Ml Factors Demand Letter or Lawsuit? 6 Differences That Matter

An ML Factors demand letter is a non-litigation communication with information about the alleged debt and amounts owed. A lawsuit is just that, a legal filing by ML Factors Funding against your company to attempt to recover the balance owed on a merchant cash advance. Many of the rules of a lawsuit are governed by civil procedure. Here are the signs that tell you whether you’re looking at a demand letter or a lawsuit, and the differences that matter.

1. What the papers are

A lawsuit consists of at least two parts: the summons and the complaint. The summons is the part that “officially” brings you into the lawsuit. In addition, and probably most obviously, the lawsuit will bear the name of the court as well as the case number. Demand letters, on the other hand, usually just contain a brief message about the remaining balance and threats about potential consequences of non-payment.

2. The response deadline

Demand letters have no specific deadline for response. Although many demand letters may state that they must be addressed by a certain date or additional fees will be added, that date is not necessarily set by state law. New York gives creditors six years to sue on a contract (CPLR 213(2)). When it comes to the requirement to respond, there is a strict deadline set by statute that applies only to lawsuits. The deadline to respond to a lawsuit in court is dependent on how and when it was served on the defendant. For example, in New York, personal service of the summons within the state results in the defendant having 20 days to appear, while service by other means (CPLR 308(2)-(5) or CPLR 303) gives the defendant 30 days after service is complete. Keep in mind that calling or not calling ML Factors Funding will not be an effective substitute for responding to the lawsuit.

3. Who is named

If you were served with papers from the court, and the documents contain your name as a defendant, you are the defendant. You may not realize how this language can confuse you into thinking you are not being sued as you are the “company.” However, any lawsuit must be answered for all named defendants, whether a business entity or an individual. A demand letter may be addressed to you in your capacity as a business owner, but if there is no lawsuit filed, there is no defendant. ML Factors’ merchant cash advance contracts can contain a personal guaranty, a UCC-1 lien, and a confession of judgment, so the company can still pursue you individually.

4. What happens if you ignore it

The absolute worst thing you can do when you are sued, or when you are served with a lawsuit on behalf of your business, is to ignore it. Ignoring a lawsuit may lead to a default judgment. A default judgment is a judgment rendered in favor of the plaintiff due to a failure of the defendant to appear.

A judgment can also come from a Confession of Judgment, which can be obtained against a debtor without going through the usual adversarial process and court procedures. In New York, since August 30, 2019, the filing must take place in the county where the defendant lived when the confession was signed or lives at the time of filing.

5. What can happen to your money

If ML Factors Funding has obtained a default judgment, or otherwise sued you and won, they can attempt to satisfy that judgment through court procedures. Under CPLR 5222, a restraining notice can freeze assets you have in your bank account up to twice the amount due on the judgment.

Don’t count on the Fair Debt Collection Practices Act, which regulates debt collectors collecting personal, family or household debts. An ML Factors debt is a commercial obligation and subject to different regulations than a personal debt.

6. How you respond

Although you can communicate and respond in some way to a demand letter, the correspondence has no particular rules and no court deadlines. But a lawsuit requires a formal answer which must be drafted correctly and served on ML Factors Funding, by the deadline for responding. When dealing with a demand letter, you can attempt to negotiate the debt, and attempt to obtain a settlement in writing that suits you. Even if a lawsuit has been filed, you may still be able to reach a resolution that allows you to avoid the default judgment and a drawn-out litigation.

Sometimes there are grounds to defend the lawsuit which must be spelled out clearly in the formal answer. A 2020 appeals ruling in LG Funding said a New York MCA was not a loan unless repayment is absolute, looking at a reconciliation provision, a fixed term and recourse if a business goes bankrupt. Not all merchant cash advance contracts contain these factors.

A lawsuit brings the court into the picture, and court dates need to be set and kept.

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.