MCA Confession of Judgment: The Most Dangerous Clause in Your Contract
Of all the clauses buried in your MCA agreement, the confession of judgment may be the most dangerous one you have never heard of. It is a legal document you sign at the same time as your MCA that gives the funding company the right to obtain a court judgment against you. without a trial, without a hearing, and without any advance notice.
If that sounds alarming, it should. A confession of judgment (also called a COJ or cognovit note) effectively waives your right to defend yourself in court. When an MCA company files it, a judge can enter a judgment against you and your business in days, giving the MCA company the power to freeze your bank accounts, seize your assets, and garnish money owed to you by customers.
This guide explains exactly how confessions of judgment work, why they are so dangerous, which states have banned them, and what you can do if you already signed one.
What Is a Confession of Judgment?
A confession of judgment is a legal instrument in which a debtor agrees in advance that the creditor can obtain a judgment against them without going through normal court proceedings. In plain English: you sign a document today saying that if you default on your MCA in the future, the MCA company can go straight to court and get a judgment without giving you a chance to defend yourself.
Here is how it typically appears in an MCA contract:
The MCA agreement includes a separate document. often an affidavit signed by you and notarized. in which you "confess" to owing the full remaining balance. This document sits in a drawer until you miss payments. Then the MCA company's attorney files it with a court (usually in New York, regardless of where your business is located), and a clerk enters the judgment.
How It Differs From a Normal Lawsuit
| Normal Lawsuit | Confession of Judgment |
|---|---|
| You receive notice of the lawsuit | No notice is required before the judgment is entered |
| You can present a defense in court | You waived your right to defend yourself when you signed |
| A judge or jury decides the outcome | A court clerk enters the judgment based on the signed document |
| Takes weeks to months | Can be completed in days |
| Filed where the defendant lives or does business | Often filed in New York regardless of where you are located |
Why Confessions of Judgment Are So Dangerous
You Do Not Get Your Day in Court
The most fundamental problem with a COJ is that it strips away your constitutional right to due process. In a normal debt dispute, you can argue that the amount is wrong, that the MCA company breached the agreement, that the effective interest rate is usurious, or any number of other defenses. With a COJ, the judgment is entered before you even know it is happening.
Your Bank Account Can Be Frozen Immediately
Once the MCA company has a judgment, they can serve a restraining notice on your bank. The bank is legally required to freeze your accounts. typically within 24 to 48 hours. This means you cannot pay employees, cover rent, buy inventory, or make any other business payments. For many small businesses, a bank freeze is an existential threat.
The Freeze Applies to All Funds
When your bank account is frozen, the freeze applies to all money in the account. not just the amount owed to the MCA company. If you have $100,000 in your account and the judgment is for $40,000, the entire $100,000 may be frozen until the situation is resolved.
Filed in Courts Far From Your Business
Historically, MCA companies filed COJs in New York courts even when the business was located in another state. This meant that a business owner in Texas or California had to hire a New York attorney and deal with the New York court system to challenge the judgment. an expensive and logistically difficult undertaking.
The Amount May Be Inflated
COJ affidavits often include the full remaining balance of the MCA plus substantial fees, penalties, and attorney costs. In some cases, the amount claimed in the COJ exceeds what the business actually owes. Without a trial, there is no automatic check on whether the amount is accurate.
Which States Have Banned or Restricted COJs?
Growing awareness of COJ abuse. particularly in the MCA industry. has led several states to restrict or ban their use.
New York's Landmark Ban
In 2019, New York passed legislation that dramatically restricted confessions of judgment. The law, signed by Governor Cuomo, prohibits the filing of COJs by out-of-state creditors against out-of-state debtors in New York courts. This was a direct response to investigative reporting by Bloomberg News that revealed widespread abuse by MCA companies filing thousands of COJs in New York courts against small businesses across the country.
The New York law also requires:
- COJs to include an affirmation that the debtor is actually in default
- A description of the default
- Proof that the debtor was given notice of the filing
Other State Restrictions
Several states have long prohibited or restricted confessions of judgment in consumer and business transactions:
- Pennsylvania. Allows COJs but with significant procedural protections
- Ohio. Prohibits COJs in consumer transactions
- Texas. Does not recognize out-of-state COJs
- California. Has strong procedural requirements that make COJ enforcement difficult
- New Jersey. Requires court review before a COJ can be enforced
The trend is clearly moving toward greater restrictions. If you are not sure about your state's rules, consult with a local attorney.
What to Do If You Already Signed a Confession of Judgment
If you have already signed an MCA agreement that includes a COJ. which is likely if you took an MCA before recent reforms. you are not without options.
Step 1: Review Your Agreement Carefully
Pull out your MCA contract and the COJ affidavit. Note the exact terms, the amount, and any conditions that must be met before the COJ can be filed. Some COJs require the MCA company to provide notice before filing. if they skip this step, it may be grounds to challenge the judgment.
Step 2: Stay Current on Payments If Possible
A COJ is only filed when you default. If you can keep making payments. even reduced payments you negotiate with the MCA company. you keep the COJ from being activated. This is one of the strongest arguments for negotiating proactively rather than simply stopping payments.
Step 3: Consult an Attorney Immediately
If you believe default is likely, talk to an attorney before it happens. An attorney can:
- Advise you on protective steps specific to your state
- Prepare to challenge a COJ filing quickly if it happens
- Help you negotiate from a position of legal knowledge
- Potentially file a preemptive action to block the COJ
The National Association of Consumer Advocates can help you find attorneys who handle COJ challenges.
Time Is Critical
If a COJ has already been filed against you, you typically have a very limited window to challenge it. sometimes as few as 10 to 30 days. Do not delay. Contact an attorney the moment you learn about a judgment.
Legal Defenses Against a Confession of Judgment
Even after a COJ is filed and a judgment is entered, you have legal options to fight back.
Motion to Vacate the Judgment
This is the most common defense. You petition the court to cancel the judgment. Courts will vacate a COJ if you can demonstrate:
- Fraud or misrepresentation. The MCA company misled you about the terms or the COJ itself
- Incorrect amount. The judgment amount does not match what you actually owe
- No actual default. You were making payments but the MCA company filed anyway
- Procedural defects. The COJ was not properly executed, notarized, or filed
- Unconscionability. The terms of the MCA agreement are so one-sided that no reasonable person would have agreed to them with full understanding
Argue the MCA Is Actually a Loan
If the MCA has characteristics of a loan. fixed payments, no true reconciliation based on revenue, personal guarantees. an attorney can argue that it should be treated as a loan under state law. If successful, this can invalidate the entire agreement including the COJ, because the effective interest rate likely exceeds usury limits.
Courts in New York, as documented by the New York Law Journal, have increasingly scrutinized MCA agreements and reclassified some as usurious loans.
Challenge Jurisdiction
If the COJ was filed in a state where your business has no connection. and you are protected by that state's recent restrictions. you may be able to have the judgment dismissed entirely on jurisdictional grounds.
File Counterclaims
If the MCA company engaged in deceptive practices. such as misrepresenting the terms of the advance, filing a COJ without proper grounds, or engaging in abusive collection. you may have counterclaims that offset or exceed the judgment amount.
How to Fight Back: A Practical Checklist
If a confession of judgment has been filed against you, take these steps immediately:
- Do not ignore it. The judgment is real and enforceable. Ignoring it only makes things worse.
- Contact an attorney who handles COJ cases. Time is critical. most defenses must be raised within a specific window.
- Gather all documents. your MCA agreement, the COJ affidavit, all payment records, and any communication with the MCA company.
- Check if your bank account has been frozen. If it has, your attorney can petition for an emergency release of funds needed for essential business operations.
- Do not transfer assets or move money in ways that could appear fraudulent. Courts look dimly on debtors who try to hide assets after a judgment.
- Explore settlement even after the judgment. MCA companies often prefer a negotiated settlement over the time and expense of enforcing a judgment. Your leverage is reduced but not eliminated.
According to the Federal Reserve Bank of New York, small business access to fair financing remains a critical economic issue, and regulatory attention to MCA practices continues to increase.
Frequently Asked Questions
Can I refuse to sign a confession of judgment?
Is a confession of judgment legal?
How do I know if a confession of judgment has been filed against me?
Can a confession of judgment be removed from my record?
Sources
- Bloomberg News. Confessions of Judgment Investigation. Award-winning investigative series that exposed widespread COJ abuse in the MCA industry.
- New York Law Journal. Legal analysis and case reporting on MCA-related court decisions in New York.
- National Association of Consumer Advocates. Directory of attorneys who handle predatory lending and confession of judgment cases.
- Federal Reserve Bank of New York. Research on small business lending and access to capital.