Sued by Ascentium Capital: 6 Response Options for Business Accounts

If Ascentium Capital has sued you over an equipment lease, don’t ignore the lawsuit. You have six ways to deal with the lawsuit: Make sure you answer on time; undo a default judgment, if it has already been entered; test the validity of the contract you signed; protect bank accounts; negotiate a settlement; bankruptcy as the last resort. Whatever you decide, you have to move.

1. Answer on time

Lawsuits must be answered on time. If a suit is filed, you will receive a Summons. Do NOT delay or avoid getting legal advice. If you are sued, and you do not answer, a default judgment can be entered against you.

In federal court, after receiving a lawsuit, a defendant has 21 days from the date of service to file an answer. In Texas district court, after receiving a lawsuit, a defendant has to file an answer by 10 a.m. on the Monday following the expiration of 20 days after service. In Texas justice court for debt cases, a defendant has 14 days to file an answer. In Texas, a corporation generally cannot represent itself in court but must have a licensed attorney. It is always a bad idea to call the plaintiff’s lawyer to explain your situation. Anything you say to the plaintiff’s lawyer can be used against you.

2. Undo a default

If you think a default judgment has been entered against you, immediately consult a lawyer. You may be able to vacate, or erase, the judgment. You may need to show a judge why you did not respond to the lawsuit, and whether there is a legal or factual defense to the lawsuit. Although default judgments can be vacated, it is much better to answer the suit before the court enters a default judgment against you. The grounds for vacating a default judgment usually include defective service of the suit papers, or lack of personal jurisdiction. States usually set a window of months, not years, to ask for this. But courts prefer to vacate defaults sooner rather than later. In federal court, once a defendant has appeared in a case, that defendant has to get notice of any hearing at which a default could be entered. The minimum notice time is seven days.

3. Test the paperwork

Make sure to read all the documents you signed, and get copies of all documents. Review those documents with a lawyer, to see if a lawsuit is timely filed. If Ascentium Capital sues you for a debt, the debt may be too old for the company to sue over it. Texas has a four-year statute of limitations on debt suits.

Some business finance leases are hard to defend because of what is called a hell or high water clause. Under Texas business law, once commercial equipment is accepted under such a clause, the lessee cannot cancel the payments unless the lessor has consented. If the lender repossesses and sells the equipment, Texas law requires that every aspect of that sale be commercially reasonable. When a corporation leases equipment, the finance company may require the owners of the corporation to guarantee repayment of the lease, even though a corporation or limited liability company is signing the contract, not the owners. Personal guarantees are very dangerous for a signer.

4. Protect the bank account

Generally, creditors cannot take money out of your bank account without first going to court and getting a judgment. When someone sues you and wins, the next step is to collect. If you deposited money in the bank, they can use that money to satisfy the debt. You may not realize that a bank account has been frozen until your checks begin to bounce. The bank will freeze the account, perhaps leaving you in the lurch, with no money to run your business or pay employees. Of course, you can fight back. Depending on the state, there may be grounds to protect bank accounts. It is important to tell the court which funds are exempt and why. A court can modify or even dissolve the freeze if you show hardship or other grounds.

5. Negotiate from leverage

Negotiations succeed with leverage. Leverage can come from a superior legal position (the lawsuit is barred by the statute of limitations or is so legally weak it would be thrown out of court). A corporation only exists to make money. If you can explain reasons why the plaintiff may not get the money, they may accept a lesser amount in a settlement. Showing the corporation you are ready to fight can help. You can try to negotiate a lump sum or payment plan you can afford.

It is better to gather information, evaluate it carefully, and try to reach a good resolution, not just any resolution. Whatever you do, do NOT agree to make payments you cannot afford. But a good deal to resolve the debt may be a better way to go than letting a creditor take your account or other assets. If the creditor wins, in Texas the judgment rate is based on a contract rate, capped at 18% a year. The Fair Debt Collection Practices Act only protects consumer transactions, not business transactions.

6. Bankruptcy as a last resort

Bankruptcy is the most serious step and should be a last resort. Bankruptcy can stop virtually all collection efforts, including garnishments and bank account attachments. Chapter 11 bankruptcy is for businesses and entities. The debtor offers a plan to keep its doors open while repaying creditors over time. Subchapter V is faster and simpler and cheaper than a regular Chapter 11 bankruptcy. The limits for a small business case are a company with total debts of $3,424,000 or less. Chapter 7 bankruptcy is sometimes called “liquidation”. A Chapter 13 bankruptcy is for an individual person, like a guarantor. If a company cannot pay its debts as they come due, or will not be able to pay them in the future, bankruptcy may be the right thing to do. You should consult a lawyer to analyze whether bankruptcy is the best option.

It can be a daunting prospect to fight a lawsuit. But the consequences can be severe if a lawsuit is not answered or contested. Your best course is to get legal help 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.