Hmf Capital Filed Suit: 7 Questions to Answer Before You Respond

HMF Capital filed suit against your business over a merchant cash advance. Don’t ignore it. Don’t assume you have 30 days. Ask yourself seven questions. First, has a lawsuit actually been filed, or is this just a demand letter? Second, which court has the case been filed in, state or federal? Third, what is the deadline you need to meet to prevent a default judgment against your business? Fourth, has an attorney who is licensed to appear for you in this jurisdiction been retained? Fifth, does the balance they claim appear to be accurate? Sixth, has a judgment already been obtained against you or your business? And seventh, would settling this lawsuit really settle this balance entirely and absolutely? Get answers to these questions, and you’ll be well on your way to fighting back, instead of flailing around with nothing but bad information and fear to work with.

1. Is it really a lawsuit

A collection email or a demand letter is not a court case, it is a threat of one. Only a filing with the court is a lawsuit. Getting a judgment notice isn’t the same as having a lawsuit filed, either. Save the summons, the complaint, and all the documents that came with them (called exhibits), along with the envelopes they were delivered in.

2. Which court, and who

The case will tell you who the plaintiff is (the company suing you), who’s been named as a defendant (your business, you personally) and which court is handling it. The court filing will list that, along with the case number, so write it all down. Write down whether the papers were received by certified mail, overnight express, or hand-delivery, and when. State courts will have different rules from federal courts, even inside one state.

3. When is your deadline

Waiting for 30 days before you do anything is never good advice. If you’ve been sued in state court in NY, you must answer or “appear” in 20 days after being handed the summons in New York, or 30 days after being served another way. Federal court deadlines vary, but are usually 21 days.

In New York, you can be sued using a “summons with notice” instead of a complaint. Even though there’s no complaint, the 20/30 day deadline still applies. You have to file a document to appear and ask for the complaint before it’s too late, and you still have to answer the complaint 20 days after you get it. Talking about a settlement doesn’t extend the deadline.

It’s tempting to think you can ignore a summons you don’t think was actually served right, but that can be a big mistake. Some objections are lost if they aren’t raised the right way. And you’re not in any way postponing a deadline by making a phone call to the lender or funder.

4. Who will appear for you

In New York, you generally cannot defend a lawsuit as a business unless you hire a lawyer who is licensed to appear in that court, on behalf of the business. Keep in mind, too, that a settlement company negotiating payments with your creditor is not defending your lawsuit. Just because a lawyer has agreed to represent the business, that doesn’t mean they represent you personally. If you’re the owner, ask whether you are being represented, and don’t guess. The owner and the business can have different interests if the owner is also a guarantor.

5. Does their claim hold up

Check your agreement with the complaint. The amount they advanced might look right, but did it count credits or returns? Were payments calculated correctly, and are fees lawful? Were they debited on the right days, and by the right amount? A demand letter or a filing in court does not prove a balance.

Also, did you have a month where sales just dropped, and so did you ask for fewer deductions? How did the lender or funder respond? Even if they call it an “advance” or not a loan, the transaction itself will have a real economic reality, and that reality is what counts. One influential NY court (the appellate division of the NY Supreme Court, in LG Funding v. United Senior Properties, 2d Dept 2020) has laid out three criteria for deciding whether a merchant agreement is really a loan. Rather than seeing how the transaction is labeled, the court looked at how it worked: whether it called for a reconciliation, ended at a definite time, and whether repayment could be defeated by the merchant filing bankruptcy. Here’s why calling a deal a loan or not matters. In New York, there’s a criminal statute that makes it a crime to knowingly charge more than 25% a year on a loan. But if a merchant funding agreement isn’t a loan, none of those laws kick in.

6. Is there already a judgment

Get copies of the paperwork from the court, and show them to an attorney right away. Default judgments can sometimes be vacated, but not always. And there are strict deadlines, so losing time is like losing money. Don’t assume nothing can be done now because you missed the court date or forgot to answer. In NY, a motion to vacate a judgment by default for “excusable default” has to be made within one year after you were served with a copy of the judgment along with notice of its entry. In NY, if your business has been served by the Secretary of State, an extra summons has to be sent to the business at its last known address at least twenty days before the company is defaulted. Check the paperwork to be sure this step was taken.

In New York, a “confession of judgment” (admitting you owe the debt in advance) can only be filed in the county where you live, or where you listed as your residence when you signed the confession. And a business’ residence is where the business has a place of business.

Frozen accounts and ordered pay-ins are different headaches with different cures. Only by looking at the document itself can you tell which headache you’re getting and how soon you need the cure. A UCC filing isn’t the same as an assignment notice, and an asset restraint differs from a subpoena. Don’t transfer accounts or other assets without talking to your lawyer about the exact paperwork from the courts, sheriffs, or debt collector.

7. Would a settlement end it

Settlement can work, but you have to weigh it against other creditors, your prospects, and possible defenses. Lower payments can leave a big balance, and take longer.

If you settle, get it in writing, and don’t be vague. Cover total payout, dates and amounts for every payment, money already debited, who’s covered by the deal, if anyone’s guarantee or personal obligation is released, whether any court cases, asset restrictions or UCC filings are dismissed or released, and terms for what happens if a payment is missed. A settlement is only for one creditor, and it won’t help with other debts.

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.