Updated for 2026
If you have signed a Merchant Cash Advance (MCA) agreement, you may have signed a document that impacts your right to a trial. Tucked away in the fine print of many high-risk funding contracts is a clause known as a Confession of Judgment (COJ).
At Coastal Debt Resolve, we often work with business owners who discover there is a COJ in their MCA contract after lenders have indicated they may enforce it. This guide explains how a confession of judgment works, the risks involved, and potential strategies to address this potentially high-risk provision.
What is a Merchant Cash Advance Confession of Judgment?
A Confession of Judgment (COJ) is a written agreement, often included as a clause or a separate affidavit in an MCA contract, where the merchant accepts liability for a debt before a dispute occurs.
By signing a COJ, a business essentially agrees that if a payment is missed, the lender may seek entry of a judgment without the traditional service and defense process.
How the COJ Process Typically Works
- The Signature: Signed at the time of funding.
- The Alleged Default: The MCA funder claims a breach of contract.
- The Filing: The funder’s attorney takes the signed COJ to a courthouse or files with the Clerk of Courts.
- Entry of Judgment: Because of the prior confession, a judgment may be issued quickly.
- Collection Actions: Armed with a judgment, a funder may attempt to freeze bank accounts or garnish receivables.
Why Do MCA Lenders Use Confessions of Judgment?
The primary reason lenders will add a COJ to your MCA contract is speed. In a traditional lawsuit, a lender must serve a complaint and go through a discovery phase. With a merchant cash advance confession of judgment, the lender attempts to bypass this timeline. For some funders, this structure is designed to expedite collection in the event of default.
Is a Confession of Judgment Legal in 2026?
The legality of COJs is subject to state and federal regulations, which continue to evolve.
1. The New York Law Change (CPLR § 3218)
Historically, many COJs were filed in New York. However, as of August 30, 2019, New York law changed. A New York COJ is generally only enforceable if the debtor is a resident of a New York at the time the document is signed.
2. State-by-State Variations
- Prohibited: Several states have strict bans or limitations on COJs in various commercial transactions.
- Permitted: Certain states still allow COJs under specific circumstances, though they are increasingly scrutinized by courts.
3. Federal Trade Commission (FTC) Oversight
The FTC has taken action against various MCA providers for their use of confessions of judgment and specific collection tactics.
Here are some examples:
Enforcement actions are fact-specific and depend on the conduct at issue in each case.
How to Spot a COJ Clause in Your Contract
Look for red flags such as:
- Confess Referenced in Contract: The contract itself will reference a confession of judgment or confess to a judgment in the event of default as a remedy.
- Cognovit Note: An old legal term for a COJ.
- Declaration or Entry of Judgment: Language authorizing the clerk of any court to enter a judgment against you.
Risks Associated with an MCA COJ Filing
If a lender files a COJ, the following may occur:
- Frozen Bank Accounts: A Garnishment or Restraining Notice may be sent to your bank.
- UCC-1 Liens: The funder may file liens against business equipment or inventory.
- Credit Impact: A court judgment is a matter of public record and can impact a business credit score.
Strategies for Addressing an MCA Confession of Judgment
If a judgment has been filed, there are several avenues to explore.
Note: Coastal Debt Resolve is not a law firm and does not provide legal advice. Any legal services are provided by independent attorneys.
1. Motion to Vacate the Judgment
An experienced attorney can file a motion to vacate or set aside the judgment in certain circumstances. Potential grounds include:
- Lack of Jurisdiction: The COJ was filed in a state where neither you nor the lender is located or consented to jurisdiction.
- Disguised Loan (Usury): In certain fact-specific circumstances, courts have examined whether an MCA agreement functions more like a loan than a true sale of receivables; if it is determined to be a loan then it may be subject to usury laws, making the COJ unenforceable.
- Fraud or Misrepresentation: If the lender lied about the material terms or the amount owed.
2. Post-Judgment Negotiation and Settlement
Even after a judgment is entered, it may be possible to pursue good-faith negotiations with the judgment holder and enter a potential settlement or repayment agreement.
How Coastal Debt Resolve Can Assist
Coastal Debt Resolve is designed to help businesses navigate the complexities of MCA debt. We offer:
- MCA Debt Restructuring: We negotiate with funders to pursue lower daily payments.
- Professional Analysis: We review contracts for COJ clauses.
- MCA Debt Settlement: Our team has experience engaging with commercial creditors to pursue potential resolution options.
Explore Your Options
If you are struggling with daily payments or have a COJ clause in your agreement, explore your options. We’ve been helping small business owners from coast to coast since 2018.
- Services provided exclusively for businesses. Not consumer or personal debt relief.
- Results vary based on business circumstances and creditor participation.
- Debt resolution outcomes are not guaranteed.
- Coastal Debt Resolve is not a law firm and these materials do not constitute legal, financial, or professional advice.
- Highly rated by business clients on Trustpilot as of the date of publication.
Frequently asked questions
Yes, if a Personal Guarantee was signed, a lender may attempt to pursue personal assets depending on applicable law and the specific contractual terms.
No. A UCC Lien is a notice of interest in assets. A COJ is a judgment that allows for the seizure of assets.
No. Coastal Debt Resolve is not a law firm. We may coordinate with independent legal professionals when appropriate.
