Iruka Litigation: 5 Reasons Default Judgment Is the Real Risk

When a business is under financial stress and has MCA debt, just getting the summons from Iruka Capital Group seems to trigger a reaction: panic! The papers can seem confusing. They are legal documents. But the real danger is a default judgment, which comes when you fail to file an answer or otherwise defend the suit. A judgment can be difficult or even impossible to get rid of. Instead of ignoring the problem, you may want to address it now, while it’s still possible to do something.

1. Your side never gets heard

If you don’t put in an answer, the only side the court will hear is the merchant cash advance company’s side. That may mean that you have a valuable defense that never gets presented. Regardless of any argument you may have, how you thought the account was supposed to be handled, or how unfair you think the business funding is, when you skip your Answer deadline, you’re giving up your day in court. If no one is around to object, all those incorrect demands can become the court’s official record. The company you owe does not have to have a jury trial to win their case. If you have skipped all your answer deadlines and done nothing to contact the court, they can ask for, and get, a judgment based on the information in their complaint and the court file. The only evidence of what happened will be what the other side tells the court.

When it’s a debt for a fixed amount, the amount asked for is usually what gets entered, plus interest and costs. There’s no judge, no hearing, just the clerk doing what the statute tells her to do.

2. The deadline comes fast

It may seem like you have all the time in the world, but it can disappear in a flash. All you have to do is look at the summons to find the date you’re supposed to answer by.

In New York, the time you have to respond can vary depending on how the papers were served. If the summons and complaint were handed to you, the date set for a response will generally be 20 days later. If it wasn’t handed to you in person, the time is generally 30 days after the service is complete. You have to check when and how they served the papers to find out when your deadline will be. More important, if the Answer deadline expires and you do nothing, the company you owe can get judgment by default. Then, at any point later, they can start collecting on the judgment by garnishment or seizure of accounts. Judgments are powerful collection tools.

3. Your bank account freezes

If you have a judgment against you, it’s possible the business funding company could find your bank accounts and use the judgment to take money out of your accounts. When a judgment is granted in New York, if the judgment creditor’s lawyer serves a restraining notice on your bank, your account may be frozen right away for a period of up to one year from when the restraining notice is served. And not just bank accounts. PayPal, Venmo, brokerage and cryptocurrency accounts may be seized too. If you keep your accounts with a bank, having your account frozen at an inconvenient time can be a major disruption. If you don’t deal with the judgment, you’ll lose access to your money.

4. The debt keeps growing

Worse, the judgment’s balance doesn’t go away - it increases with interest over time. Judgments in New York include interest at 9% on business debts, and once they’re entered, interest keeps rolling in. So if you keep on avoiding the judgment, it may end up a lot larger than you would have expected.

Beyond the interest, in New York the company could docket the judgment with the County Clerk, giving it a lien on your real estate in that county for ten years. If you ever want to sell or refinance your property, the judgment may turn up on a title search, possibly giving a mortgage lender heartburn. If you’ve been trying to find additional funding or line of credit for your business, a judgment can put a snag in your ability to borrow in the future.

5. Undoing it is harder

It can be hard to put back together what you’ve torn apart. If you’ve completely blown off your Answer deadline and even let the default judgment happen, getting it undone in court can be a challenge. The court won’t undo a judgment just because you want to put in an Answer.

To vacate a New York judgment, you can make a motion to the same court that issued the judgment based on excusable default within one year after it was served with notice of entry. To succeed in your motion, you will have to show a good reason for not having responded on time and submit proof of the defense you would have claimed. You cannot just say in general that you have a defense.

In New York, in the event the summons was not handed to you, and you did not receive it or receive it too late, you may be allowed to defend yourself in court if you act within one year after learning of the judgment, no later than five years after entry of the judgment. You would still need an actual defense to the charges against you. Either way, it can be complicated and expensive for you to undo a default judgment. There’s also no guarantee that a request to undo the judgment will be granted.

Find a Good Local Business Litigation Lawyer

The best thing you can do to defend your rights if you’re getting sued is to find a good local business litigation lawyer as soon as possible. Find someone who can draft and file your Answer and can advise on whether you have a defense to the claims. In a business funding case, your attorney should discuss what specific defenses might be available to you, and what the best way to handle the process might be.

Even after a default, a deal may be possible. The company you owe can use the judgment as an opportunity to try to reach an agreement to settle the debt. They may offer installment payments or other terms. Before you agree to anything, read all the fine print and make sure that all sides are fully understood. Do not sign anything you are not confident you’ll be able to complete.

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.