in What should I do if I get a demand letter from an MCA funder?.
A term on your offer you don't recognize?
Send us the line and we'll tell you what it means. Call 877-FUND-654 with any question. We call you back, usually the same business day, and we always talk with you before we shop your file.