What Is a Confession of Judgment in an MCA Contract?

Of all the clauses buried in merchant cash advance paperwork, the confession of judgment is the one that has done the most documented damage. This article explains what the document is, what signing one waived, how it turned into a national scandal, and what changed in 2019.

How can a judgment exist without a lawsuit?

Because you consented to it in advance. Normally a creditor who wants a judgment must sue, serve you with papers, and prove its case while you get a chance to respond. A confession of judgment removes every one of those steps: at closing, you or your business signed an affidavit admitting liability for the full amount, and you authorized the funder to file that affidavit with a court clerk if it ever declares a default.

When the funder files, the clerk can enter judgment on the paperwork alone. There is no hearing to attend because there is no case to argue. Many merchants first learn a judgment exists when their bank account is already restrained, a pattern documented throughout Bloomberg’s 2018 reporting on the industry.

What rights did I waive by signing a COJ?

In practical terms, the core protections of a civil case: the right to be sued and served before losing, the right to file an answer and raise defenses, the right to discovery, and the right to a trial. The affidavit typically also states the amount owed as an admitted fact, which means disputes about the balance, fees, or whether a default even occurred were signed away in advance.

That is why the document was so valuable to aggressive funders and why journalists and lawmakers eventually treated it as a systemic problem rather than a contract term. The scale, once measured, was startling:

The same Bloomberg investigation documented borrowers describing forged documents, misstated balances, and fabricated defaults behind some of those filings. The series won the Taylor Family Award for Fairness in Journalism, per the Nieman Foundation in 2019, and it is the single best background read on how this device was used.

How fast can a COJ become a frozen account?

In the worst cases, a single day. The sequence has almost no moving parts: the funder declares a default under the contract, its representative files the signed affidavit with a court clerk in a permissive county, the clerk enters judgment, and the funder immediately serves restraining notices on banks it believes hold your money. Banks that receive a restraining notice generally must freeze the account without warning you first.

Speed is the entire point of the instrument. A lawsuit gives you 20 to 30 days to respond; a confessed judgment can be collecting before you know it exists. The account freeze mechanics, and how freezes differ from levies, are their own topic; the short version is that most freezes follow an entered judgment, which is exactly what a COJ manufactures. The lien side of the same machine, filed on day one rather than at default, is covered in what is a UCC lien and what can an MCA funder do with it?

Where are COJs against out-of-state businesses banned?

New York, since August 30, 2019. Responding directly to the Bloomberg revelations, New York amended CPLR 3218 through Senate Bill S6395 to prohibit filing confessions of judgment against debtors who do not reside in New York. Because New York courts were the industry’s favorite venue, that single amendment shut down the cross-country COJ mill: a funder can no longer take a Texas restaurant’s signed confession to a New York clerk.

Three accuracy notes matter here. First, the reform protects out-of-state debtors in New York courts; New York based merchants can still have confessions entered against them there, per analyses by Seyfarth Shaw in 2019 and The Langel Firm in 2024. Second, other states set their own rules: some still permit commercial COJs, others restrict or refuse to enforce them. Third, funders adapted, shifting to fast lawsuits, arbitration clauses, and filings in permissive states. It would be wrong to write that the confession of judgment is gone.

What can be done after a COJ is entered?

An entered judgment is a court order, and challenging one is squarely a job for a licensed attorney, not a settlement company. Published case law and attorney commentary describe grounds on which courts have vacated confessed judgments, including procedural defects in how the affidavit was executed or filed, filings barred by the 2019 statute, and improper venue. Whether any of those apply to a specific judgment is exactly the kind of question to bring to counsel you choose independently.

Regulators have also acted at scale. In the New York Attorney General’s action against Yellowstone Capital, announced in January 2025, the consented judgment included cancellation of about 534.6 million dollars owed by small businesses and vacatur of unsatisfied judgments, according to the Attorney General’s office. That case did not outlaw the industry’s paperwork, but it showed that confessed judgments are not always the last word.

Separately from any court fight, a judgment can also be addressed commercially: funders holding judgments sometimes negotiate payoffs or settlements because collecting is slow and uncertain. Many MCA funders are willing to negotiate. Nothing requires them to, and results vary. No outcome is guaranteed. What settlement can and cannot reach in a post-judgment situation is part of what a case review sorts out.

Do funders still use COJs in 2026?

Yes, within the narrower lanes the law now allows. Where state law permits commercial confessions of judgment, some funders still include them, and contracts governed by permissive states’ law can still carry real teeth. Where COJs are barred, funders rely on the rest of the arsenal: forum selection clauses routing disputes to funder-friendly courts, arbitration provisions, blanket UCC filings, and the personal guarantee that makes the owner individually liable, which is explained in can an MCA funder come after me personally?

The practical takeaway is that the absence of a COJ does not make a modern MCA contract gentle, and the presence of one does not make collection instant everywhere. What controls is the specific paperwork you signed and the law of the states involved.

What should I check in my own contract right now?

Four things, in order. The rest of the contract deserves the same read, and our clause-by-clause guide to MCA agreements shows where each term usually sits.

1. Look for the affidavit. A COJ is usually a separate, notarized signature page titled Affidavit of Confession of Judgment, often signed by both the business and the owner personally.
2. Find the governing law and venue clause. Note which state’s law applies and where disputes must be heard. This tells you which state’s COJ rules matter.
3. Check who signed in what capacity. A confession signed personally, not just for the company, points collection at your personal assets once entered.
4. Pull your UCC and court records. Search your state’s UCC index and the court dockets in the contract’s chosen venue so nothing is already pending without your knowledge.

If you find a confession of judgment and your advances are current, that is information, not an emergency. If a default has been declared or a judgment already exists, treat it as urgent: speak with a licensed attorney in your state, and if you want a structured read of the whole position, our UCC lien and default help review walks through every filing, clause, and exposure in one sitting.

Common questions