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A default judgment is an unfortunately common term for many debtors whether in the consumer or business landscape. In our practice, default judgments are obtained all too often and can be extremely dangerous given the serious repercussions that they entail. A default judgment simply means that a plaintiff wins a civil case without the defendant appearing or answering within the allowed upon period. A default is obtained for a few reasons usually. The most common reason is due to poor or improper service. The service industry has been notoriously bad for years which is why the term “sewer service” is an all too familiar saying. Process servers retained by the plaintiff, or the collection law firm frequently serve a wrong address or may even falsely state how they conducted service on the affidavit of service in regard to who they supposedly served. The defendant never receives the lawsuit in turn and ultimately loses the case on default causing a judgment to be entered. People also frequently move, especially in a large city like New York. This means that an old address can easily be served, and the defendant will never know about it until a default judgment is obtained and they are notified because of a bank levy or wage garnishment. Finally, there are instances when people do receive a summons and complaint but have no idea what it is or believe it is a scam. This can lead to a judgment as well because of the lack of a response but can be a legitimate reason to ask for the judgment to be vacated.

Default judgments are entered by creditors all across the spectrum. We see debt-buyers like Midland Funding and LVNV Funding entering defaults against consumers as well as original creditors like Bank of America and American Express. One concerning trend that we have observed is the high rate of default judgments obtained in Merchant Cash Advance matters. These are business debt matters in which most of the creditors have had the defendant waive regular service and instead allow service via mail or even e-mail, which is an easier service standard. Yet, these Merchant Cash Advance creditors consistently seem to fail at even these types of simpler service, mailing or emailing to incorrect addresses in our experience.

There are two options to vacate default judgments under the NYCPLR. The first is under CPLR 5015 in which a reasonable excuse and meritorious defense must be shown. A judgment can also be vacated if it is shown clearly that an improper address was served or there is no address to be served, making service and jurisdiction void. Either way, the motion must be made within one year of learning about the default judgment. Alternatively, under CPLR 317 a judgment can be vacated without having to show a reasonable excuse but only a meritorious defense instead if the defendant was not personally served. However, the motion must be made within one year after notice of the judgment and within a maximum of five years of the entry of the judgment. Although CPLR 317 is a fantastic rule for vacating Merchant Cash Advance default judgments due to the fact that they rarely ever try to personally serve businesses, the five-year cap prevents people and businesses with older judgments from using it. The meritorious defense needs only to be asserted and not proven although it does need to be legitimate. This is important so as not to become involved in a full hearing about meritorious defenses which should be done in litigation once the matter is re-opened.

Vacating a default judgment is important because it re-opens the case and allows the defendant to defend themselves on the merits instead of losing on default. It is also important because it removes any bank levies, liens or garnishments that are in place or that could be brought. Finally, it stops judgment interest from accruing and brings the leverage back on to the side of the consumer or defendant and places the burden to prove the case back on to the plaintiff.

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