Bhb Funding Litigation: 5 Reasons Default Judgment Is the Real Risk

By failing to respond to an MCA suit filed by Bhb Funding or any other plaintiff, the default judgment they may enter against you could destroy the business you have worked so hard to build. You should do whatever you can to avoid that.

1. Most cases end unanswered

MCA funders often don’t expect anyone to come to court, and much of the time they’re right. It’s not easy for an out-of-state business to defend itself in a case thousands of miles away, especially one without big legal resources. That’s why so many MCA cases end in default judgments.

One feature that most MCA cases do have in common is the choice of the court. It’s usually the Supreme Court of the State of New York, in Rockland County. Sometimes the contract they’re suing on names Nassau or Connecticut as the jurisdiction for any disputes, but that didn’t stop one funder who took that dispute to Rockland. There’s no personal service, either. The defendant gets a certified letter.

2. The clock is short

A summons in an MCA case in New York tells you that you have 20 days to respond if handed it personally in New York or 30 days if served by certain other methods. Then the plaintiff counts out 30 days, tells the clerk that you haven’t responded, and asks for a default judgment. And if a funder decides to serve a company by delivering a copy to the Secretary of State, it must also mail a copy to the last known address of the defendant. The mailing must take place at least 20 days before the default can be entered.

3. Defaulting throws away your defenses

If you don’t show up, they’ll never hear any of your reasons for not paying, no matter how good they may be. And some cases may have quite a lot of good reasons.

For a particularly thorough look at the issues with MCA agreements, see a bankruptcy judge’s opinion in one case. As the judge saw the situation, regardless of what an MCA was called, it was a loan. The court decided that even a reconciliation that only looks forward is not really a reconciliation.

One recent Rockland suit involved an 82-day contract on $24,460 of receivables at $299 a day, 288% a year when expressed as a loan. If this loan’s Annual Percentage Rate comes out over 25% when figured the way that bankruptcy judge has shown, it might be criminally usurious.

A default judgment kills your rights to assert any of these protections. Even if you have a winning case, you can’t win if you don’t play. Any battle plan that begins with surrender is bad. In this case, if you don’t even fight the war, the other side wins without firing a shot.

4. The judgment keeps growing

A New York judgment on a business debt grows at 9% per year, and no presumption that it was paid arises for 20 years. If the plaintiff is lucky enough to know where to find your money, they can freeze up to twice as much as the judgment in your bank account for up to a year. A registered judgment on a debt becomes a lien on all your real estate in that county, and it stays a lien for 10 years.

5. Undoing it is an uphill fight

You might have a second chance at beating the judgment, but be warned that it won’t be easy. You must make a formal “motion” to vacate the judgment and file it in the court that issued the judgment. You have a year to do so, counted from formal notice of its entry. You will need to show an excusable reason for the oversight.

Say you were never personally served. You didn’t know you were being sued. There are a few circumstances under which a court will reopen the time to defend, and that’s one of them. You can have up to a year to do so from learning of the judgment, but never more than five years after entry. But you must know that, generally, you must also show that you have “a potentially meritorious defense,” that is, you have a reason why you should have won.

Settlements carry the same risk: sometimes they allow the other party to enter judgment without giving any notice first if you breach one.

All of these reasons point the same direction, the one toward fixing any problem on your side of the table and doing so before it’s too late. That usually means responding within the time allowed by the rules. Never ignore any notice of litigation that arrives in the mail. The longer you wait, the worse the outcome for you.

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.