Prime Business Funding Demand Letter or Lawsuit? 6 Differences That Matter

A demand letter from Prime Business Funding is not a lawsuit. But there are some key differences you must understand.

1. A letter comes first

Yes, the letter comes in the mail, and yes, the allegations seem pretty stark, but at this stage the creditor hasn’t sued you yet. They’ve just spelled out their allegations and their demands, and they’re hoping you’ll make a deal to avoid court.

That said, some creditors do file a lawsuit without sending you any letters beforehand. No demand letter doesn’t mean there’s no problem, and any delinquent debt may have a statute of limitations - 6 years in New York for most contracts.

2. A lawsuit starts a clock

The creditor serves a “summons,” which is a document that notifies you that a lawsuit is underway. Once it is served, the clock starts ticking on your “answer,” which you submit to the court to dispute the debt. If the summons was given to you personally, you have 20 days to answer in New York State. If you got it in the mail, you usually get 30 days. In federal court you get 21 days.

3. Silence costs more in court

A complaint is different from a letter because if you ignore it, the creditor can ask the court for a “default judgment,” and if they get it, in New York they can start to garnish your wages, freeze your bank account, or take property. A creditor with a default judgment may also tack additional fees and interest onto the debt.

Interest really stacks up in New York. The judgment rate is 9% a year. But there’s wiggle room, and a court can take a late answer if there is a reasonable excuse for missing the deadline. You have a full year to reopen the case by “vacating” the judgment if you can come up with a good reason why your answer was late.

4. The letter is the cheap stage

If you’re thinking about settling out of court, the letter may be your cheapest point to do it. And even in a best case scenario, even if you win, lawsuits can cost money and last years. And once one side or the other starts out in court, you get dug into your positions.

You really should look at the fine print because some contracts set fees that the loser might have to pay the winner. But fee clauses cut both ways. And just like that fee clause can cost you a ton if you lose, it can also be a vehicle to recover your fees if you win.

A creditor who sends you a letter instead of a complaint is testing the water. If you aren’t excited about court either, consider settling. But know what your own goals are before you start making any deal.

5. Where it gets fought

Does the agreement say anything about where suits get filed? That matters. This affects everything from court dates and cost to which lawyer you should be talking to. Sometimes a creditor takes you to its home turf, and if it does, that means travel. Sometimes the court listed in the letter isn’t the one the case has to be in. A lawyer can evaluate that for you based on the facts.

Since August 30, 2019 New York courts accept a confession of judgment only where the debtor lived or did business. So New York courts can’t be used against out of state debtors that way. And the state won’t accept a confession of judgment signed more than 3 years ago.

6. What you say and keep

Now that you have notice, be careful what you say, and keep what you have. Once notice is in, get copies of your email and text records, and back up your computer. This goes for paper files too. The court can penalize you for losing evidence, so if it gets destroyed or disappears, you could get an adverse ruling.

It’s okay to try and settle. If you can work out a fair deal before court, all the better. But watch what you write back because if you get too emotional or you say the wrong thing, it can show up in court and hurt your case. A lawyer can explain Rule 408 of the Federal Rules of Evidence, so settlement talks are less likely to be used at trial.

Lawyer interviews with staff should be privileged, but notes your staff write on their own may not be. Counterclaims also give leverage in settling, but only if your allegations have teeth.

A business debt is not a consumer debt, and the federal Fair Debt Collection Practices Act, or FDCPA, protects consumers.

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.