Reliable Fast Cash LLC Litigation: 5 Reasons Default Judgment Is the Real Risk

If Reliable Fast Cash LLC has sued your business, the biggest danger is usually not losing on the merits. It is that a court can issue a judgment against you without a hearing if you do not answer the complaint. Default judgment is a court’s determination that you owe money when you fail to answer or “respond” to a summons and complaint. While judgments are potentially disastrous in the long term, there are ways to protect yourself and prevent default judgment.

1. The clock is short

In New York, a defendant generally has either 20 days or 30 days to answer a complaint before the clock runs out and the plaintiff can get a default judgment. If you or your business have been sued in New York, count forward from the date you were served. The answer depends on the method of service, with service through personal delivery triggering the shorter window. However, 30 days applies for service outside the State of New York. Still, regardless of which applies, the clock may run out in a matter of weeks. Even where the other side may not have a case on the merits, a judgment can result if the defendant simply takes too long to get around to answering.

Just about all merchant cash advance contracts say that New York law applies and that the New York courts can hear the case. That is why the Supreme Court of the State of New York gets to hear so many funding cases. It is the reason why you may find yourself tangled up in a New York lawsuit, when your business is based in Florida or Texas.

2. Your company cannot answer alone

If your business is incorporated, or an LLC, you should know that a corporation or LLC must have a lawyer in most court proceedings. This means the owner cannot answer for the company. You cannot just show up and explain the facts. Failing to respond often gives the plaintiff a default judgment, as there is no one on the other side speaking up on your behalf.

3. Default is fast and clerical

To get a default judgment, a funder generally does not have to go before a judge. The business does not get a chance to explain its side. For a fixed-sum debt, like a lawsuit over unpaid money under a business funding contract, the clerk of the court can make the decision to enter judgment. The other side can just take the complaint to the clerk to show how much money they say you owe. The clerk adds interest and costs and issues a judgment in the amount they request. When a company is the defendant, the clerk can issue the default judgment against both the company and each individual listed as a personal guarantor.

4. The judgment keeps biting

As a result of a default judgment, what the plaintiff originally asked for in the lawsuit could grow in a number of ways. First, the amount of the judgment itself, after it gets entered, keeps growing until paid. The judgment “accrues” or “accumulates” interest, at a rate set by law. The interest rate for business debts is 9% a year in New York.

To collect on the judgment, a judgment creditor can serve your bank with a restraining notice. This notice orders your bank to freeze up to double the amount of the judgment in your account. The restraining notice stays in place for up to a year. Finally, the court docket entry becomes a lien against any real property you own in the county where the judgment was entered. It remains in place for up to 10 years.

5. Default throws away your defenses

If you do not respond in time, you can throw away your case. A default judgment can stop you from presenting defenses. Courts have held that if the contract really is a loan, usury laws can apply. Even though the document says it is a purchase of receivables, courts focus on whether it has a working reconciliation provision, and if the agreement has a finite term. One major test of whether the agreement is a loan is whether you would still have to pay the funding company back if your business had to file bankruptcy.

It is criminal in New York to charge more than 25% interest a year on a loan. However, a corporation can raise it as a defense, and a criminally usurious loan is void. Even if a loan is criminally usurious, the lender can still sue, and the lender can win if the borrower is not there to argue.

You or your business could dispute the claim that a default actually occurred. Did the funder honor reconciliation requests you made in your funding agreement? Did the funding company double-count fees? These are all important questions where a case can turn, but they are questions that are only likely to get answered by the court if you present your side through an answer.

Many funding agreements include a Confession of Judgment. This document lets the funder go to the court to get a judgment without a lawsuit. In New York, the plaintiff can generally enter the confession in New York Supreme Court only if you run an office or other place of business there.

Many cases end in negotiated settlement, and the existence or absence of legal defenses decides the terms of a settlement. A business facing a default judgment looks very different to a funder than one that has answered and produced evidence.

If you do not answer in time, you will have to bring a motion to “vacate” or undo a default judgment. There is only a one-year time window to ask for this, if you had notice of the entry of judgment. Even where you did not get personal notice, you can only ask to undo the judgment within a year of learning of it, and never more than five years after entry. Just answer in time, and you can defend the merits.

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.