Snap Advance Filed Suit: 7 Questions to Answer Before You Respond

A lawsuit from Snap Advance over a merchant cash advance can cost big. Before doing anything else, know when you have to answer (probably 21 days if served in Utah, and talking or paying doesn’t stop the clock), then identify the papers, read the contract, check the balance, see who is named, weigh options, get a lawyer.

1. When is your answer due?

In Utah, after you’re served, you have 21 days to answer the lawsuit. Serving someone out of state requires extra time (30 days), but talking with them or sending money does not. Remember that the day you were served doesn’t count. Saturday, Sunday, and holidays count, but if on the last day the court is closed, then you may have until the next day to answer. Reading your contract and identifying legal claims with a lawyer can take time, so don’t wait.

2. What if you miss it?

If you don’t answer, there could be a default judgement, meaning that the creditor wins whatever they ask for. However, default judgements are sometimes reversed by filing a motion in court. In Utah, a motion can be made to set aside a default judgement, but you must act within 90 days of when the default judgement was entered if you are claiming mistake or excusable neglect. Default judgements void for lack of proper service are not bound by that limit.

3. What exactly were you served?

Identify the plaintiff (who files lawsuit), defendant (you), other defendants, and court the lawsuit is filed in. Read every part of every document, and ask for help if you need it. Served papers are not all alike. A summons, confession of judgement, notice sent to your customers or processor, and bank restraint are all different. Each one may demand a different answer, so keep copies of all of them and jot down the day each one came and the way you were handed it. Signing a confession of judgement basically lets the plaintiff try for a judgement against you without filing a lawsuit, but only where the law permits it. If this applies to you, do not wait to speak to an attorney.

A UCC financing statement is a public filing that claims an interest in collateral, but it does not, on its own, create a right to collect from you or others. A notice to your customers or processor asks them to pay the funder. Sometimes they will hold the money until the dispute is sorted out. Get a copy of the full notice and take careful note of which funds are held.

4. What does your contract say?

In a merchant cash advance, the most important part to read is the small print. There is no grace period that comes with every merchant cash advance. Yours may promise written notice or a chance to fix the problem, or it may not. Read it next to Snap’s letter and see exactly what they say you did wrong. Snap describes its advances not as loans but as purchases of receivables - sales of future income. This distinction has significant legal implications. Snap takes payment on a set percentage of your card sales, or on a fixed daily or weekly amount. In LG Funding (2020), a New York appeals court asked three things to decide if an advance is really a loan: is there a reconciliation provision to see if they get too much, is there a fixed term for payment, and can they still collect if you file bankruptcy.

Utah has no ceiling on how much interest lenders can charge, so the terms you agree to are usually what you pay. But since January 1, 2023, providers of merchant cash advances must register and give a detailed cost disclosure in any deal of $1 million or less.

5. Does the balance add up?

If what they say you owe doesn’t seem right, do some math. Compare each of their statements to yours. Whether it’s called interest or a fee, there can be errors when a creditor tallies what you owe. Pull your bank statements for the time you had the advance and find every payment you made. The goal here is to verify if all of your payments got counted. Do they show unauthorized payments, wrong amounts, or missed payments that are supposed to be credited? If your contract has a reconciliation clause that adjusts payments based on actual sales, look at whether you ever asked for the adjustment, and keep copies of what you sent. Asking alone does not stop withdrawals from happening.

6. Who is on the hook?

Knowing who is liable is key. A good answer depends on whom they are suing: the individual, company, or both. If someone else is listed as a co-owner, signer, or guarantor on your agreement, that can make a difference on who must pay. Not every guarantee covers the same obligations. See what triggers liability and what does not, and keep in mind that a demand against a guarantor is a very different stage than a court judgment against one.

7. What are your options?

Whether you dispute some of the debt, all of it, or not at all, what you do next hinges on knowing that. Before choosing what to file, review your stance and your choices with an attorney. Can you get a lawyer to negotiate a settlement? Would setting up a repayment plan work? Can you use Chapter 11 bankruptcy to restructure debts? A bankruptcy filing for the business does not automatically end the owner’s own liability on a personal guarantee.

Don’t agree to a payout deal until you know exactly how much you owe. Any settlement you reach should cover the payment terms, the releases, the guarantees, and the pending lawsuit. Once you reach a settlement, get it in writing to make it official. Before you close an account or redirect payments, switch processors, or move money or assets, get legal advice. A second bank account does not solve the claim.

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.