CAN Capital Business Debt Lawsuit: 5 Things to Do First

If CAN Capital has filed suit against you, whatever you do, please don’t ignore it. Failing to respond means the creditor gets everything it asked for. A lawsuit is the start of the process, not the end. See it as a process that you can steer, one step at a time. The first moves are not difficult; they need to come quickly, or you lose by default. The five steps that follow will steer your business past “default” and back into control.

1. Find your deadline

Failure to meet the deadline costs you your defense and your leverage to negotiate. In New York state court, you have 20 days from the time of service, or 30 days if it was not served personally. In federal court, it is three weeks from the date of service. Check your papers to determine whether you are in state or federal court, and check their websites to find your deadline. Your first move: Circle your deadline on your calendar. Keep it in focus. Already missed it? In New York, the motion to file is called a motion to vacate default. Generally the Court may vacate a default for excusable default only if the motion is made within one year after service of notice of judgment.

2. Get the company a lawyer

If it does not yet have one, it should be getting one. CAN Capital has a lawyer on its side, and without one of your own you are at a distinct disadvantage. In New York state courts, a corporation must file its answer through an attorney. It cannot appear pro se through its president or manager. There are exceptions for small claims courts and commercial claims courts. If you also signed a personal guaranty, you may be open to direct suit as well. A personal guaranty is a contract too, and its language can be attacked when defective or overbroad. Knowing the exposure helps you to gauge how hard to fight and whether to ask for a release in any deal you strike.

3. Read the agreement closely

At the core of this case is the agreement between your business and the plaintiff. You may well discover conditions and clauses in it that will work for you. Small variations in wording can mean huge variations in the outcome. A key question is whether your deal was a loan or a genuine purchase of receivables. One is subject to usury, and the other is not. New York’s highest court dealt a serious blow to lenders in the case of Adar Bays v GeneSYS ID, decided in 2021. The court held that a corporate borrower can use criminal usury (interest over 25 percent a year) as a defense. Under New York law, a loan with criminal usury is void from the start. It is not voidable, but void. But you can claim it only if the transaction was a “loan,” not a purchase.

Look for a confession of judgment, too: since August 30, 2019, a creditor cannot file one in New York against a debtor who does not live in New York. A business lives in a county only if it has a place of business there. Also check for an arbitration clause. If it’s in the agreement, you may be able to steer the case to arbitration.

4. Make them prove it

Many claims, on close look, have something wrong with them. Others are valid, but the documents can’t prove it in court. A complaint is not proof of anything. It’s just a demand for payment. The other side has to back that up in court. If a debt buyer is suing you, it needs to show a complete chain of assignment going all the way back to the original creditor. The lawsuit may be too late under the statute of limitations. The face amount of the debt may include unauthorized fees and default interest. Whatever defenses apply, you must assert them early, in your answer, or you risk waiving them.

5. Weigh settlement against bankruptcy

The trend in lawsuits like these is to settle. Settlement can cap the balance and release your personal guaranty, and spread payments over time. The other side may have weak or incomplete paperwork. That is leverage. But get every term you agree on in writing. The Internal Revenue Service generally treats forgiven debt as taxable income, unless a bankruptcy or insolvency exclusion applies. A bankruptcy filing triggers an automatic stay, which brings lawsuits to a halt. Subchapter V bankruptcy is suitable for small to medium sized business under the $3,424,000 debt limit. Moving assets once a creditor is already chasing you is no defense. A court can unwind a transfer like that as fraudulent. That is why the time to plan has to be early, not late. Bankruptcy relief and settlement have this in common: They are ways to regain control over your legal predicament.

Whichever path you choose, take the right first step. Steer the process back to your control. Make them prove their case, while considering your options.

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.