Max Lend Business Debt Lawsuit: 5 Things to Do First

Getting sued by MaxLend over your defaulted business loan puts your business and finances in jeopardy. But what you do in the first 30 days matters more than anything else. First, determine the deadline for responding, which may be 20 to 30 days after you get sued. Second, do not miss the deadline, since missing it can let the other side get a judgment against you by default. Third, gather all your documents, including the loan papers and any personal guarantee. Get help from a lawyer early on to evaluate your legal defenses. Finally, weigh the options of settling or filing for bankruptcy.

1. Find your answer deadline

You need to know by when you must respond to avoid a default judgment. Review the court papers you received to determine when you need to respond by. If you aren’t sure of the deadline, talk to an attorney right away. The clock is ticking.

In federal court you usually have 21 days. In New York state court, it is 20 days if you were handed the papers in person, but 30 days if you were served in some other way, like papers left with someone else, or having the notice taped to your door. Don’t leave this for the last minute! You need time to prepare, find documents, think about your defenses, and possibly consult with a lawyer.

2. Do not ignore it

You may want to just put it out of your mind and hope the lawsuit goes away. But it will not! A lawsuit is a serious matter that requires a proper response. If you ignore it, and miss the deadline for answering, the creditor may ask the judge to give them a default judgment. If you let this happen, the creditor will be able to take legal action to collect from you, such as getting garnishments or freezing your bank account. Don’t let it get to that stage. Do not ignore it.

That default judgment can be for the full amount MaxLend claimed. That could expose you to judgment liens, garnishments and bank freezes, as well as personal liability if you signed a personal guarantee.

Don’t assume the lender can take your cash or property just because they claim you owe it. In most places a lender can’t get access to your bank account or property until it wins a judgment. But a creditor may ask for an emergency court order freezing your assets if it can show you are at risk of hiding or moving assets to avoid paying a debt.

3. Pull your papers and guarantee

When facing a lawsuit to collect a debt, it helps to have all your paperwork together. The more you can gather the better. This should include the original loan documents, the personal guarantee if you signed one, and any later papers exchanged with the lender. This will help your case and any negotiations for settlement.

A personal guarantee is a separate document in which you promise to repay the loan, in case your company cannot do so. If you signed one, you may be personally liable for paying any judgment MaxLend might win.

While you gather your papers, if you are not sure who MaxLend is, look them up.

4. Check your defenses, with a lawyer

This is the stage where you should look at the papers you got and consider the basis of their claims against you. Do not do this on your own. Instead, consult an attorney who deals in debt collection and creditor issues. That attorney can give you a read on what defenses you have, if any. Do not miss this step, and ask a lawyer for advice on how to respond to the lawsuit. An early consultation can be invaluable.

Possible defenses include that the lawsuit is too late, that the lender did not give proper default notice, or that the loan agreement itself is one-sided to the point that a court will not enforce it. Under New York law, if the lender knowingly charged over 25% a year without being properly licensed, the usury was criminal, a class E felony.

In New York, a corporation generally cannot be represented by a non-lawyer in state court. If you have any doubts, speak to a lawyer who has experience in this field. Don’t admit anything to the creditor or their lawyers or anyone else connected with this case. Even if they seem friendly and want to “work things out”, remember that this is an adversarial situation and it could blow up in your face. Finally, do not move money or assets in a way that is meant to hide them from the court, since that could be seen as a fraudulent transfer.

5. Weigh settlement against bankruptcy

Once you have gathered your papers and considered your defenses, you should begin thinking about how to deal with the lawsuit. That could be through a settlement offer, but might be through a bankruptcy proceeding instead. If you settle the lawsuit for less than the full amount owed, that can make it possible for your business to go forward without being held back by an ongoing legal case.

Settlement can happen at any stage, and many lender lawsuits do settle, often without going to trial. By filing an answer you show the lender that you are serious and ready to fight, and that can help bring them to the table. A deal might mean a smaller payoff, a payment plan, or the whole case being dropped.

Since you only have a limited time to respond, you should not let time run out without making a decision. You may want to consult a bankruptcy attorney to discuss how a Chapter 11 proceeding could put a hold on the lawsuit, while letting you reorganize your debts into a repayment plan to be approved by the court.

One of the main benefits of bankruptcy in any form is the automatic stay, a block on most collection activity from the moment you file. If your debts do not exceed $3,424,000, you may be able to file under Subchapter V which has rules that are easier for small businesses to work with.

If you do nothing, and just let time run out, that is a very bad outcome. Your goal should be to avoid letting things get to that point. That means, that within the time allowed, you need to contact an attorney and weigh what options you have, whether for settlement or bankruptcy. The earlier you do this the more options you may have to fix things. Don’t wait for the court to tell you it is too late.

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.