Narra Demand Letter or Lawsuit? 6 Differences That Matter

If your business received a Narra letter, you’re probably wondering what it means and what your next steps should be. Is it the same as a lawsuit? No. But it’s not the same as an overdue invoice. And it’s not an idle threat. A demand letter is just that: a letter. A demand letter is Narra’s way to get a debtor to pay without a lawsuit. Being sued carries consequences that go beyond a demand letter. It’s helpful to know the difference.

1. No case exists yet

Demand letters are often the first step before a lawsuit is filed. No court or judge knows about your business or the dispute yet. At least one more step - lawsuit filing - must occur before your business will be officially involved with a lawsuit. The purpose of a demand letter is often to negotiate without filing a lawsuit.

While the Fair Debt Collection Practices Act provides rules for personal and household debts, it usually does not apply to business debts.

2. The clock becomes real

But once you are sued, things change. Once the law is formally involved, deadlines are assigned by the court, not by you or the other side. In federal court, the federal rules require a defendant (the person or business getting sued) to respond within 21 days of service of the summons and complaint. In New York state court, it is generally within 20 days, but certain methods of service give you more time.

3. Ignoring it costs more

If you don’t respond in time, the person suing you could obtain a default judgment against you. More important, a court judgment means the other side can begin attempting to collect what it is owed from your business.

In New York, a court judgment is useful to your creditor: it will generally bear interest of 9% a year. With a court judgment, they can attempt to freeze your business’s bank accounts. A restraining notice served on your bank can freeze up to twice the amount still owed. Judgments are assumed paid after 20 years, but that clock restarts with a payment of any size.

One exception: you might see a creditor obtain a judgment without filing a lawsuit at all if you signed a confession of judgment. If you did in New York and your creditor follows the rules, it can obtain a court judgment against your business within three years of the signed confession.

4. You will need a lawyer

In New York state court, only a lawyer can represent your business, except in small claims and commercial claims courts. A lawyer can also talk you through your specific situation, including your goals, budget, and concerns.

At the letter stage, before anything even reaches a court, a lawyer can help you reply, keeping your emotions and harmful statements out of a document that could end up before a judge. It could also help protect your correspondence, so any attempt at settlement is less likely to be used as an admission in court. Federal Rule of Evidence 408 deals with that.

5. Lawsuits cost more, and travel

While a demand letter is meant to start negotiations, or at least communicate the seriousness of the other side, a lawsuit is far more than that. If someone begins suing your business, and you are unwilling to settle, you will likely need to pay for a lawyer at the very least. Other costs and fees can quickly add up. Your business might also have to respond to a lawsuit or otherwise deal with a lawsuit in a different state. Some contracts specify which state court will decide any disputes.

Attorneys’ fee clauses are most often built for both sides. Check the contract for the dispute you’re dealing with, as you might be entitled to legal fees yourself. These clauses can mean you, if you lose, may owe your adversary’s attorneys’ fees. Also, check your insurance policy for a claims or lawsuit notification deadline. It might require you to let it know once a demand letter arrives.

6. The cheapest exit is now

Demand letters can be that first step that sets up a cheaper, easier path out than it will be if you wait until after a lawsuit is filed. Legal fees can quickly mount even for a small business. By the time you realize you can’t afford it or are unwilling to pay it, you might be facing a major decision like paying a settlement or judgment rather than a minor annoyance like a demand letter. But even if you eventually settle, waiting until a lawsuit has begun to start settlement talk can cost your business more.

The fact the other side has the option to sue but hasn’t done so yet hints it is interested in a settlement, not court. There is often a chance for you and the sender to talk through your disagreements before a lawsuit begins. Letters are also an opportunity: You may have defenses or counterclaims that could help you during settlement talks.

Whatever you decide, once you know about a dispute, it is time to start saving anything that could be evidence. Think of all the forms information could come in: emails, cell phones, laptop, desktop, drives, cloud storage, and even file cabinets. Failure to save it could result in an adverse ruling against you in court.

A demand letter is not something to ignore or despair about. Instead, it’s something to take seriously and address: to figure out if you should pay it, if you can pay it, if you want to pay it, and if you might pay it later if you don’t pay it now. There may be an opportunity to compromise early that could go away.

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.