American Express National Bank Business Debt Lawsuit: 5 Things to Do First

Many small businesses have been hurt since the pandemic, but collectors are still suing. If American Express National Bank has sued your business, the short answer is this: You need to file a document called an “Answer,” addressing the lawsuit’s “Complaint.” Answer on time; then, if you don’t want to file bankruptcy, a negotiated settlement could be a way out.

1. Find your deadline

An answer is due 30 days from when you were served in California state court, counting weekends and court holidays. In California, the 30 days start when you are personally served with a Summons and Complaint. In federal court, it’s generally 21 days. Make sure you correctly identify the date of your service, and that you use that date to set your deadline.

2. Do not default

The first mistake is doing nothing. If you fail to respond to the lawsuit, the plaintiff can ask the court for a “default judgment” without waiting for a trial. If you default, the court won’t accept your answer and can decide the case without you. After a default judgment, the plaintiff may be able to take money directly from your paycheck or from a bank account, or put a lien on your property. Federal law caps wage garnishment at 25% of your weekly disposable earnings for ordinary debts (less for low earners). And money can’t be garnished from weekly disposable earnings of $217.50 or less, which amounts to 30 times the federal minimum wage. In California limited civil cases of $35,000 or less, if there is a judgment against you, you can ask the court to let you pay in installments.

3. Know your protections

The Fair Debt Collection Practices Act covers the details of how a debt collector has to behave if they call you. That law was designed for consumer debts - obligations for personal, family, or household purposes. But the FDCPA generally does not cover business debts, so it can leave you without protection. Watch the clock too. Utah law gives a lender six years to sue on a written contract, and for credit agreements that period restarts from the latest written acknowledgment, promise to pay, or payment.

4. Negotiate a settlement

Even after your answer is filed, you may be able to make a deal with the credit card issuer. To reach a debt settlement, you negotiate to pay just a portion of what’s due, often as a lump sum but sometimes over a period of time. The lender’s calculation is that it would rather accept this than have you file for bankruptcy and get nothing.

For example, one online merchant used the “American Express Plum Card,” which doesn’t have a spending limit - your buying power just adjusts with your use of the card and payment history. She was selling inventory on Amazon. The balance ballooned to over $621,000. And then Amazon decided on its own she had broken its policies, stopped distributing her products, and forced her to shut down. American Express’s legal team came after her. The account settled for $279,849.28, about 45% of the balance.

Timing makes a difference, too. One borrower got a $20,000 loan at 94% yearly interest from LoanMe. It required payments of $1,566.85 a month for 120 months. The total would come to over $188,000. He made only two payments, and LoanMe’s law firm sued for over $56,000. But before he was officially served with court papers, he settled for one lump sum of $15,000, about 74% less.

Even sold-off debt can settle. One owner took a $6,000 merchant loan from Bank of the Internet and On Deck. His business went under owing $7,321, and the debt was sold to CACH, LLC, a collector that buys debt. He settled for a lump sum of $447.37, about 94% saved.

5. Plan for the tax bill

Debt forgiveness is considered income, the same way all your sales and earnings are. That means it’s generally taxable. Under current law, canceling or settling a debt means you will probably have to report the forgiven amount on your tax forms for the year it was settled. There are exceptions to the general rule for forgiven debt, including insolvency or going through bankruptcy. Before you decide what a settlement saves you, check whether an exception might apply.

The earlier you start, the more options you may have.

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.