Sued by Capital Dude: 7 Things That Happen Next

If you ignore the lawsuit against your business, Capital Dude can get a default judgment against you. So you cannot ignore the lawsuit and hope it disappears. It won’t. Nothing is binding until you are served. At that point, a deadline runs and over 70 percent of consumer debt cases end in default because defendants never respond.

1. Watch for service

They’ve got to serve you first. You have to be found and served by legal means, usually in person with a Summons and Complaint. Some states allow substitute service. Checking court records will also make you aware if you were a defendant and didn’t know it. You can check the case number and review documents associated with it. You’ll see the process server’s affidavit of service. If you can show the judge that they failed to serve you properly, you may have a defense.

2. The clock starts

Immediately upon service, a deadline (usually 20 or 30 days) is attached. In the State of New York, if the summons is handed to you in person, you have 20 days to appear. For any other method of service, you must appear within 30 days after the service is complete. Don’t wait that long. Take immediate action. If you file an Answer with the court and send a copy to the plaintiff, the lawsuit continues to move forward to a possible settlement, trial or dismissal.

3. Get a lawyer

The corporation must appear in a lawsuit through a lawyer. New York law allows for only limited exceptions, such as the small claims part. If you have received a summons, you must call an attorney to appear for you. Don’t wait to answer the Summons. And don’t go it alone.

4. If nobody answers

If no one files an answer to the complaint, the plaintiff may ask the court to enter a default judgment. It simply means that because of the defendant’s failure to appear, the plaintiff wins. The court will not enter a default judgment on its own. The creditor must ask the court for it. When a Defendant fails to file an answer on time, the plaintiff must apply for a default judgment within one year from the default date, or the court will dismiss the case as abandoned unless the plaintiff can show good cause for the delay. You cannot count on the creditor to abandon the effort just because you do. A business served through the Secretary of State will have to receive a notice through the mail at least 20 days before the default judgment.

If you signed a confession of judgment, NY allows for filing within three years. They can only file in the county where the business has a place of business.

5. The judgment grows

A judgment on a business debt will add 9% per year in interest. You could owe a lot more than you think. Your bank may get a restraining notice freezing up to twice the amount owed, and this notice stays in place for up to one year. A judgment docketed in a New York county will act as a lien on real property there for ten years. It is presumed to be paid only after twenty years, and a partial payment restarts that countdown.

6. Ask whether it was a loan

Capital Dude is a merchant cash advance lender. If the advance is a “loan,” then the restrictions of law might apply. A New York appeals court said in 2020 that it comes down to three questions. Do the payments adjust to your actual receipts? Is there a fixed end date for payments? If your business went bankrupt, would the funder still have to get paid? New York’s highest court said in 2021 that when a business proves a loan rate above the criminal usury limit of 25%, the entire loan is void and neither the principal nor interest can be collected.

7. Decide how it ends

The plaintiff and defendant can agree on a settlement at any time. If you decide to settle your debt and make an agreement, get it in writing. Never make verbal payment agreements over the phone. Do the math to decide whether settling makes sense for you. You could also fight it out to the end and win in court. Settlement and bankruptcy are two options. Think hard about which one makes sense. A bankruptcy filing stops litigation.

A free contract review costs nothing and takes a day or two. Call (888) 837-7053, or send the agreements to Delancey Street for a straight read on your options.