Ohio Debt Settlement
A Cognovit Judgment
Cognovit judgments put debts like merchant cash advances into a category different from typical debts that go into collections. When Ohio recognizes an agreement as cognovit, the court considers that you have agreed to submit to a judgment with a lender without the normal process that exists in most legal cases. A cognovit judgment makes it easier for a lender to get your money in court, often without a hearing. Usually, you get the court’s first notice of the judgment itself, with garnishment close behind. The settlement firm must act fast.
The settlement company in Ohio must know a number of important time periods that affect your case. If your creditor is garnishing your bank accounts, you have five business days to request a hearing in writing. But the hearing doesn’t decide whether they can take your money, but how much they can take. Finally, the company must know that a merchant cash advance lender must file a New York judgment in Ohio and wait 30 days before it takes action to enforce it.
Different things can happen if the lender doesn’t use a cognovit judgment and starts a traditional lawsuit. Typically, you must answer an Ohio complaint within 28 days, and it can be tough to bring a defense after you miss a deadline, and you can go into default. For a written agreement, Ohio allows six years to sue.
Nearly every advance you sign requires a personal guarantee. Sometimes, this personal guarantee carries its own cognovit warrant that allows the lender to take a judgment against you personally.
Void Your Merchant Cash Advance Agreement as Usury
One promise is a real deal killer. If an Ohio company claims that it can void your merchant cash advance agreement as usury, it’s time to walk out the door. Ohio caps interest at 8 percent, but the law exempts business-purpose loans and loans over $100,000. If a court calls an advance a loan, it will almost certainly meet one of these exemptions. But even if a court would rule your advance a loan, the Ohio law barring claims of usury prohibits corporations from making the claim.
In Ohio, a settlement company must be able to get the best possible deal from an advance funder:
- a reduced lump-sum settlement;
- release of any judgment or garnishment;
- and a short amount of time for the funder to file the UCC-3 lien termination with the Secretary of State, with your final payment conditioned on it.
If the firm doesn’t understand that any agreement must include this, it has no business handling your case.
The main reason to push an advance funder to file the UCC-3 is that their blanket UCC-1 against your receivables could block your getting new financing. Ohio can require an advance funder to file a termination upon your demand, but a funder who says it bought your receivables could argue it has no duty to do so.
Ohio’s Debt Adjusting Law
One source of confusion is Ohio’s debt adjusting law. The law covers any person or company in the business of settling a debtor’s debts, whether the business takes a fee or not. But Ohio exempts lawyers practicing law from the statute. An Ohio debt relief company is not allowed to charge more than $75 for the first consultation or setup. It can’t charge a periodic fee of more than 8.5 percent of the monthly amount paid to creditors, or $30 if that is more. These fees are quite a bit lower than the ones the Consumer Financial Protection Bureau (CFPB) reports settlement firms often charge. That is often 20 to 25 percent of the settled debt. Get the fee in writing.
An adjuster must keep your money in a separate trust account, pay it to creditors within 30 days, and carry at least $100,000 of insurance against employee dishonesty, forgery and computer fraud. Ask to see it.
Beware of debt relief firms that don’t warn you about the risks involved in getting rid of merchant cash advance debt. The CFPB warns that if you stop paying while saving for a settlement, you may be sued, and penalties can wipe out the savings. In Ohio, revoking ACH or closing accounts without a plan usually triggers default and a fast cognovit judgment. A lender that cancels $600 or more of debt files Form 1099-C with the IRS and with you. Cancelled debt is income for tax purposes, unless an exception such as insolvency applies. If you are thinking about debt settlement, get advice from a tax expert.
Sometimes, settlement is the wrong tool for a business debt. A cognovit judgment can be void if the warning was missing, the judge who signed it didn’t have jurisdiction over the business, and/or the loan was for consumer and not business purposes. To dispute a cognovit judgment, you must make a timely motion with a meritorious defense and back it up with specific facts. If a debtor qualifies for a Subchapter V Chapter 11 filing, it triggers the automatic stay, stopping debits, lawsuits and garnishments. The debt limit for a business was $3,424,000 when this was written. These moves belong with an Ohio lawyer, not a settlement salesman.
Keep a copy of your merchant cash advance agreement, every broker email and text message, and a record of each debit to your business accounts. Report any deception to the Ohio Attorney General or the FTC. Finally, judge a debt settlement firm on the tests in this article, not by its ranking or the pressure of the salesman.