Jolt Funding Litigation: 5 Reasons Default Judgment Is the Real Risk

If a merchant cash advance funder such as Jolt Funding has sued your business, the lawsuit itself is not the real danger. What you should be worried about is the risk of a default judgment. A default judgment can occur if the defendant has failed to respond in a timely way to a lawsuit. With a default judgment, the plaintiff can take whatever actions the law allows to enforce the judgment, such as seizing property and freezing bank accounts. If you do not act quickly, the danger of a default judgment is very real, and very serious.

1. The clock is short

Once you have been sued, you do not have very long to act. In fact, if you are a business defendant in a lawsuit, your time to act can be measured in days. In New York, if a defendant has been personally served with the Summons and Complaint, that defendant then has 20 days to respond to the lawsuit by filing a notice of appearance, or by filing an answer. If the defendant was served with the Summons and Complaint by means other than personal service, the defendant may have 30 days to respond to the lawsuit. In either scenario, the clock starts ticking with the date that the defendant was served. The time is short, and that means that you do not have much time to lose to get help from an experienced attorney.

2. A business needs a lawyer

If a business is sued, it must respond to the lawsuit in an appropriate way. A business typically does that by hiring a lawyer. No matter how complex the lawsuit is, a New York corporation has to be represented by an attorney, outside small and commercial claims parts. If a business simply ignores a lawsuit, which is sometimes referred to as a “strategic decision to ignore” a lawsuit, there is a substantial risk that the plaintiff will seek a default judgment. Even if you are discussing payments, the plaintiff might choose to aggressively pursue a default judgment. A defendant needs to be careful to not let the timeline lapse on the filing of an answer and to raise all of the available defenses.

3. No judge needs to look

If a defendant has not filed an answer in 20 or 30 days, as appropriate, then a plaintiff can ask the court to enter a default judgment against the defendant without a hearing or having the judge review the underlying facts of the case. A clerk of the court is able to handle the ministerial act of entering a default judgment for a sum certain. If there is a question of fact about the amount of the damages, the defendant has missed the opportunity to have that question of fact presented in the court. The clerk finds the file, notes that there is no answer, and, in a swift few keystrokes, enters the clerk’s default judgment. The clerk does not care about any of the merits of the case. The plaintiff gets to apply any existing interest, and also gets a default judgment that includes costs.

4. Judgment unlocks your bank account

Once a plaintiff has obtained a default judgment against a defendant, the plaintiff can use the judgment to enforce it. For example, if the defendant has funds in a bank account, the plaintiff can use the judgment to get a restraining notice, which then can be served on the bank, freezing up to twice the amount due in the defendant’s account. A restraining notice is not an inconvenience. It is a serious tool that a judgment-creditor has that puts them in control over some of your property, and, in some cases, your business operation. If your cash-flow has been compromised by an advance company’s debt, the restraining notice freezes up your existing assets in your account, and makes cash-flow problems that much worse. A bank will honor the restraining notice for 1 year from service of the restraining notice, unless the judgment is paid or vacated sooner. That is a long time to have your access to your cash-flow frozen. If you signed a personal guarantee, you are also likely to be named in a lawsuit seeking to enforce the personal guarantees. If a plaintiff obtains a default judgment against a guarantor, then the plaintiff is able to seize some assets of the guarantor. For example, the plaintiff is able to freeze the guarantor’s bank accounts.

5. It is hard to undo

After a default judgment has been entered against a defendant, it can be difficult, though not impossible, to undo. When a defendant moves for relief from the default, a court is not going to automatically set aside the default judgment. Defendants who sit on their rights and do not take action immediately could have a hard time demonstrating the diligence needed to undo the default. A defendant only has one year from being served with notice of entry to make a motion to vacate it for excusable default. That means that you really want to stay ahead of the matter and take action now to avoid losing your opportunity to bring that motion to set aside the default judgment. Until the default judgment is vacated, the defendant has to deal with the consequences of the default judgment and restraining notice as if the judgment itself is valid and enforceable. Every day that passes is another day that interest runs, which of course is calculated based on the default judgment, at 9% a year in New York. In New York, judgments run for 20 years. A default judgment can be a real problem that can persist a long time, especially if the judgment-creditor is aggressive about pursuing the default judgment in the years ahead.

Do Not Ignore the Suit

When you get served, read what you were served with. The court papers will show you the type of service that was used, and will have the dates of service. Hire an attorney as soon as possible to start work on filing an answer. Do not ignore the suit. The time to respond to these lawsuits is short, and, once it is too late, then relief from the default can be very hard to get.

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.