7 Laws That Shift Your Restructuring Position (2026)
Business Debt Restructuring in Minnesota

Characterization decides everything, and the label on the contract decides nothing.

A Minnesota company holding a stack of funding agreements owns either purchases or loans, and the difference determines which defenses exist.

How Courts Test Whether an Advance Is a Loan

Courts read the agreement, not its title. A New York appellate decision weighs three factors when determining whether repayment is absolute or contingent: whether the agreement contains a genuine reconciliation provision, whether it states a finite term, and whether the funder retains recourse if the merchant enters bankruptcy. The appellate decision in LG Funding applies that test to deny dismissal of the merchant defenses, which preserved the characterization fight rather than ending it.

In the examined agreement, adjustment of payments rested in the funder sole discretion and nowhere else (which defenders of the purchase characterization will insist is freely negotiated), and provisions framed the repayment duty as absolute rather than contingent on receipts. The reconciliation file, the term math and the bankruptcy recourse language answer before the caption does, so counsel assembles the payment history, tests each factor and builds the record from performance rather than labels. Most agreements call the transaction a purchase. Most payment schedules confess otherwise. The reconciliation file, not the label, answers first.

The Federal Ban on Deceptive MCA Collection

In January 2022, the Commission ended two careers in this industry. A settlement permanently barred an MCA provider and its owner from the merchant cash advance and debt collection industries over charges of deceptive and illegal seizures from small businesses, nonprofit organizations and religious groups. The federal trade regulator announcement recounts allegations of unauthorized withdrawals, misrepresented guarantees and fees, threats during collection and contractual confession provisions aimed at personal assets.

The industry ban bound two defendants. The reasoning travels further.

The order directed vacatur of judgments against former customers and release of liens against customer property, relief that ran to covered parties rather than the market at large. The release noted the case continued against the remaining defendants. Whether any of this assists a particular Minnesota file is a question the order itself cannot answer. The order binds its parties. Its reasoning is public.

The Forum Clause and Its Limits

Written arbitration provisions in commercial agreements stand under federal law. A written term settling by arbitration a controversy from a transaction involving commerce is valid, irrevocable and enforceable, save upon grounds that exist for revocation of any contract. The federal arbitration statute states the rule in those terms, and the challenge, where one exists, runs through formation, scope, delegation or waiver.

The clause sends the fight to a private forum. The clause permits arbitration; it does not establish that the underlying advance was lawful, and a funder that selected the forum in order to shape the contest still defends the reconciliation practice and the balance on the merits. Counsel tests formation before conceding the forum.

Subchapter V and the Debtor Only Plan

A trustee enters every Subchapter V case. The small business provisions compress reorganization through accelerated deadlines, with no creditors committee absent cause, additional reporting duties on the debtor and a trustee who guides the plan, investigates where needed, appears at major hearings and ensures payments reach creditors.

Only the debtor may file a plan. The plan is the company future written as a payment schedule. Confirmation follows where the plan does not discriminate unfairly, remains fair and equitable and commits projected disposable income across three to five years, with the combined debt ceiling confirmed with counsel as it stands now rather than as older articles state it. The reporting duties are extensive and should be taken seriously. Management operates under supervision while the court decides whether the future the plan describes is feasible.

Withheld Taxes and the Responsible Person

Not all payroll failures reach the owner, but the ones involving judgment do. Trust fund taxes are held for the government from the moment of withholding, and diversion to other creditors, including funders with daily debits, indicates the willfulness the statute requires.

Owners discover the penalty in the worst month. I understand why it happens then. The Internal Revenue Service account of the trust fund recovery penalty defines the responsible person through duty and power over disbursement, judged by independent financial judgment rather than title. Counsel identifies the responsible persons before the letter arrives.

Compromise of SBA Debt After Liquidation

The SBA form travels last in the file. Compromise of an SBA balance follows liquidation of collateral under agency guidelines, with financial statements from each person and entity seeking relief, and charge off marks a change in servicing rather than forgiveness.

Relief is available. It is available last. The agency compromise form page states the sequencing plainly, and COVID era disaster loans cannot be forgiven through this route. Servicing officers in these cases tend to answer the second letter, not the first. Liquidation first, forms second, and review before either is undertaken.

The Discharge Order and Its Boundaries

Confirmation draws a line across the ledger. The order discharges covered debts that arose before confirmation and replaces the old contracts with the plan, while individual owners remain exposed to fraud type objections and liens survive where the security interest endures.

The federal court account of Chapter 11 reorganization describes both the discharge and its exceptions, and counsel reads the order against each balance, the guarantee stack and the surviving collateral as one file.

The discharge is not forgiveness. It is prohibition. No collection action may follow the covered debt, though diligence continues on everything the order does not reach.

Delancey Street offers a free confidential initial review for business debt distress, and the Delancey Street account of its settlement work describes a settlement company rather than a law firm, so legal questions travel to independent counsel under a separate engagement. The objective is to ensure characterization, collateral and tax posture are reviewed and analyzed as one file, and to ensure no admission about the nature of the advance is made without counsel present.

Resist the urge to argue the purchase question with the funder, even briefly, before counsel reviews the payment history. A brief statement that counsel is reviewing the history preserves the defense better than a long letter surrendering it. Simply refer all contact to counsel and stop. A first call costs nothing and assumes nothing; it begins with the agreements, and consultation is where the sorting starts.

Characterization fades after closing. The absolute bar remains.