Benjamin & Williams Litigation: 5 Reasons Default Judgment Is the Real Risk

Too often, companies facing debt collection lawsuits make assumptions that lead them to fail to take the basic steps needed to protect themselves. They may decide, for example, to deal with the creditor later or perhaps they believe they have a strong defense and the case will be dismissed. In either case, they may avoid responding to the initial court filing, but by doing so, they risk a “default judgment” that can prove much more damaging than any other possible outcome.

You must file an answer or otherwise respond to the lawsuit. You have only 20 to 30 days to respond, depending on where the case is pending. If you don’t answer, the case will be decided against you by default. The consequences of an unopposed judgment are long lasting: a lien against your property, and garnishment of bank accounts. They could go on for years. Don’t ignore a Benjamin & Williams lawsuit. Respond by hiring an attorney to represent you at the earliest opportunity.

1. Everything is admitted

If you do not respond in time, in most cases, the allegations in the complaint will be assumed true. You can no longer defend the lawsuit on its merits, because in essence, you have agreed that the suit is valid and that you owe the amount of money demanded. You have foregone all arguments and all defenses.

If the plaintiff’s claim was for a fixed sum, the clerk will then enter judgment against you for the amount plus court costs. You will not get a chance to oppose the judgment. However, if the amount of damages is not clear from the complaint, the court will schedule a hearing at which the plaintiff presents evidence of the amount of damages and you cannot present a defense.

2. The clock is short

The clock on the time allowed to answer a complaint starts running when the creditor serves the summons on you. Usually that means the moment a process server or deputy sheriff delivers a copy of the lawsuit to your home or business address or otherwise gets the papers into your hands. The time for a response can be as short as twenty days or as long as thirty days depending upon the rules of the particular court. That’s not much time for you to conduct research, determine the best approach to take, find an attorney and, if necessary, gather together the needed information.

If the lawsuit is pending in federal court, you have 21 days after service to answer it. New York requires an answer within 20 days, 30 days if service was accomplished through the Secretary of State. (This is one way plaintiffs serve process on corporations.) There, you must appear through a lawyer if your business is incorporated, outside certain small-claims courts.

Sometimes you may simply decide that the lawsuit isn’t important enough to take the time and effort to deal with, but doing so can be a very expensive gamble. It is highly unlikely that you will be able to “work things out” at that point. The plaintiff has spent time and money to file a case against you. Don’t count on the federal Fair Debt Collection Practices Act to save you at this point, unless the debt is purely personal. The law generally doesn’t apply to debts incurred in running a business or for other than family, household or personal needs.

3. Collection starts at once

Once the court enters judgment against you, the creditor can begin efforts to collect immediately. They can seek a garnishment order for your bank account, a lien on your property or even ask the sheriff to sell property to satisfy the judgment.

The creditor can also start formal “discovery” procedures to find your assets. In some courts, they are allowed to send you written questions under oath. The plaintiff’s attorney can send written questions to your bank, Paypal or Venmo accounts, to your tenants or anyone who owes you money, and they must reveal information about your accounts or the money they owe. Your accounts can be seized and the money paid to your creditor. In New York, the creditor’s lawyer can send a restraining notice to the bank and they must freeze your account for up to twice the amount of the judgment. A simple letter from an attorney is enough.

4. It follows you for years

An unchallenged judgment can haunt you for years. The actual period depends upon state law. In New York, the period is 20 years. And in many cases, the plaintiff can renew the judgment for additional periods. A judgment can affect your credit score and your ability to borrow money.

No matter how small or intermittent your payments, until a judgment is satisfied in full, the plaintiff can keep going after your assets. If you make any payment against the judgment, the 20-year period starts over. A judgment is a lien on any real estate owned by the defendant, and this can create big problems when it comes time to sell or refinance. The lien must be satisfied or cleared before title to the property can pass. In New York, a business judgment accrues interest at the rate of 9% a year. The longer it takes to satisfy the judgment, the more expensive it becomes.

5. Undoing it is hard

It is almost always harder to undo a default judgment than it would have been to defend against the case itself. Unraveling a default judgment is an expensive and uncertain undertaking. Usually, you must make a special motion to vacate the judgment. The court can do this, but it is not required to, and your reasons must be pretty convincing. If the motion is granted, the lawsuit starts all over and you can then defend it. But until you succeed in vacating the default judgment, the creditor can try to collect on it.

In federal court, a motion to reopen for mistake or excusable neglect must be filed within a reasonable time, never more than a year; in New York, within a year. A creditor cannot win a default judgment against you if it was served improperly. You may still have to make a motion to reopen and prove the summons was never served on you.

You Need an Attorney

If you are served with legal papers and a summons, don’t panic and don’t ignore it. Once you know or even suspect a creditor lawsuit has been filed, you need an attorney. An attorney can research the law, study the facts of your case, and help you understand your options and the probable consequences. Gather your contracts and correspondence first. Put them in a file folder, in order by date, with the oldest on top. This will help you quickly bring your lawyer “up to speed.” An experienced attorney can tell you whether and how to challenge the judgment or negotiate with the creditor.

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.