Sued by Citi Bank: 6 Response Options for Business Accounts

Your business used a credit card for expenses, and now Citibank has sued you over the unpaid balance. Regardless of the number in the complaint, ignoring it is the worst thing you could do. If you fail to respond, the court may enter a default judgment against you, making you responsible for the debt, interest, costs, and even attorney fees depending on your contract. If the court enters judgment against you, the bank can then seek to garnish your wages, put liens on your property, or freeze your bank accounts depending on state laws. You have six options here.

1. Answer before the deadline

Typically the summons will give you a date by which you must file your answer. You generally have 21 days to respond to the complaint filed against you in federal court, but state laws vary.

Don’t let panic lead you to call the bank’s lawyers. Take the time to read the documents completely. Sit down and make a log of every contact. Then attend every hearing or conference, with your documents. If a default judgment is entered anyway, in federal court, motions to set it aside for mistake or excusable neglect must be filed within a reasonable time, not exceeding 1 year.

2. Hire a business lawyer

Before doing anything else, consider hiring an experienced business attorney. Lawyers can help you evaluate whether the debt is rightfully yours and help you defend the suit.

You may feel a lawyer is one more expense you don’t need. But without legal representation, a messy lawsuit can further weaken your finances. In contrast, a lawyer can help you meet important deadlines, identify any errors or omissions in your case, negotiate with Citi or file bankruptcy if it’s appropriate, as well as help you plan for the long-term.

In New York a corporation generally must appear in court through a licensed attorney with exceptions for some small claims actions. Also, an essential Federal debt collection law called the FDCPA protects consumers only and may not protect a business account.

3. Check who is liable

Business credit cards can involve several entities who could owe money on the account. Have a lawyer look at the credit card contract and see who is liable.

When you signed the card application, you may have thought the liability ended with the business entity. Check the fine print. If the definition of “you” included both the business and the Authorized Officer, Citi can hold both you and the business liable for the debt. That means that both of you are obligated to pay, and Citi can collect the debt from either of you individually.

Beyond who is liable, the bank has the burden of proof in court, which means that it must establish several facts before the judge will issue judgment against you. Don’t assume the company and the amount it demands are correct. You can question the bank’s demands by making a request that the bank produce evidence of its claims. In defending this case, you can also check the name on the debt as well as the amount. If there’s a discrepancy, you may have a defense. Check your local statute of limitations on debts.

4. Look at arbitration

Did the credit card contract have an arbitration clause? If the credit card application contains an arbitration clause, and the bank files a lawsuit anyway, you can still seek to have the case sent to arbitration. Be aware, however, arbitration results can be binding.

Under one Citi business card agreement, a cardholder can opt out of arbitration, but the business had to send a letter within 45 days of opening the account. If you file a claim in Small Claims court, Citi will defend that case and not take it to arbitration while it stays there. Citi says it won’t start arbitration proceedings to collect a debt unless you choose arbitration or sue Citi.

5. Negotiate a settlement

It’s possible the creditor will negotiate a settlement so it can obtain payment before going through the costly and timely lawsuit process. One option is to offer to pay a lump sum in exchange for a reduction of the balance. You could also offer a monthly payment plan. Errors by the bank may support your negotiating for a better settlement. Your attorney can often speak with the bank’s attorney and use this as an opportunity to negotiate.

Never just accept the first offer the bank makes you. While the deal may sound good in the moment, make sure you understand exactly what you’re getting before you sign anything. Remember, this settlement is usually binding, once your signature is on the paper. Another thing you should know about the forgiven debt - it’s generally taxable income. Of course, if you’re filing for bankruptcy or are insolvent, you may be able to exclude the canceled debt from your income tax. You can claim the exclusions with IRS Form 982.

6. Consider bankruptcy

Facing the threat of litigation or a judgment over credit card debt can make you wonder if bankruptcy is an option. Filing for bankruptcy can halt most collection efforts by creditors. While bankruptcy is a possibility, it’s an option that you should carefully evaluate. The legal process can quickly get complicated and often requires professional assistance. Ask about the potential effects of bankruptcy before choosing this course.

Being sued is a difficult situation, no question. But you’ll come through it the best if you meet the situation head-on. Get information and the right guidance instead of panicking. Take control of the legal process instead of ignoring it and letting matters get worse. Don’t let fear paralyze you. Step into the process, get help and get through it.

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.