Orange Advance Demand Letter or Lawsuit? 6 Differences That Matter

A demand letter is a request to pay an alleged debt. A summons and complaint is when a lawsuit starts. Orange Advance actually filing a lawsuit is them going to court and forcing you to respond or suffer the consequences. In practice, the differences are a lot bigger than that. And the implications for your business are huge. Also, if you miss one of the differences, it could end up with you getting sued when you could have negotiated a settlement. This post discusses six points where a demand letter and a lawsuit are different.

1. What actually starts a case

A lawsuit is started by a summons and complaint. But that’s only true if the opposing party actually files the lawsuit with the county court clerk in New York. A demand letter is just that. A letter. Nothing gets filed, and a lawsuit does not start.

A demand letter on law firm letterhead can scare anybody. But the Fair Debt Collection Practices Act doesn’t apply to business debts. Even if a business is a “debt collector” under the FDCPA, it does not have to follow the law because it is not collecting from “a consumer.”

2. How much time you have

You don’t really have a deadline to respond to a demand letter. Sure, the demand letter might put a deadline to give a response by, but it’s not set by law. A lawsuit has a strict deadline to respond. This is likely the most important of the differences. In New York, when you are sued, you have 20 days to respond to the lawsuit if the summons is handed to you. Served another way, you will have 30 days to answer that summons and complaint. That deadline is not optional, and in fact could harm your business if you miss it.

3. What silence costs you

If you don’t respond to a demand letter, you could end up with a lawsuit. With a lawsuit, if you don’t respond by the deadline, the other side can win the lawsuit by default. And that can potentially mean that they can enforce a judgment against you that they could not have enforced with just a demand letter.

4. What they can reach

A lawsuit could turn into a judgment which could allow the other side to take your money. The other side, having the judgment, can use that to serve a restraining notice on your bank. The restraint can be for up to twice the judgment amount. When a restraining notice is delivered, the bank is supposed to freeze the account with that judgment debtor’s name on it.

If one of the owners of your business signed a personal guarantee to the debt, the judgment may be used to restrain personal assets. It’s easy to miss the personal guarantee when going over contracts.

With a confession of judgment, your business basically gives permission to the other side to enter judgment against it if it violates terms of the contract. With the confession of judgment, there is no summons and complaint. The confessed judgment can still be used to freeze bank accounts.

If you authorize the opposing party to debit your account, you give them power even without a lawsuit. If your creditor’s ACH debits to your account are stopped, when you owe that creditor money, it does not protect your business against the other side taking other action, including suing you.

5. Where your defenses get tested

At a basic level, a demand letter might get you thinking about defenses. But a lawsuit is what makes the opposing party prove the allegations against you. With a lawsuit, you have to file an answer to raise defenses or the other side can win the case without them being considered. If they are suing you and their claim is improper, that will be for the court to decide, not the opposing party. Of course, for the court to decide that, you have to show up, and again you have to respond to the summons and complaint.

For example, if an MCA arrangement looks too much like a loan, the courts could treat it as a loan. A disguised loan is an agreement that is written to look like it is not a loan. However, it is arguably subject to the same laws as loans. Usury means charging too much interest. New York law puts a limit on the amount of interest that can be charged on loans. If the MCA agreement is deemed to have been a criminally usurious loan (over 25% a year), that could be a defense to the lawsuit.

These kinds of defenses can get pretty complicated. The last thing you want is to raise them too late and face the lawsuit being won against you just because you missed the deadline.

6. What you should do next

A demand letter isn’t a lawsuit. But it is potentially the first step towards a lawsuit. Make sure you keep copies of the demand letters and any other documents you get so that when you have to respond, you have all your records. In most cases, the opposing party has six years to sue you on a breach of contract.

Find out how much the other side says you owe. And then find your own records to check whether you owe anything. Verify the numbers and if the other side overcharged you, you could owe less than you think. The time to come up with this evidence is before the lawsuit. A lawsuit can still be filed even while you are trying to settle.

If you get a lawsuit, however, you should take it very seriously. While the negotiations are going on, that 20-day or 30-day deadline could be coming up. You can’t wait forever to put an answer on record. Talk to an attorney, fast.

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.