6 Mistakes Business Owners Make When Bitty Sues

One Dania Beach, Florida funder, Bitty Advance 2, LLC, has sued merchants in Palm Beach County. Missteps can be expensive. For instance, choosing a non-lawyer can lead to filing errors. Or letting the claim proceed can give up the fight by default. A savvy attorney can review financial statements and find defenses you might not. This article will show the common pitfalls owners face when a Bitty Advance case hits.

1. Missing the response deadline

This is the single biggest blunder. In Florida, the defendant (sued merchant) generally has to answer within 20 days from the date of service. Otherwise, the court can declare you in default. Don’t assume you get 30 days from when you pick up the lawsuit. Calling the lender and getting nowhere, or trying to talk settlement, doesn’t extend the deadline. In one Bitty case, the defendants never answered. That landed them in an $89,639.99 default judgment. But don’t think you can sit back if it seems like service of those papers wasn’t done right. Talk to an attorney because you can lose options if you wait too long.

2. Letting a non-lawyer respond

It is always dangerous to let a friend or non-lawyer answer. Some owners seek help from vendors in the merchant services business. What these folks have in common is they usually aren’t lawyers. But they all can put a client in jeopardy. One owner in a federal court in Florida skipped getting a lawyer to represent the business. The owner tried to file pleadings for it. The court struck the papers because an LLC can only appear through a lawyer and put the business into default.

If a lender makes a pre-suit offer, some owners respond by hiring a settlement company or a broker to try to knock down the request. But these folks aren’t litigators. If a lawsuit gets filed, a top misstep is waiting for these negotiators to put on the brakes, and then coming face to face with a judgment. Since negotiating and defending are two different jobs, confirm that a lawyer has agreed to appear for every defendant.

3. Taking the balance at face value

Accepting as true the amount demanded is another stumbling block. Don’t believe it automatically. A lender might mis-state the amount of the claim. Pull out the agreement and all the add-ons. Take the amount advanced against the amounts collected and fees deducted. Read through the complaint carefully.

One of the things to check first is the reconciliation history. Did your lender recognize on paper that you should receive an adjustment in your deal? Also, see if you still have the bank statements for the time in question.

4. Assuming there is no defense

Another common trap is assuming that you automatically have no defense against the claim, or that it is too late to avoid liability. The description the lender gives the credit doesn’t decide whether the agreement is a loan or not. If it is a loan under Florida law, any interest of over 18% simple, if on $500,000 or less, is usurious. Keep in mind, willful usury above 45% a year is a third-degree felony in Florida. In that case, the entire debt is unenforceable.

The State of Florida has a disclosure law covering cash advances of $500,000 or less made to businesses on or after January 1, 2024. If the lender violates it, a borrower can’t sue on it, but rather only the Attorney General can act on a violation. A failure to comply doesn’t wipe out the contract.

If you’ve been named as a personal guarantor of a business obligation, that obligation and the guarantee both need a close look. First, do the charging papers show on their face that there is an item triggering personal liability?

5. Moving money when accounts freeze

Another top blunder to avoid is moving money in frozen bank accounts. Since you still have to operate your business, have your attorney discuss options for liquidity while a claim is pending.

If your business bank account is frozen without any notice, the first step is to sort out what document is driving that freeze. Was it a UCC filing? A Notice of Assignment? A subpoena? A court order restraining your account? These aren’t all the same, and you may need to bring in a lawyer to sort out whether what’s behind the freeze is valid or not. Hiring a lawyer to review what happened doesn’t automatically free a merchant account from a hold. Get advice before moving money, redirecting customer payments or trying to transfer assets.

If you’ve already got a judgment, think about moving quickly. In the State of Florida, judges set a judgment aside for mistake, excusable neglect or fraud on a motion filed only within a reasonable time, and no later than a year after the judgment enters. On the collection side, remember, a judgment lien on non-exempt personal property lasts for 5 years.

6. Signing a settlement with gaps

Failing to get enforceable written terms before putting your signature on a settlement document can lead to trouble. Are you getting forgiveness of a balance, dismissal of the claims, and a promise not to enforce an existing judgment? At the same time, verify whether any personal debt guarantee will be fully wiped out with resolution of the business’s settlement. If only the business settles, you could still owe as a guarantor in the future.

The settlement should address getting money free from any bank account restraints and dismissal of any lawsuits that have started, along with any UCC filings and demands sent to your customers. Sign nothing till you know those things are covered. A decent settlement is worthless without a statement of the precise terms if a payment is late or misses.

Getting a lower weekly payment can still leave a big balance. And making a deal with one cash advance company doesn’t wipe out your other advances. Start a separate file and put records of each cash advance into it, both to keep track of payments and to spot inconsistencies.

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.