Can MCA Bankruptcy Claw Back Payments the Funder Took in the Last 90 Days in 2026?

You took a merchant cash advance, and the payments got harder and harder to make. Maybe you’re thinking about bankruptcy, and you heard the court can make the funder pay back what it collected in the last 90 days. Short answer: it can happen, but there are catches. You should understand what they are, because this is one thing you don’t want to end up counting on.

Section 547 of the Bankruptcy Code says that any payment made to a creditor within 90 days before filing for bankruptcy is a preferential payment and can be recovered. You file Chapter 7 or Chapter 11 and yes, the funder’s last 90 days of payments can be clawed back, at least on paper, even though the debt wasn’t phony. The fact that the debt was legitimate isn’t a defense — it’s still a preferential payment. Those 90 days are counted backwards from the date the bankruptcy filing was made, and the payments the funder took within that period are the ones at issue. The ones before it are not. So before you call anyone, pull together a list of every payment and its date.

How is that fair? The creditor didn’t do anything wrong. It was a real debt and the amount was correct. Why does the law permit a bankruptcy estate to clawback a payment on an arms-length debt? Savvy creditors, who know you may not be solvent, try to be more aggressive than creditors who don’t know you’re in trouble. They want to take advantage of that at the expense of the other creditors. And creditors who are so aggressive in getting payment during those 90 days may have to give the money back to the bankruptcy estate to be equitably divided among all the creditors. It doesn’t matter whether the creditor knew that you were insolvent.

The catch is the money doesn’t actually come back to you, it goes to the bankruptcy estate, and the funds recovered almost never actually get apportioned fairly among the rest of the creditors. Usually the money is used to pay the professional fees, and only a small portion of the funds might end up in the general pool to distribute to the creditors.

So what does that mean for your funder? It’s like any other creditor here. It doesn’t matter whether it knew you were in trouble. What matters is if the payments it took during those 90 days look like normal operations for you, or pressure applied to a business in distress.

Ordinary Course

The first line of defense to any preference claim is the ’ordinary course of business’ exception, which basically says that if payment was made in the ordinary course of business and not because the creditor pressured the debtor while insolvent, the creditor has a defense to the clawback. It’s almost a safe harbor if the bill was paid according to its terms.

Picture it from the creditor’s side. Suppose your invoices include terms for net payment in 30 days. If the debtor is a customer who regularly paid on time and whose last payment before bankruptcy was within 30 days, then there’s a good argument that this was “ordinary course” and should be allowed. If you called him on day 20 and asked when you’d get the money and he paid you on day 30, still ordinary course. Suppose it’s someone who has been paying you within 60 days for the past three years, when they were supposed to be paying in 30 days. That’s still an ordinary-course defense.

Where it falls apart is when the customer pays later and later each month, but when you finally get a payment, the creditor applies it to an old invoice from 120 days ago. That’s not “ordinary course.” If the creditor applies the most recent payment to the most recent invoice, at least you can argue the invoice was paid according to the terms of the invoice. That isn’t a perfect answer, but it gives you something to fight with. Put your funder in the creditor’s chair and the same questions come up about the payments it pulled from your account.

A Creditor Might Escape the Preference Exposure

A second defense is contemporaneous exchange of value, which means basically a COD sale. A new product, sold to the debtor, for cash at the same time. It only works to the extent the debtor has no other supplier willing to give them credit. The COD vendor can also ask the ailing customer for some money on top to cover a few old invoices. That “something extra” still might be vulnerable to a preference claim, but the risk is far less than selling new stuff, getting paid, and applying the payment to the oldest invoice.

When vendors and suppliers start seeing that payments to them are slower and slower, they sometimes take steps. The best ones in the business watch the payment trend, and if they see signs of trouble they may have made a play to try and protect themselves in some way. There are a few other ways that a creditor might escape the preference exposure. Some types of secured creditors - those who had a security interest in some of the debtor’s assets - get special treatment. Payments on secured claims do not constitute preferences. But the creditor had to have filed a UCC-1 form more than 90 days before the bankruptcy petition was filed. An up-front deposit is also not a preference. Preferences are only payments on old (antecedent) debts. A bank letter of credit is not a preference. The bank that issued the letter of credit pays out when it’s called, so the debtor is not the ultimate payer.

The law says the estate can go after the last 90 days of payments. Whether they succeed depends on how strong the funder’s defenses are - ordinary course, contemporaneous exchange, secured creditor who filed their liens in time. (But even if they do, much of the recovery typically goes to professional fees, not you.) So don’t take a clawback as a sign you should be filing, or as a way to get your money back. Get a bankruptcy lawyer to review your payment history instead.