May 28, 2026

By David Brunk, civil litigation attorney

Read the complaint

Lena Brands v. Stripe seeks recovery of nearly $30k from frozen Stripe accounts amid complex secured claim dispute.

Lena Brands LLC and its affiliates have filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of Delaware, initiating an adversary proceeding against Stripe, Inc. to recover 29,726 frozen in their payment processing accounts. These funds, the debtors assert, should be considered estate property under 11 U.S.C. § 541(a)(7). This legal battle sets the debtors against several merchant cash advance (MCA) lenders, including Fox Funding Group LLC, SQ Advance LLC, and Libertas Funding LLC, who claim perfected security interests in the funds. The focal point of the case will be the perfection of security interests under the Uniform Commercial Code (UCC), the treatment of postpetition proceeds under 11 U.S.C. § 552(a), and the true nature of MCA agreements as either sales or loans.

The stakes in this case are high: the debtors seek to reclaim the frozen funds, to contest the MCA claims as usurious loans under federal bankruptcy law, and to reclassify these transactions in a way that would remove the secured status of these lenders.

Lena Brands’ Turnover Demand: Stripe’s Frozen Funds and the § 542(a) Showdown

The debtors allege that the frozen 29,726 in Stripe accounts is part of the estate's property per § 541(a)(7), derived from prepetition sales or transactions made through platforms like DoorDash and GrubHub. Despite their claims, Stripe has withheld releasing the funds, demanding an inter-creditor agreement to avoid potential double liability if MCA lenders' liens are recognized.

The debtors assert that Stripe's refusal to turn over the funds violates § 542(a), which requires that an entity holding property of the estate release it to the trustee or debtor-in-possession. They argue that Stripe’s stance misinterprets its role, suggesting that the Bankruptcy Code provides no exception for payment processors. The legal question hinges on whether these funds are indeed "property of the estate" and whether Stripe’s actions contravene § 542(a).

Libertas Funding’s Blanket Lien vs. Fox Funding’s MCA "Sale": Who Perfected First—and Does It Matter?

Libertas Funding asserts a sweeping lien on all accounts and receivables of Lena Brands, duly perfected via a UCC-1 filing on September 18, 2024. This strategic move gives Libertas a prima facie priority under UCC § 9-322(a)(1) over any subsequent MCA filings.

However, Fox Funding and SQ Advance counter that their MCA agreements represent "true sales" of future receivables, not secured loans, thereby placing themselves outside the exigencies of UCC Article 9 perfection requirements. The debtors, challenging this interpretation, claim these MCA lenders failed to perfect their security interests according to UCC § 9-310, making them vulnerable under the trustee’s "strong-arm" powers delineated in § 544(a). The applicability of § 552(a) further complicates matters, questioning whether Libertas’s prepetition claims extend to postpetition receivables.

Recharacterizing MCAs as Loans: The Debtors’ Bid to Subordinate Fox Funding’s Claim Under § 510

The debtors maintain that Fox Funding’s MCA is actually a usurious loan masked as a sale, featuring an effective annual percentage rate (APR) that exceeds 100%. Invoking precedents such as In re: Merchant Cash Advance (Bankr. S.D.N.Y. 2020), they seek to recharacterize the MCA as a loan under bankruptcy law. If reclassified, the claim could be subordinated under § 510(c) due to purported inequitable conduct by Fox Funding, thereby pushing the claim to a lower priority status in relation to truly secured or administrative creditors.

What’s at Stake

This case holds significant implications for both the debtors and the MCA industry. For Lena Brands, successfully overturning security interests could recover critical capital and clarify future operating conditions post-Chapter 11. For MCA lenders, the risk of recharacterization could reshape the industry’s legal landscape, reinforcing the need for clear distinction between true sales and disguised loans. The case also probes the broader bankruptcy policy aims of equitable asset distribution versus the predictability of creditor rights.

The next procedural steps include service of the complaint and, subsequently, responses by the involved parties. There may be motions from creditors seeking to lift the automatic stay or assert their secured claims effectively. All eyes will be on how the court navigates these complex intersections of bankruptcy and commercial law.

David Brunk is a civil litigation attorney. He can be reached at david@newmanbrunk.com.