GoFund Demand Letter or Lawsuit? 6 Differences That Matter

A demand letter from GoFund or another merchant cash advance funder can feel like a court order, but it’s not. There’s not a case number, a judge’s signature, or a deadline for responding that you must obey. If the funder has taken the step of filing a suit in court, though, everything changes. The filing creates a case with a number. Lawsuits begin specific court deadlines which, if you miss, could lead to judgments entered against you without ever hearing from a judge. Let’s look at six differences, and what they mean for you.

1. A request, not an order

The merchant cash advance funder’s demand letter is a formal request. It’s the funder saying, in writing, it wants what was promised. This type of letter often asks you to pay the full amount due, cure the alleged default, or enter negotiations. But a demand letter isn’t an order from a judge. A lawsuit is different. Once it is filed with a court, you have a specific response time, and the consequences for not responding can be drastic.

A solid demand letter names all the parties, sets out facts in order that can be proved, lists contract terms and payments, and gives the exact payment or cure it wants. It also should give a date to respond by. A bad one overstates the facts, or threatens a penalty or legal remedy that the law doesn’t provide.

2. Who sets the deadline

The date in a demand letter is the funder’s choice, not a court-ordered deadline. While there is no universal response period, your contract may provide a notice or cure period. With lawsuits, you have to check the state court’s rules. In New York, if the suit is served in person within the state, you have 20 days to respond. If served another way, you have 30 days.

When the papers were dropped off at home or work with an adult and also mailed, though, there’s an extra wrinkle. For these types of delivery, New York requires that the funder file proof with the court that it was done properly. From that day, ten days has to pass before the 30-day period starts.

3. What silence costs

If you skip answering a demand letter, you choose not to resolve it the funder’s way. Silence doesn’t resolve the dispute, though, and the funder may file suit next. A lawsuit carries the state’s authority. Failure to respond to that summons can result in the funder getting a default judgment against you.

A business usually sends a demand letter because there’s still a realistic chance for settlement. By responding with a proposal to cure the default or a structured resolution, negotiations can begin. Once a case is filed in court, however, the schedule has a life of its own.

4. Fewer protections than you think

Many business owners aren’t aware of the specific protections they get under the law, and often think that any debt communication must follow consumer rules. That’s not the case. The federal Fair Debt Collection Practices Act covers only consumer debts (personal, family, household). So, its rules on collection letters generally do not protect business debts. The promises made in your demand response, though, can result in different problems later. Without careful word choices, you may find that what you wrote could end up being used against you.

Any acknowledgment, admissions, or repayment promises can hurt your position in the future. Read your answer again before sending it. Would the funder, the funder’s lawyer, an arbitrator, or a judge think you agreed with the demand by what you wrote?

5. What your contract decides

Carefully read your contract before writing your response. It may say if a demand letter is required, where it must be delivered, how long you have to cure the default, and whether you can be responsible for attorney fees if it goes to court. It can also say where a dispute would be decided: which court, where it’s located, and which state’s law applies to the case.

New York has additional protections for debtors. Under changes to the law in 2019, a confession of judgment can’t be entered in New York against a debtor who doesn’t live there. And, under New York’s CPLR, a suit on a contract like a merchant cash advance agreement must be filed within six years.

6. Your next move

When there’s a dispute between you and a merchant cash advance funder, gather and keep everything: the signed agreement, payment records, all emails, and all statements. Check their facts against the contract, then decide whether to respond, ask for information or negotiate. A lawyer is especially valuable if the debt amount is large, the funder has a lawyer, or there’s a deadline.

If you’ve been sued, note the date you were served and how it was done. Note if papers were left with someone at home or work and mailed to you. Then count 20 or 30 days, and make sure you file an answer before that deadline so the case does not end in a default judgment.

A demand letter is often a sign that things are about to get more serious. However, you shouldn’t ignore it. Read it with care and, if the debt amount is high, consider if this is the right time to talk with a lawyer. If a demand letter turns into a lawsuit, be extra diligent about understanding the process, meeting deadlines, and knowing your rights.

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.