Chapter 13 for Sole Proprietors and Personal Guarantors Carrying MCA

Chapter 13 saves the household, not the company.

A sole proprietor or personal guarantor can repay MCA obligations through a court approved plan while continuing to work, but the business entity itself receives no protection from the individual filing. The distinction between person and company controls everything that follows, and owners who confuse the two prepare for the wrong case.

Who May File and Who May Not

The federal courts guide to Chapter 13 opens eligibility wider than most owners expect and then draws a boundary that matters: any individual, even if self employed or operating an unincorporated business, may file within the unsecured and secured debt ceilings that adjust over time, while an LLC or corporation as debtor may not. The person qualifies. The entity does not, and the filing must name the one the Code allows.

A sole proprietorship passes through this gate without friction because the law regards proprietor and business as one obligor under different names. The business name on an invoice creates no separate debtor, so its assets and obligations enter the individual analysis together. Clerks in the district expect the counseling certificate with the petition rather than after it, a small procedural fact that decides whether the case opens on schedule.

Consider a hypothetical contractor carrying two MCA advances and a truck loan into a winter of thin bookings; the count of obligations determines the plan base, while the form of the business determines who is allowed to propose it. Counseling completed inside the 180 days before filing is required, prior dismissal can bar the door, and fees and plan payments missed early can end the case before it begins.

The Plan and the Trustee

The debtor proposes a plan that runs three to five years, with the longer period attached to above median income under the statutory measure, and creditors stand barred from collection while the plan performs. Payments go to a trustee who distributes them, which removes the owner from the monthly negotiation with each funder and replaces a dozen demands with a single disbursement.

The plan works the way a ledger taped beside a register works: visible through every transaction, insistent without raising its voice, costly to ignore once the court has confirmed it. A proprietor keeps operating during the case, may cure mortgage arrears over time, and may reschedule most secured debts across the plan life apart from the primary residence mortgage, which the Code treats as its own category.

The federal courts explanation of discharge confirms that Chapter 13 reaches further than its Chapter 7 counterpart, though relief arrives only after the debtor completes the payments the plan requires. Often we see owners value the breadth of that discharge without pricing the years it costs, a miscalculation counsel should correct before the petition is signed.

The Cosigner Protection That Rarely Covers MCA Paper

Chapter 13 carries a special provision that protects third parties liable with the debtor on consumer debts, a phrase that does most of the work in this section. MCA paper is commercial debt incurred for business purpose, so a joint obligor on the advance likely stands outside the protection the provision offers. Counsel must assess the classification from the documents rather than from the relationship.

And a cosigner who assumed the business advance was covered learns the limit only when the funder enforces the guarantee against the cosigner alone. Whether negotiation could have secured for the cosigner what the statute withholds is a question the schedules cannot answer.

What the Filing Does Not Reach

The stay protects the debtor and the property of the debtor, which leaves the company account and company assets exposed where the company is a separate entity that has not filed. A funder barred from pursuing the guarantor may still pursue the LLC, including the operating account into which receipts settle each day.

Owners who imagined one filing would quiet every front discover the second front untouched. The individual case solves the individual exposure, and the business exposure requires its own answer.

A Guarantor Decision Made With Counsel

An outlandish reading of the cosigner rule has cost more than one household a year of plan payments toward a case that never protected the operating account. Counsel will review and analyze the formation records, trace which obligations belong to the person and which belong to the entity, and construct a recommendation that addresses the plan, the exposed accounts and the practical limits of the stay. Steps the owner takes, or does not take, in the weeks before filing will determine how much of the business survives the individual case.

Delancey Street offers a free confidential initial review for proprietors and guarantors weighing a repayment plan against settlement of MCA balances, and a caller can ask whether the accounts qualify for settlement assistance. The company operates as a settlement company and coordinates legal matters with independent counsel, since it is not a law firm. Simply bring the agreements, the guarantee pages and a household budget to the first conversation, and counsel can ensure the chosen path protects the person without abandoning the livelihood, even where cash flow is extremely seasonal and the margin for a five year commitment looks extremely narrow.

Most guarantors signed in minutes and spend years understanding the signature. The imbalance is ordinary. Resist the urge to repair the exposure with a direct call with a direct call to the funder, since a conversation about the debt, even casually, can alter the posture of the case, and funders that press for acknowledgments do so in order to narrow options counsel might otherwise keep open. A plan that the household can sustain beats a promise the business cannot fund, and an attorney should ensure the trustee disbursement leaves room for the life the plan is meant to preserve. This is the arithmetic that decides cases long before judges do.