Ein Capital Litigation: 5 Reasons Default Judgment Is the Real Risk

The biggest danger for you when a merchant cash advance funder such as Ein Capital sues is that you will miss the deadline for answering the complaint and let the plaintiff win by default. If you are being sued, you should show up and file an answer. If you default, it could cost you quite a bit more than the amount you’ve been sued for.

1. The clock runs fast

In New York State Court, your clock runs either 20 or 30 days, depending on how you were served. If the summons and complaint were handed to you personally in New York, your time to answer expires 20 days later. If the summons and complaint was left with someone else or served through the Secretary of State, your time to answer is 30 days, counting from the date when service was complete. For federal court cases, you have 21 days to answer, regardless of how the summons and complaint were handed to you. Phone calls or settlement talks with the funder do not extend the time to file an answer.

You can’t assume 30 days start from the day you opened the envelope. Different court rules, different service methods and possible extensions can give you less or more time. And some objections to suit, such as improper service, even a faulty claim, can be lost if not raised properly. Resist your urge to avoid looking.

2. Default costs the funder little

If you do miss the deadline to answer, in New York a funder only files two things to win the lawsuit. They file the proof of service and an affidavit, which is a sworn statement, stating the facts of the case, the default, and how much they say is owed. If your business was served by the Secretary of State, the funder is also supposed to mail you a copy of the summons to your last known address at least twenty days before a default judgment is entered. The problem is, no one tests the balance.

Default is bad, because it means a lot of potential defenses are gone. Your answer is the document where you challenge that debt based on the funder’s math (what it advanced, what it collected, any credits it promised), or on whether you were served the summons and complaint properly. Talk to a lawyer if a defense seems like it might apply.

Also check whether the lawsuit includes you personally. This often means you signed something like a “personal guarantee.” If you did, find it and read it, and know what supposedly triggered it. A business and its owner can both be liable for different things in the same case, and that means an owner and a business can each have to file an answer.

3. Judgment unlocks your bank account

To freeze your account in New York State Court, a funder doesn’t have to come back to court, once a judgment has been entered. Their lawyer can fill in a restraining notice form, and send it off to your bank, and the bank can freeze your account, right away. That account can stay frozen up to one year. The bank can hold onto an amount up to twice the amount that is due.

Hiring a lawyer or sending a letter does not automatically cause your frozen money to be released. Try not to move assets or alter your bank accounts without your attorney’s advice.

4. The judgment grows and lingers

A New York judgment grows at 9% per year, and grows until paid. In New York, the judgment attaches to any real property you own in the county where it was entered. This lien stays on for 10 years. The judgment is presumed paid only after 20 years. Any payment you make or an acknowledgement in writing that the debt is unpaid restarts the 20-year clock.

5. Undoing it is harder

You may have options to undo your default, but you’d be working uphill. In New York state court, a motion to vacate your default for an “excusable” default must be made within one year after you are served with the judgment and a notice of entry. Even if you are within the time limit, undoing a default is not guaranteed.

If you think you may have a judgment entered against your business without your knowledge, the best first step is to review your court records and call a lawyer as soon as you find the judgment or restraining notice. The records should show when and how the summons and complaint were handed to you. Any problems with your proof of service might make that judgment defective.

To complicate it more, some MCA agreements let the funder use confession of judgment, which are signed papers that let the funder get a judgment without the ordinary contested lawsuit. In New York, a confession of judgment has to be filed in the county where you lived at the time you signed it or where you live at the time it is filed. It is supposed to be filed within three years of when you signed it.

Act before the deadline to file your answer, and gather the summons and complaint that were served on you. A good next step is to show all of these papers, the original MCA and your payment history to an attorney. If you’ve agreed to make payments, that agreement is not the same as having an attorney defending the case. If you do settle, the settlement should say how the lawsuit is going to end, and how the judgment is satisfied. These details matter. Consider these first: will it satisfy the case, for every entity named in the suit? Or if you have multiple lawsuits, are you sure it settles them all? If you are personally a defendant, are you being released as well? If your bank has been restrained, does the settlement release that? The settlement should. Find out, too, what would trigger a default in the settlement, and how late you have to be to be considered in default.

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.