Libertas Demand Letter or Lawsuit? 6 Differences That Matter

If what you received is a demand letter, Libertas Funding has not sued your business. However, it is important that you take these letters very seriously because what’s at stake is your business checking account. So, if you want to resolve your merchant cash advance debt before it lands in court, you’re at a critical point. Responding to a demand letter is your opportunity to address the outstanding balance with an alternative solution to suit both parties.

1. No court case yet

A demand letter comes before a lawsuit, not after it. There’s no judge involved here, just you and the other side. It signals that they are looking for an agreement. You’re not yet facing an overwhelming mountain of papers, complex courtroom procedures, and time-consuming court appearances. That may make for the cheapest point to settle the dispute.

Before you start negotiating, though, you need a clear understanding of your own goals. Are you leaning toward a settlement or wanting to fight the suit? For example, a business that’s on the verge of being acquired may want the case resolved quickly.

2. Whose deadline it is

The deadline on a demand letter is made by the MCA funder, not a judge. There is no court case that you can ask to postpone or waive it. The FTC says business debts are not covered by the federal Fair Debt Collection Practices Act. That means you don’t get any of those legal protections. Still, a demand letter does not mean a lawsuit is coming tomorrow. New York generally gives parties 6 years to sue on a contract, with some exceptions. Plus, just because somebody threatens to sue you, does not mean they’re going to.

3. The court’s clock

A summons gives you 20 days to appear when it is personally served within New York, and 30 days after service is completed through other means. If you face a lawsuit over an instrument for payment of money only, the other side can do this: they can deliver to you a summary judgment motion with the summons instead of a complaint. In this situation, your answering papers must be filed by the date given in the motion notice.

4. Where it gets heard

The demand letter may tell you it’s planning to sue in a certain court. That may or may not mean that it is the right place for your case, though. The MCA contract may have a “venue” clause that says where lawsuits will be filed. That choice drives your cost of hiring an attorney, and what schedule you’re looking at. Location matters for confessions of judgment, too: in 2019, New York changed its procedures for filing them. They can only be filed where the debtor has a place of business. If you have to defend in a far-off state, count on paying to travel. What if you have a local case, though? Your witnesses don’t all work at your office. It may still mean travel for your lawyer.

5. What losing costs you

A court case can end in a money judgment, for the other side to win money from you. After winning one, a creditor’s lawyer can freeze your bank account, apart from protected amounts. It stays in place for up to a year. The judgment collects interest, just like a credit card bill does. The rate that gets added on is 9% a year in New York.

Ignore the court case at your peril. You may be able to get rid of a judgment entered against you if you can prove “excusable default,” but even then the motion to vacate it has to be filed within a year of the date that you were served with the judgment and notice of entry. It’s risky, to put it mildly.

Litigation often lasts for years because neither side wants to give in until they spend huge amounts on their lawyers. If you have a fee-shifting clause in your contract, the winner can get their expenses paid. Some policies of business insurance do cover legal expenses. Double-check with your provider, because some require you to notify them once a demand letter arrives, even if no case gets filed.

6. What to do now

When a legal claim arrives, you likely must hang on to every piece of evidence you might need in court. That covers computers, phones, email, cloud files, and paper. If you delete or lose any of it, your judge may rule against you.

Talk to a lawyer before you reply, and edit any harsh language out of your draft. Writing a sharp reply might feel good at first, but it’s not a good idea. If you say too much, you could risk giving the other side something to use against you in court, later.

If your staff wrote anything down, that information could be “discoverable,” meaning the other side gets to read it. Interviews with a lawyer are different, though. When staff tell the attorney what they know, it’s likely protected from the other side. And because your lawyer can spot counterclaims, it may give you leverage in settlement talks.

Sometimes, an MCA funder will skip the demand letter and sue instead. When that happens, your case starts right away without a chance to settle beforehand. If they do send you a demand letter, take advantage of the chance it gives you. By settling with the funder now, you can avoid going to court altogether. Even if that doesn’t work, you’ll at least have time to get ready for the lawsuit.

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.