Blade Funding INC Litigation: 5 Reasons Default Judgment Is the Real Risk

If you own a small business and you’ve just been sued by a merchant cash advance company, the biggest danger is usually not the lawsuit itself. It is often the judgment that can ultimately follow the lawsuit. If the company that sued you is Blade Funding INC, you need to understand how the legal process works, and your role in responding to the lawsuit, or perhaps making a mistake that leads to a default judgment. What you don’t do may be the cause of the worst outcome in the lawsuit.

1. Silence loses automatically

The biggest mistake a business owner can make when sued is to remain silent. Blade Funding and other merchant cash advance companies don’t sue to lose. They sue to win. They want to obtain judgments and collect on those judgments. If you have not responded to the lawsuit filed against you, Blade Funding has a very strong chance of obtaining a default judgment against you. If you do nothing, the plaintiff can probably seek and obtain a default judgment, without ever having to convince a judge or a jury that you did anything wrong.

In New York personal service starts the clock at 20 days to respond to lawsuit; service by the nail-and-mail method gives a longer window, 30 days. In New Jersey a defendant has 35 days to respond to a complaint filed in Superior Court. Failure to file a timely answer to a complaint subjects a defendant to a default judgment, meaning, the defendant loses without an opportunity to be heard.

2. Your company cannot answer alone

Most business owners think that they or their company can respond to the lawsuit, but in New York a corporation must be represented by an attorney, except in some small claims parts. What this means is that the failure of your company to respond to a lawsuit in the proper manner will lead to a default judgment, regardless of whether or not you had a valid and bona fide defense. As a practical matter, a business has only one real choice when sued in New York: hire a lawyer, or wait for the judgment.

3. No judge, no hearing

Blade Funding gets the default judgment without proving a case to a judge. Without a judge to evaluate the facts and the law, and make the decision about judgment, Blade Funding gets an automatic victory. For a claim for a sum certain, no hearing is necessary. The plaintiff tells the clerk that the defendant has failed to respond to the lawsuit. The clerk checks the file, and, if no answer appears, prepares the judgment against the defendant.

The default judgment includes the amount of the original claim, as well as pre-judgment interest and costs. It can get expensive really quickly. If you have any defense to the amount claimed owed to Blade Funding (even a partial defense), the judgment might be incorrect, but you’ll have no way to raise those arguments if you fail to respond to the lawsuit. The annual rate of interest on judgments on a business debt in New York is nine per cent per year.

4. The judgment unlocks the freeze

A judgment, even when by default, unlocks the enforcement tools available to a creditor. For example, Blade Funding can immediately levy the bank accounts of the business, and yours if you were named personally. It can also freeze the accounts so that your business has no ability to use the money to pay its expenses, without having to challenge the claim.

Blade Funding does not have to do anything, once it has the judgment, to get you to pay. All it needs to do is send a “restraining notice” to your bank, and your account is frozen, up to one year, and in the meantime your bank can hold up to twice the judgment amount. That means that Blade Funding can freeze your ability to pay your payroll and your suppliers, and then wait for the money to come in.

The last thing you need is an MCA creditor with the right to seize equipment that is vital to your business. Judgment also gives the MCA creditor power to enforce the UCC-1 lien it has, and to seize all the receivables and cash in your bank. Once docketed in a county, a judgment is also a lien on any real estate you might own there for 10 years. If you fail to respond to a lawsuit, a plaintiff will have much more freedom to take what is yours, without ever showing a judge that it deserves to win its lawsuit.

5. Undoing it is the hard part

After a judgment by default is entered, you can try to get the judgment “vacated”, or undone, by convincing a judge that the case should go back to the beginning. It may be possible to vacate a default judgment, and restore your right to defend against the case, if you have what New York law calls a meritorious defense, and a reasonable excuse for your failure to respond on time. But do not delay in trying to vacate a default judgment. If you wait too long, you’ll be out of luck. You can only ask a court to undo a default judgment for excusable default within one year from when the judgment was served on you, along with notice of entry. If you were not personally served and never got the summons in time, you have one year from when you learned of the judgment, but no more than five years.

If you want to raise a defense, the time to do it is when you get served. A merchant cash advance agreement may actually be a loan, not a contract of sale. If they are loans, then the lender may be barred from collecting anything. However, you can’t raise that issue as long as you don’t answer the case. Defenses, however, are only one reason to answer. There is also settlement leverage. A defendant is often better off from a strategic standpoint to answer the lawsuit and negotiate.

If you haven’t already taken action, the time is now. First, you need to circle the answer date, so that you know the deadline for filing an answer. Second, you need to hire a lawyer familiar with MCA litigation. Don’t call the lender yourself, and don’t try to negotiate yourself. That will only give Blade Funding something to use against you in court. Don’t move assets around or give away anything of value, even if you are afraid the lender might seize it. And don’t wait to see if the lender freezes your business bank accounts.

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.