A recent Southern District of New York bankruptcy decision is a major warning for merchant cash advance (MCA) providers: labeling an agreement a “sale of future receipts” does not guarantee it will be treated as one. In In re Kossoff PLLC, the court recharacterized 19 MCA agreements as loans under New York law, exposing the funder to roughly $14 million in potential liability. On July 27, 2026, Judge David S. Jones of the U.S. Bankruptcy Court for the Southern District of New York granted partial summary judgment for a Chapter 7 trustee, finding that 19 MCA agreements were loans rather than true purchases of future receivables.
This was not a default judgment or a case decided on an undeveloped record. Capital Stack actively litigated, presented expert evidence, and argued that its course of dealing—including seven honored reconciliation requests—showed it was a purchaser rather than a lender. The court still concluded that the agreements were loans.
That makes Kossoff more consequential than the court’s earlier MCA decision in In re J.P.R. Mechanical Inc., which involved three agreements and more than $3 million. Kossoff involves 19 agreements, a much larger funding amount, and a contested factual record.
The trustee argued that the agreements failed the substance-over-form analysis reflected in New York’s Adar Bays and LG Funding line of cases. The court agreed that the agreements displayed core loan characteristics.
Capital Stack pointed to a reconciliation provision and its history of honoring seven reconciliation requests. But the trustee argued that the provision was illusory because Capital Stack had broad discretion, adjustments applied only prospectively, and there was no obligation to refund prior over-collections.
The court’s analysis suggests that a reconciliation clause alone will not save an MCA agreement if, in practice, the funder is assured a fixed return regardless of the merchant’s actual receivables.
The agreements required fixed daily ACH payments of $2,190.48 and specified a total repayment amount. This created a calculable 189-day repayment period—an indicator commonly associated with lending rather than a true sale.
The court also focused on the funder’s remedies, including acceleration rights, security interests in substantially all assets of related merchants, a personal guaranty, and a confession of judgment. The trustee argued that these remedies were inconsistent with a true sale of future receivables.
The agreements also did not identify specific receivables, did not give Capital Stack the right to collect directly from customers, and tied payments to a fixed sum rather than actual collections.
The central lesson: courts will look to the parties’ rights and obligations when the agreement was executed—not to litigation choices made afterward. A provider cannot cure a transaction that was economically and legally structured like a loan simply by acting like a purchaser later.
Capital Stack relied on Womack v. Capital Stack, a prior decision in which a court found substantially similar agreements to be true sales. The Kossoff court distinguished that ruling, saying it placed too much weight on the bankruptcy carve-out and too little on other loan indicators.
For MCA funders, this means Womack should not be treated as a reliable shield in the SDNY. The better approach is to examine whether the transaction genuinely transfers collection risk and whether the funder’s return truly depends on merchant performance.
Kossoff is a major recharacterization decision for the merchant cash advance industry. It shows that courts may disregard “this is not a loan” language when fixed payments, limited reconciliation, and broad recourse remedies make the transaction function like lending.