A Tot Capital Lawsuit: 6 Ways These Cases Usually End

When a business is sued by Tot Capital for not making payments on a merchant cash advance, the case usually ends one of six ways: Tot Capital gets a default judgment, a signed confession of judgment is entered, the case gets dismissed for procedural reasons, the borrower defends on the merits, Tot Capital and the borrower settle out of court, or the borrower files for bankruptcy. What happens depends mostly on the laws of the state that the case is in, the deadlines set by the court, and the individual facts of the case.

Make Sure You’re Holding an Actual Summons and Complaint

First, make sure you’re holding an actual summons and complaint, not just a letter or an email from the collector. If there isn’t a summons, and you’ve only got a demand letter in your hands, that’s not yet a lawsuit. Gather and make copies of all of the papers that you received, including envelopes and any extra papers, and note down the date that you got served. Figure out the specific name of the court, the case number, and who exactly is named as a defendant.

1. A default judgment

If a borrower does not respond to a lawsuit by filing an answer within the deadline set by the court, Tot Capital can ask the court to enter a judgment against them. The length of time before the borrower must answer varies from state to state and with how the papers were served.

In New York, the deadline to answer a case is generally 20 days after personal service and 30 days after service is completed another way. The deadline to answer cannot be extended by conversations and negotiations alone. If a default judgment is entered, a borrower in New York may ask the court to reopen the case if they have a good excuse for being late within one year.

2. A confession of judgment

Sometimes, a borrower and a funder execute a confession of judgment at the time that the merchant cash advance is made. If this has happened, Tot Capital may skip having to file a lawsuit altogether. In New York, the confession of judgment can only be filed in the county where the borrower lived or had a place of business at the time that the confession was signed or filed, and within three years of the confession being signed. A confession of judgment isn’t enforceable in all states.

If Tot Capital got a confession of judgment entered against you, have a lawyer look at the documents you signed, what Tot Capital filed in court, and what authority they relied on to get it entered. Signing it once doesn’t mean that the confession can’t be challenged, and challenging the confession doesn’t guarantee that collection will stop. If they froze your bank account, got funds withheld from payment processors, or sent legal notices to customers, get copies of whatever document came to you, and then a lawyer can tell you what the next steps are. Documents like UCC filings, summonses, subpoenas, and court restraining notices can look similar, but carry very different consequences. Don’t start moving assets or accounts until you’ve had advice.

3. A dismissal on procedure

The lawsuit may be thrown out if the court doesn’t have authority over the borrower or the case. Problems with service and due process can get a case dismissed. Also, there can be problems with a forum selection clause, choice-of-law clause, and/or arbitration clause in a merchant cash advance agreement. However, simply living in another state is not enough to force a dismissal.

4. A defense on the merits

The first thing to look at is the agreement itself and see how the amount that Tot Capital claims is due is calculated. The borrower should compare their records of the total amount advanced, the amount that Tot Capital collected, credits to the balance, debits returned to the borrower’s accounts, and fees to the funder’s numbers and balance to see if there is anything unexpected. If the borrower had a fall in revenue, did they ask for a reconciliation? The borrower should also look at whether the totals collected match up with their revenue, and consider requesting records from Tot Capital.

Whether the contract was an advance or a loan can determine the outcome of the case. The Appellate Division of the Supreme Court in the State of New York ruled in 2020 that three factors usually decide that question: (1) whether there is a reconciliation clause; (2) whether the agreement is for a finite term; and (3) whether the funder has any recourse against the borrower in the case of bankruptcy. Criminal usury (under New York law, knowingly charging more than 25% per year on a loan) is an affirmative defense that borrowers must specifically assert, and it can’t be brought as a counterclaim. Just because an agreement calls itself a “merchant cash advance” or a “loan” doesn’t settle the advance-or-loan question by itself. Nor does a fixed payment and/or a personal guarantee by itself.

If the owner got sued personally as well as the business, the guarantee they signed should also be tracked down. Their conduct matters. Did their actions trigger the guarantee’s conditions for their personal liability to kick in, or was that liability automatic from the beginning? The borrower and guarantor’s positions must be reviewed separately.

5. A negotiated settlement

A settlement offer with Tot Capital may resolve the lawsuit. Weigh the offer against your possible defense, monthly cash flow, and payments to other creditors. A smaller monthly payment can still leave a large balance. Also, consider the timing of the settlement and upcoming deadlines in the case, especially if a signed agreement will take some time to hammer out. Tot Capital can come back if you miss a payment.

Before you sign a settlement agreement, read it for the amount that you owe, how many payments there will be and when they are due, amounts already collected, which entities and guarantors are being released, whether the case will be discontinued or a judgment marked satisfied, whether a UCC filing will be released and a freeze on your bank accounts lifted, and what happens if a payment is missed. Also, remember that an agreement settling this dispute doesn’t settle other ones you may have with Tot Capital over other merchant cash advances.

6. A bankruptcy filing

Filing for bankruptcy protection puts an automatic stay on most pre-petition lawsuits against the debtor, but some, such as criminal cases and regulatory enforcement actions, are exempt from the stay. It is essential to consult with a bankruptcy attorney to determine what actions may be necessary and what the costs will be.

Act promptly to resolve your matter, keep separate records and documents for each merchant cash advance agreement, and for each lawsuit or threatened lawsuit. Answering a court summons one time is not the end of the process, and your case can change directions.

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.