Sued by Capital One: 6 Response Options for Business Accounts

You cannot do nothing when a bank sues you for a business account. If you ignore the suit, the court likely will declare a default judgment for Capital One. That can result in wage garnishment or a lien on your property. The faster you work toward resolving your case, the better. In short, you have six ways to respond: answer the suit, check whether you signed a personal guarantee, test the debt, offer a lump sum, ask for a payment plan, and get legal help or weigh bankruptcy.

1. File an answer first

Your first task should be to respond to the lawsuit by submitting a legal document that is known as an “Answer.” This is a notice to the court that you intend to address the charges made in the lawsuit. An Answer must be filed within a certain time frame, and failure to file it will put you in default. Federal courts require that you submit the answer within 21 days from the date you were served the lawsuit. If you miss the deadline, the plaintiff can request the court declare you to be in default. Make sure you follow the rules of the jurisdiction where Capital One filed the lawsuit. Look up the local court website for details. In Alaska, you have 20 days to respond to a complaint.

A default judgment by the court can be very harmful to you. It opens the door to aggressive collection tactics by Capital One. This gives the bank the legal right to garnish your wages and levy bank accounts. Capital One will be granted a judgment for the entire amount of money it claims you owe. Failure to answer the lawsuit can seriously damage your ability to defend yourself against the action in court. Do not avoid filing an answer, no matter how weak your defense may be.

2. Check for a personal guarantee

One of the first things you should do in your case is to find out whether you signed a personal guarantee for the business account. If you signed such a guarantee, Capital One will have the right to pursue you personally. This puts your personal assets on the hook to repay the debt if the business defaults on it. A guarantee determines whether Capital One has the right to pursue a legal action against you as an individual in addition to the business. Look through your paperwork. Did you sign a personal guarantee? It is worth examining the contract to make sure that you did indeed sign it.

3. Test the debt

This strategy, also known as debt verification, involves asking Capital One to furnish specific proof of the debt in question. Do you owe the money claimed by Capital One? Look at the account history for accuracy. Review the monthly statements. Get names and contact information. Record the dates of your discussions. Make sure to get these records in writing when possible. Find out whether Capital One proves that the account is your responsibility. Look at the statute of limitations on debts where you live. You may be able to challenge the account if you determine the statute of limitations has run. Capital One card agreements say Virginia law governs the account. In Virginia, the statute of limitations is five years for written contracts. But this is a legal question for your lawyer. Keep in mind that federal debt collection law protects consumers, but the law does not provide much protection for businesses.

4. Offer a lump sum

You can ask Capital One to accept a smaller amount than what you owe. It can be a viable option if Capital One finds it preferable to get something rather than nothing, which might be the case if you declare bankruptcy. It may turn out to be cheaper for Capital One to accept a lump sum than spend the time and money to pursue the full amount. As a result, the bank may be open to negotiation. How much money can you offer toward settling your debt with Capital One? Review your budget and try to determine how much extra money you have to devote to settling this debt, so that the lender has a starting point for the discussion. It is best to make your offer in writing. Explain why you are in financial difficulty and that you want to resolve the matter.

5. Ask for a payment plan

Try to negotiate a repayment plan with Capital One. However, as in the case with a lump sum offer, there is no legal obligation for the bank to accept your proposal. Try to reach a deal that calls for you to make monthly payments. This will spread out your payments over time and lessen the burden on your budget. Work it into your budget so that you can commit to fulfilling the obligation.

In the meantime, the bank still can seek a judgment against you. Do not delay filing your Answer. If you reach an agreement, ask for written documentation of the new deal.

6. Get legal help or weigh bankruptcy

You may find it beneficial to seek legal representation. An attorney can advise you on the best way to proceed with your case. In some instances, it may be in your best interest to enter bankruptcy. Consult an attorney for a professional assessment of the matter. Subchapter V bankruptcy is an option for a small business that owes up to $3,424,000 in debt. Chapter 13 is open to individuals whose debt is no more than $526,700 in unsecured debt.

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.