Bypassing Your Day in Court
A Confession of Judgment (COJ) is arguably the most dangerous clause a business owner can sign. Embedded deeply in many Merchant Cash Advance agreements, a COJ is a written agreement in which you accept liability and agree to a predetermined judgment amount in the event of a default.
Crucially, signing a COJ waives your right to due process. If you miss a payment, the lender does not need to sue you, serve you with papers, or win a trial. They simply file the pre-signed document with a court clerk, and it instantly becomes an enforceable legal judgment.
Immediate and Devastating Consequences
Once a COJ is filed and approved by a court clerk, the lender can move with lightning speed to collect the debt.
- Bank Levies: The lender can send a marshal or sheriff to your bank to freeze your accounts and seize all available funds without warning.
- Asset Seizure: In extreme cases, physical assets belonging to the business can be seized to satisfy the judgment.
- Personal Liability: If your MCA required a personal guarantee, a COJ allows the lender to go after your personal bank accounts and assets.
Defending Against a COJ
Due to widespread abuse by predatory lenders, several states (notably New York in 2019) passed laws banning the use of COJs against out-of-state debtors. If your business is not located in the state where the COJ was filed, an attorney can often get it vacated (thrown out) immediately.
Even if it is filed locally, procedural errors, usury claims, and lack of proper notice can provide legal grounds to challenge and overturn a COJ. Never ignore a frozen bank account; seek legal counsel immediately to file an Order to Show Cause and unfreeze your operations.
