6 Mistakes Business Owners Make When Gold Crest Sues

Being served with a lawsuit by your merchant cash advance (MCA) provider can be a frightening experience. When small business borrowers fail to respond to the lawsuits quickly and intelligently, that failure often results in devastating financial losses for the business. Many times, owners ignore this suit and hope the problems will go away. Unfortunately, the problems do not go away, and you end up facing default. In other cases, owners fight the suit on their own. In this case, they face serious legal consequences and often do not realize the problems until it is too late. Make sure you don’t miss a critical milestone for your defense. The summons is only the beginning of the long process, but it gives you a chance to prepare to make the right moves.

1. Ignoring the deadline

An MCA lawsuit is usually brought in New York, so the summons comes from a court you have never been to. The answer must be filed by the 20th day after you have been served with the suit papers personally, or 30 days after other service. When you do not answer the summons in time, the court grants a default judgment. At that point, it is hard to undo the damage.

2. Going it alone

Even if you feel like you have a strong argument or plan for a resolution, or even if you feel like you know the law better than Gold Crest, it never makes sense to try and fight the dispute on your own. If you own a corporation, you have to have an attorney represent you in New York. You cannot handle it yourself unless it is a small claims case. The other side will have the benefit of an attorney’s experience and knowledge.

Get an attorney experienced in merchant cash advance disputes right away. To put together a good case, your attorney will need all your documents about the MCA, including the contract, any amendments to the contract, a list of all the money you’ve gotten, and about six months of bank statements.

3. Talking to collections

Talking to debt collectors often seems like it will help the situation. However, the debt collector is not trying to help you. Anything that you say to the collections agent will give them information that they will then use to fight you in the court. Let your attorney handle all communications to the other side. Know that if you call the bank and order a stop to the funder’s debits, that may make the situation worse. The MCA provider may treat stopping ACH payments as a default.

4. Leaving cash in the account

Many people believe that, if they keep the money in their accounts, then Gold Crest cannot get access to it through a lawsuit. Unfortunately, that is not how New York law works. After you lose in the suit, the creditor can get access to your accounts. Once judgment is entered, it is often enforced by serving a restraining notice on your bank. Any account you have with the bank in question is frozen, up to twice the amount of the judgment. Usually the first sign you get is a bounced check, which is when you learn that the account has been locked. Set up a separate bank account at a different bank and get your money safe.

Exempt funds that are in the frozen account get frozen as well, and so does money that belongs to others. You can get the money free again by making a motion in court and proving it is exempt or that the money belongs to someone else. Some funders send notices to your customers telling them to send payments to the funder, not the business owner. You need to send key customers an email or letter telling them the notices are disputed.

5. Assuming there is no defense

Often debtors don’t know the law and assume there is nothing they can do. Read the contract carefully, since it may include a personal guarantee. If you signed a personal guarantee, the other side can go after you directly. If the creditor does not respond to reconciliation requests, it may itself be in breach of the contract. Keep emails and letters asking to lower payments if you can.

New York courts are concerned with whether the MCA arrangement is a real sale, and not a loan hidden as a sale. They look at the fine print for a reconciliation clause, that allows you to adjust payments, as well as a fixed end date. What happens in the event that you go bankrupt? If the funder gets paid anyway, that points toward a loan. You do not have to be a person to benefit from New York criminal usury statutes (interest over 25 percent a year). Even a business can make use of it as a defense if it borrowed the money.

6. Treating a judgment as final

If there was any hope in this dispute, the entry of a judgment can make it feel all the more final. However, this is not necessarily the end. You can ask the court to modify or set aside a judgment. If you did not show up at court and default judgment was entered, you may be able to file a motion to reopen the case or vacate the judgment. If it is less than one year since you got notice of entry of a default judgment, you should make that motion, if you have a reasonable excuse and a real defense. Bad service is a common reason, such as the other side not serving you at the right address.

Most of these cases settle rather than go to trial. Many of them settle at a discount of somewhere from 30 to 70 percent of the balance if the debtor has a credible defense and the finances are organized. If you file for bankruptcy, an automatic stay goes into effect. That stops all lawsuits, bank restraints, and ACH debits. This is not right for every business, but is appropriate in some situations.

Whether you are being sued by Gold Crest, or another merchant cash advance company, the best option is always to respond to the lawsuit as soon as possible. Waiting to get help can cut out your legal rights and opportunities.

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.