How Can MCA Loans Avoid Repayment Obligations in Bankruptcy or Probate Cases Under North Carolina Law, and What Contract Terms or Legal Factors Might Render These Debts Unenforceable? - Pennsylvania
The Short Answer
In Pennsylvania, a merchant cash advance (MCA) company may be able to collect from a debtor or a decedent’s estate if it can prove there is a valid, enforceable contract and a properly documented claim. But in probate (and often in bankruptcy), MCAs are frequently challenged based on how the agreement is structured—especially if it functions like a high-interest loan, contains aggressive collection remedies, or the creditor fails to comply with estate-claim rules and deadlines.
What Pennsylvania Law Says
Probate is not a “free pass” from debts, but it does impose rules on how creditors get paid and when a claim can be cut off. A key issue in estate cases is whether the creditor timely gives notice of its claim and whether the estate’s assets have already been transferred to protected third parties. Separately, whether an MCA is truly a “purchase of receivables” (often framed as not being a loan) or is effectively a disguised loan can matter in bankruptcy and in contract enforceability disputes.
The Statute
The primary law that often matters in Pennsylvania probate creditor disputes is 20 Pa.C.S. § 3385.
This statute establishes that certain claims against a decedent can become unenforceable after one year from the decedent’s death against a bona fide purchaser or lienholder of the decedent’s real property under the conditions stated in the statute—meaning a creditor may lose leverage if it waits too long and the property is transferred for value.
Another statute that frequently comes up in practice is 20 Pa.C.S. § 3384, which explains how written notice of a claim (or certain equivalent acts, like suing the personal representative) can affect limitation issues.
For business-debtor MCA disputes, lenders sometimes argue that usury defenses are limited for certain corporate obligations. Pennsylvania has a statute stating a business corporation generally may not plead usury as a defense to enforce payment of an obligation: 15 Pa.C.S. § 1510. Whether that applies depends heavily on who signed the MCA documents (corporation vs. individual guarantor), how the transaction is characterized, and what remedies are being pursued.
Why You Should Speak with an Attorney
Even when an MCA company claims it is “not a loan,” enforceability in probate or bankruptcy often turns on contract language, the creditor’s paperwork, and whether the creditor followed the estate process correctly. Legal outcomes often depend on:
- Strict Deadlines and Estate Transfers: Under 20 Pa.C.S. § 3385, waiting too long can make a claim unenforceable against certain bona fide purchasers/lienholders of estate real property, which can materially change settlement leverage and recovery options.
- Burden of Proof and Documentation: The MCA creditor typically must prove the contract, the amount due, and that it has standing (the right party is suing). Missing schedules, unclear reconciliation terms, or inconsistent payment histories can create defenses.
- Contract Terms That Can Trigger Challenges: Clauses that look like “fixed repayment no matter what,” extreme default fees, aggressive remedies, or provisions that conflict with Pennsylvania restrictions in certain credit contexts can invite scrutiny. For example, Pennsylvania law restricts certain provisions in covered credit agreements, including giving authority to execute upon a judgment by confession in that context. See 12 Pa.C.S. § 6305 (applicability depends on the type of transaction and parties).
In bankruptcy, additional federal issues can apply (like whether the MCA is recharacterized as a loan, whether the creditor’s remedies violate the automatic stay, and whether a personal guaranty changes the analysis). In probate, the personal representative has fiduciary duties and must handle creditor claims carefully—paying the wrong claim or paying in the wrong order can create personal liability.
If you are dealing with an MCA claim against a Pennsylvania estate (or an MCA creditor threatening collection after a death), it is worth having counsel review the agreement and the creditor’s claim posture before money is paid or assets are transferred.
Related reading: How Do Creditor Claims Work in a Pennsylvania Estate (and How Are They Paid)? and What Is the Creditor Claim Period in Pennsylvania Probate?.
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Disclaimer: This article provides general information under Pennsylvania law and does not create an attorney-client relationship. Laws change frequently. For legal advice specific to your situation, please consult with a licensed attorney.