6 Mistakes Business Owners Make When Breakout Sues

When a lender like Breakout Capital files suit, small businesses tend to make the same mistakes. Most often, they didn’t read the papers as carefully as they should have. They assumed there’d be 30 days to respond. They let a negotiator or owner stand in for a lawyer. They denied the complaint on principle, without checking the balance. They treated a judgment as final, rather than their cue to seek a lawyer. And they signed a settlement without reading its terms.

1. Read the papers first

Faced with a lawsuit, small businesses often don’t check the case ID, the date, the deadline, or who signed for them. They don’t read the allegations. And they don’t read the terms of any agreement that’s attached. A claim filed in a state court calls for a very different response than one filed in federal court. Breakout Capital is a lender based in McLean, Virginia. In Virginia, a general district court can hear civil claims up to $50,000, excluding any interest and attorney fees. Check whether partners or shareholders are named as well.

Pick up the original summons, complaint and any attachments. Keep the envelope. Write down how and when the papers reached you. Keep emails as well. Gather every agreement, guarantee and modification, plus a history of payments and bank statements.

2. Assuming you have 30 days

A summons does not mean you have 30 days to respond. That period varies by state, case type and method of delivery. Federal courts are typically 21 days. To be safe, never assume. In Virginia circuit court, you’re expected to respond by the 21st day after the complaint and summons were served on you. Phone calls and settlement talks with the lender don’t extend that deadline.

In Virginia circuit court, a judge can decide to let a defendant file after the deadline, before judgment is entered. But the late defendant needs a good reason why the filing was late. In a Fairfax County case, a defendant waited 56 days to act, and the judge declared there was no valid excuse for the delay. Even if you think the service wasn’t right, or the complaint is wrong, do something promptly. Some objections can be lost if not raised properly.

3. Letting someone else stand in

Small businesses sometimes have an owner, shareholder or accountant file with the court. That’s a risk. Someone who’s not a lawyer may not be aware of deadlines and requirements. They don’t know what info to enter in the filing or what documents to attach. The U.S. Supreme Court has ruled that a corporation can appear in federal court only through a licensed lawyer. Lower courts have since applied the same rule to partnerships and business entities that are not corporations. A settlement broker or negotiating company is not the same as a licensed attorney. If a settlement company or broker is negotiating, confirm a lawyer has agreed to appear for each defendant.

4. Denying everything

Don’t deny every claim just because you have a dispute with the lender. In a Virginia circuit court, it’s not allowed to file a general denial. Instead, each paragraph in the complaint has to be addressed one by one. You can check the amount lent against the payments collected, then factor in credits, returned debits and fees. Be aware that a lender’s demand for a balance doesn’t prove it’s right. Review the guaranty and any underlying agreement.

5. Treating a judgment as final

Don’t assume a court’s decision cannot be changed. If you were sued and find out the deadline is past and a judgment’s been entered, don’t assume nothing can be done. Seek the court record and a quick review. Relief depends on the court and on the case facts, and it’s not guaranteed.

A confessed judgment entered in Virginia with the clerk of a circuit court is as binding as one a judge would issue. This court has control over a confessed judgment as well, so it can be set aside or reduced on any defense valid in a regular lawsuit. You can move to have a confessed judgment set aside or reduced within 21 days after you were served with notice it was entered. A confession of judgment signed by an attorney-in-fact is not binding as to any debtor who was not served with a copy of the court order that says it is a judgment, no later than 60 days after the judgment was entered. Get the signed documents and court filing record reviewed.

6. Signing a settlement unread

Don’t sign a settlement without reading the fine print. Check it’s accurate in balance owed, names and terms. When considering a settlement offer, weigh it against the strength of your defenses, your cash flow and other debts. A lower payment may still leave a big balance. A missed payment may bring new consequences. Check which entities, partners and claims are included and whether personal guarantees are released. A settlement with a lender should clear up how the lawsuit ends and any judgment is marked satisfied, and release liens, restraints and payment demands to customers. Beware that a plan with one funder does not settle your other debts.

Seek a lawyer’s advice before changing bank accounts, redirecting receipts or moving assets. Hiring a lawyer doesn’t automatically release funds or stop collection. Keep separate records for each loan agreement and 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.