Loan Builder Filed Suit: 7 Questions to Answer Before You Respond

Debt collection lawsuits can leave business owners feeling vulnerable, panicked, and confused. While these responses are normal reactions to a lawsuit, it is important that you understand your next steps and respond strategically. The first thing to know is that you should not avoid or ignore a lawsuit simply because you might not have the money to pay for it. The summons tells you that you must answer the complaint (state your position about each item LoanBuilder alleges) by a certain date. This date is a critical one because if you don’t respond in time, LoanBuilder could win by default.

1. Which court is it in?

The first and most important question is which court the case is in, so make sure you know which court is on the front page of the summons. Knowing this will help you make a more informed decision about handling the lawsuit. Different courts have different processes and rules. In the very first part of the front page is the caption, and that’s how you know which court it’s in. It tells you what state to defend in, and that’s the key thing. That state may not be the one where you’re working now, and that may mean the person who answers for you isn’t you. A basic rule of lawsuits is that lawyers are licensed in the state where they practice, not for the whole U.S. That can cause trouble if you’re sued somewhere else, because to file a response, your lawyer has to be admitted where the lawsuit is.

2. When were you served?

The deadline to answer starts from the day of service, and is set in advance by whatever court is hearing the case, so check your notice. Federal courts give you 21 days to answer, while state courts’ rules differ.

3. Who exactly is being sued?

Many defendants are sued for business reasons, so it is essential that you know whether you are being sued as an individual or as a business. A lot of times it could be both you and your business. They would be listed on that first page, the caption of your lawsuit.

LoanBuilder secures the loan in at least two ways, both of which were probably signed for up front: a personal guarantee from you as the owner, and a blanket lien on your company’s assets. That’s why the loan’s risk is shifted to you and your company.

4. What happens if you say nothing?

Missing your deadline to answer or file a motion opens the door to LoanBuilder getting a money judgment against you and your business. Miss that deadline, and a federal clerk can enter judgment by themselves, without consulting a judge, if the claim is for a fixed sum and the lender files an affidavit showing what is owed. If you missed the deadline to answer or file a motion, you’re not necessarily doomed. Moving to set aside a default judgment does need to be filed reasonably soon. In federal court, you can’t go more than one year after the judgment was entered.

5. What is already moving against you?

A docketed judgment, a frozen account, and a garnishment are on different tracks, each with their own pattern. They can all take effect before a court hears evidence in a lawsuit. A UCC filing isn’t part of the case; it’s a separate administrative filing.

6. Is there an arbitration clause?

Look through the agreement for any provision that takes away your right to sue in court. Checking for an arbitration clause up front can save you time, money, and hassle. Any lawsuit with a written arbitration clause, in any federal court, must stop if a party asks and has not defaulted on arbitration. That stop is called a “stay,” an order that keeps a lawsuit from moving ahead.

If you go ahead as if the lawsuit is an ordinary one, like you were defending it in court or trying to get judgment on the claim for yourself, then you could be held to have waived your right to arbitrate. So says the Supreme Court, in an arbitration waiver case, decided in 2022. The other side need not show it was harmed. So if you plan to require arbitration, do it first thing, before litigating.

7. What would settling really cost?

While LoanBuilder is pursuing the lawsuit, the main question for you is going to be what it would really take to settle. The LoanBuilder funding fee is fixed, so paying early by making a lump sum payment does not cut the fee.

If you settle for less, the forgiven part is generally taxable income that year, unless an exclusion like insolvency applies. IRS Form 982 is used to exclude income from debt cancellation.

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.