WebBank Business Debt Lawsuit: 5 Things to Do First

The worst mistake you can make is to ignore a lawsuit. Doing this could make it more likely that you’ll lose the litigation, and could cause even more headaches down the road. Ultimately, it’s always in your best interest to face the matter head-on. Identify the deadline to respond. Businesses must appear by a lawyer in federal court, so you need to hire one. Review the loan agreement. Figure out if there was a personal guarantee, which is critical if you’re also on the hook personally, and how it applies. If so, protect your assets.

1. Find your deadline

If the complaint was filed in federal court then the Defendant must respond within 21 days from the day that you were served with the summons and complaint. Respond within this period so the judge doesn’t rule against you. That would hand your opponent victory by default. In Utah, the answer must be filed in district court within 21 days from the service of the summons and complaint, counting weekends and holidays. If you’re unsure, hire a lawyer. If you miss the deadline, your opponent may request the court enter a default judgement in their favor. Where the loan balance is a fixed sum, the clerk in federal court must enter the judgment on the lender’s affidavit of how much you owe.

2. Hire a business lawyer

Businesses must hire a licensed lawyer to be represented in federal court. Lawyers that practice business litigation could help navigate this complex field. Consider hiring someone with prior experience and knowledge related to debt lawsuits. Lawyers can help draft a response to the lawsuit. Defending a collection lawsuit is serious enough on its own. Adding the headache of wading through the legal thicket of drafting a response on your own is its own nightmare.

3. Read the loan agreement

Finance contracts are lengthy, and detail who the real lender is. WebBank handles PayPal Working Capital loans. Read the small print as it applies to this case. Disagreements will likely go to binding arbitration under the American Arbitration Association instead of court, unless you opted out. Opting out is a decision you can make at the start, or up to thirty days after you accepted the loan, by signed notice in the mail. Email won’t cut it. If the lender sued in federal court anyway, either side can point out that they need to arbitrate, and the judge must stop the case to let that happen. This is called a stay. The lender must pay arbitration fees for claims of $10,000 or less if you ask. Ask a lawyer what the agreement means for this litigation.

The agreement picks federal law, and when federal law does not preempt, Utah law applies. Utah gives 6 years to sue on a written contract. The clock starts at the latest of the debt, the last written promise to pay, or the last payment.

4. Check for a personal guarantee

A company might close or default on a loan, but that doesn’t mean you’re off the hook on your obligations. Having a guarantee protects lenders. Without one, a lender would only go after the business. Your personal assets are on the line too with a guarantee. This could include a bank account, or even the house or a car. A lender or creditor who wins a lawsuit could go after those assets to collect.

Maybe your business partner also signed the guarantee. If it is joint and several, the lender can go after either of you, or both of you, for the full amount that is owed. Default can be reported on your personal credit, and could result in your wages or bank accounts being garnished. After you’ve defaulted, the lender can debit its claim from different funding sources, like your linked bank accounts or cards. Also, by the agreement, the lender gets a security interest, which is the lender’s legal claim on your PayPal balances. The Fair Debt Collection Practices Act protects consumers on debts for household uses; business debt usually is not covered.

5. Protect yourself the right way

If you have a personal guarantee, both your assets and the business assets could be in trouble. Don’t do anything to hide or transfer assets, it could be a fraudulent transfer. Draining savings or retirement accounts to pay debt may not be your best option.

Filing for bankruptcy may help, and could wipe out a personal guarantee. When a business files Chapter 7, the business gets no discharge, and you would have to file individually to wipe out your personal guarantees. If you file Chapter 13 you may not have to give up any property. This is a choice you should speak with a lawyer about.

Once you sign a personal guarantee, you can’t automatically remove it. Maybe you’ll be able to refinance the debt or negotiate a release with the creditor. The creditor doesn’t have to agree.

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.