Fresh Funding Demand Letter or Lawsuit? 6 Differences That Matter

A demand letter from a MCA funder can look a lot like a lawsuit. There are, however, fundamental differences between a demand letter from a MCA funder and a lawsuit from one. The most important difference is that a demand letter does not carry the same legal weight that a lawsuit does. There is no court involvement in a letter. Understanding the differences between the two can help you engage the right professionals on the correct timeline. You should read everything and respond in writing if you get mail from Fresh Funding after you’ve defaulted on an MCA.

1. Where it starts

A demand letter from a funder does not start a lawsuit. This is often a point of confusion. For instance, you may think that you have been sued because, when you missed your agreed repayment, an attorney you did not know contacted you and sent you a demand letter. In New York, a lawsuit starts when legal papers called a summons and complaint are filed with the court. Only after they are filed does a lawsuit exist, and when you are given a copy of those court filings, that is called the date of service. The date you receive a demand letter from an attorney is not the date of service, unless the letter includes a summons and complaint.

2. The clock

A demand letter carries a deadline from a creditor, which they themselves set. This deadline has no official effect on you. A lawsuit filing has a court deadline, and that deadline determines when you must formally respond to the legal claims being made by the funder. NY law requires a response 20 days after service if you were served in person, or 30 days otherwise. Federally, the time is 21 days after service.

You can even get served by mail. How you are served affects the length of time you have to respond. Don’t wait to act on something if the papers were not in your hands.

3. What ignoring it costs

Ignoring a demand letter from a creditor usually means their next step may be to sue you. Also, New York has a maximum of 6 years to sue on a contract claim. Ignoring a lawsuit, however, can lead to a default judgment. With a default judgment, you have forfeited the right to oppose a claim against you, and the funder wins their case because you forfeited your opportunity to defend it.

4. Power over your money

A letter lets the funder request money but not touch it or take control of it. That is because it does not come from the court. Only a judgment creditor has the right to freeze your account without a new order from the court. Another long-term difference is this freeze can stay effective for up to a year after it goes into effect. And interest starts accruing when the judgment is entered. NY sets that rate at 9% a year.

For funders, getting a judgment can let them enforce a UCC lien you put up, pursue the person who gave a personal guarantee of payment, and even reach out to any of your customers. It is a public record, which can impact your ability to get credit and financing. It is a lot harder to undo a default judgment later than it is to contest the claim in the first place.

5. The shortcut funders use

A confession of judgment clause in an agreement can let a funder get judgment against you and money from your bank account, all without filing a lawsuit. If signed, it gives a funder the right to go directly to judgment against you without any notice or hearing. In NY, a funder has three years to file their confession of judgment in court, starting from when the borrower signed the confession.

Nor can you count on the Fair Debt Collection Practices Act, a federal law that restricts ways collectors can go after personal, household, and family debts. Most merchant cash advances don’t count as household, personal, or family debt, and so most MCAs don’t get FDCPA protection. As a result, many protections in this Act may not be available to you.

6. What you do next

When a funder contacts you, and before you move money or make any payment offers, gather information such as bank statements, agreements, messages, processing reports, and anything else that you signed or committed to in writing. At the letter stage, you should write a request for a reconciliation of the deal and agreement. What you shouldn’t do is wait to act until there is a lawsuit, or move money around. Act right away if there is a confession of judgment clause in your agreement.

When you get served with papers, talk to a defense attorney right away. Do it before you say anything else to the funder or anyone else. The lawyer can explain your defenses and options and then let you decide if and how you want to respond. Your answer can list defenses like the advance works like a loan, the funder refused a reconciliation you requested, or the papers were not served correctly. Because defenses not raised in your answer can be considered waived, an attorney is often important to have when preparing it.

Many times, an answer with defenses will cause a funder to respond and start negotiating. Never try to “save” the first merchant cash advance by stacking another to pay them.

Understand whether you are getting a demand letter or a lawsuit. Although a demand letter isn’t a lawsuit, it could get you one if you do nothing.

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.