What a Major 2026 Bankruptcy Ruling Means for Businesses Drowning in MCA Debt

On February 20, 2026, a federal bankruptcy judge in the Southern District of New York issued one of the more thorough rulings to date on merchant cash advances — and it's worth understanding if your business is buried under MCA payments and considering bankruptcy as a way out.

The Case: In re Greenwich Retail Group

Two related retail companies, Greenwich Retail Group LLC and Madison Westside LLC, filed Chapter 11 and then sued four of their own merchant cash advance funders — Itria Ventures, Newco Capital Group, Smart Business, and Square Advance — asking the bankruptcy court to declare that the money they owed, and in some cases had already paid, should be wiped out or returned. The funders moved to dismiss most of the claims. Judge Michael E. Wiles's decision on those motions gives a detailed roadmap of which theories hold up and which don't.

Theory One: The Entire Deal Can Be Challenged as a Fraudulent Transfer

Section 548 of the Bankruptcy Code lets a debtor unwind transfers — and even the obligations themselves — made within two years of a bankruptcy filing if the business didn't receive reasonably equivalent value in return and was insolvent at the time. Louisiana has its own parallel version of this protection under state debtor-creditor law.

The funders in Greenwich Retail Group argued that because the debtors had repaid less than what the funders originally advanced, there couldn't possibly be a fraudulent transfer claim. The court rejected that argument. The relevant comparison isn't what's been paid to date against what was advanced — it's whether the consideration the business received was reasonably equivalent to the full obligation it took on. Given the disparity typical in these deals, that's a factual question for trial, not something that gets resolved on the pleadings.

The Loan-vs-Sale Fight Isn't Over Just Because You Signed

The court also declined to accept Itria's argument that its agreement was a sale of receivables as a matter of law. Looking at features like joint-and-several obligations between related debtors, an overly broad default trigger, an illusory reconciliation process, and full recourse against guarantors regardless of actual receivables performance, the court found the debtors had plausibly alleged their deal was, in reality, a loan — enough to proceed toward discovery. (We cover that analysis in more depth in a companion article on how MCA contracts get recharacterized as loans.)

Filing Stops the Bleeding Immediately

None of this matters if the daily or weekly ACH withdrawals keep draining the account in the meantime. Filing Chapter 11 — including the streamlined Subchapter V process built for small businesses — triggers the automatic stay under federal bankruptcy law the moment the case is filed. That stay halts ACH withdrawals and other collection activity immediately, giving a business room to breathe while these kinds of claims get litigated.

Part of a Bigger Trend, Not an Outlier

Greenwich Retail Group didn't emerge from nowhere. The court pointed to a growing list of federal decisions — several from the same district — that have reached similar conclusions when they looked closely at how particular MCA agreements actually worked in practice, rather than accepting the "sale of receivables" label on its face. That trend matters: it means a business raising these arguments isn't relying on a fringe theory, but on a body of case law that's actively developing in its favor.

What This Means for You

If merchant cash advance payments are the reason your business is considering bankruptcy, it's worth having someone look closely at what you actually signed — and what's already happened — before assuming the amount the funder says you owe is the amount you actually owe.

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Gesund Law Offices, LLC

Phone: 702-300-1180 | Email: keren@glolawfirm.com

This article is provided for general informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship with Gesund Law Offices, LLC. Bankruptcy strategy is highly fact-specific — contact us to discuss your situation.