Sued by FundWorks: 7 Things That Happen Next

Getting sued by FundWorks can be stressful. It starts a clock ticking for both sides. You need to act fast, but also need to make sure you get it right. A lawsuit works in stages: complaint, response, possible judgment, and consequences like bank account freezes.

1. Keep every paper

As soon as you get a notice from the court that a lawsuit has been filed, you should begin keeping everything related to it. This includes the original notice and any other papers that come in the mail. It also includes your own notes of when you sent or received papers. And it includes anything related to the account that FundWorks said you owed. Keeping everything is essential because it will keep you from having to rely on your memory later on. The original lawsuit papers should have the court’s name and a case number on them. You need the case number to track the lawsuit. You also need to know the court’s name to know where to file your answer. A collection email isn’t a lawsuit. Neither is a demand letter. The lawsuit will say in it whose names are on the court case.

2. Watch the deadline

The most important deadline is probably the deadline for answering FundWorks’s lawsuit. Make sure you don’t do what some people do and think they will deal with the court papers later. Or that they do not know what to do and, therefore, decide to ignore the whole situation. Your response deadline depends on how you got the summons. Under New York’s rule: If you were given it personally in New York, then you have 20 days. If you were served another way, then you have 30 days after service is complete. Remember that calls or settlement talks don’t extend this deadline.

You can get sued in New York even if you aren’t located there. Service and deadline have special rules, so consult an attorney. Also, some objections can be waived if you don’t make them at the right time.

3. Check their numbers

You should add up your balances by yourself and not rely on what FundWorks says is owed. The point is to make sure that FundWorks didn’t make a mistake or claim money you didn’t owe. If you are sure that FundWorks is wrong about the money, that could affect how you respond to FundWorks’s lawsuit. Match what you paid against what you actually sold. If there was a gap, did you ask for a reconciliation, and did the funder send one?

4. Ask if it was a loan

Calling a Merchant Cash Advance an “advance” and not a loan doesn’t settle the question. One New York appeals court weighs three facts: the reconciliation provision, whether there was a finite term, and what recourse the funder would have if the merchant went bankrupt. New York’s highest court said in 2021 that criminal usury (interest above 25% a year) can be a defense for a corporation. And when the transaction falls into the category of criminal usury, it becomes void, as if no loan had been made. The lender is then not entitled to collect either principal or interest. But this is not automatic, even if the agreement’s numbers could have led to criminal usury. The judge would look at the facts of your case.

5. Your guarantee is next

Make sure to check your personal guarantee if you signed one. You also want to check when it says it applies and to what. Also check if it says that you have to repay the money even if FundWorks failed to do something it was supposed to do. When a case names the business and you, you need to think about how a lawyer will handle your exposure differently from how the business handles its exposure. A lawyer handling your defense has to think about how an action would affect both of you. Watch for possible conflicts of interest.

6. Missing it means default

Don’t miss the deadline, because missing it brings consequences. It lets the court enter a default judgment against you. A default judgment is just like a normal judgment in that it gives FundWorks the ability to try to collect money from you. In New York, the defendant company might be served through the Secretary of State. But before the funder gets a default judgment, they have to mail a copy of the summons to the company’s last known address, at least 20 days before the judgment’s entered.

A default judgment is serious, but there are still ways to try to fix it. In New York, you can ask the court to cancel or vacate it based on an excusable default. There is a time limit, though, so you need to ask within a year of getting notice of the judgment. The court will ask why you missed the deadline, and you will need a good reason for it. If there’s a confession of judgment, watch out. In New York, the funder can only file it within three years after you sign it and only in the county where you lived then or where you live now.

7. Judgment means collection

The bank restraining notice comes to the bank after the judgment is entered. It can be up to twice the amount owed. It can last a year at the bank. The judgment grows at a rate of 9 percent each year. And it doesn’t go away on its own. The court assumes a judgment is paid only after 20 years. And a payment to the judgment can restart it.

The funder might even be able to do things to you even before getting a judgment, like sending an assignment notice or a letter to your customers, telling them to pay the funder instead of you. But not every demand for money is valid, and not every attempt to tell your customers to pay the funder is valid. Make sure you get a copy of that document. Don’t take steps to move your assets or switch bank accounts without getting legal advice first. A lawyer’s letter doesn’t automatically lift the freeze.

Settling with FundWorks

You can try settling with FundWorks, which could end the lawsuit. Set an exact date for when the total is paid. Make sure it says it releases the personal guarantee, if any. If you agree to make monthly payments, make sure you know what the consequence will be if you miss one. FundWorks’s lawyer might be willing to lower your monthly payment. But there can still be a big balance remaining afterward. Also, settling with one funder doesn’t solve the other advances you took. You have to keep separate records for each case.

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.