Confession of judgment in MCA contracts, explained
A confession of judgment is the most dangerous clause in merchant cash advance paperwork: you sign away your right to defend yourself before any dispute exists. Here's how COJs work, what's changed legally, and what to do if you've signed one.
What signing a COJ actually means
In plain terms: you admitted losing the case before the case existed. If the funder claims default, it can convert that pre-signed admission straight into a court judgment.
No complaint served, no hearing, no chance to tell your side. The first sign is often a restrained bank account. With a judgment entered, the funder moves from negotiating party to judgment creditor, with the collection powers that come with it.
The legal landscape has shifted: New York, historically the favored COJ filing venue for MCA funders, barred them against out-of-state debtors in 2019, and some funders have shifted tactics toward arbitration clauses and UCC liens instead. Some funders now say so outright: McKenzie Capital's website says it will never require or request a confession of judgment, as our McKenzie Capital review notes. But COJs still exist in older agreements and other venues, which is why knowing exactly what you signed is step one. If a funder is threatening to use one, that's part of the same escalation ladder covered in can MCA companies sue you.
One example of that shift is now in the public record. In a June 2026 petition against the arbitration platform Rapid Ruling, the New York Attorney General alleges that The LCF Group, formerly Last Chance Funding, helped draft the platform's rules after the 2019 change and filed over 2,500 arbitrations there from 2020 to 2023. LCF is not a party to that case, and the allegations have not been decided. Our LCF Group record page has the details.
Lawsuit vs. COJ
How to know if you've signed one
Owners sign COJs without realizing it constantly. Check these places in your funding paperwork.
A separate document titled "Affidavit of Confession of Judgment" in your funding packet.
Notarized signature pages you don't remember the purpose of.
Contract language about "entry of judgment without notice" or waiving service.
A personal guarantee paired with the COJ, extending it to you personally.
Older agreements (pre-2020) with New York venue clauses.
Can't find your paperwork at all? That itself is a reason for a professional review.
What to do about a COJ, by situation
Signed, still current
The strongest position. Restructure or settle the debt before any default is claimed, and the COJ never gets used.
Default claimed, nothing filed
Urgent but workable. Negotiation at this stage often resolves the debt before the funder converts the COJ into a judgment.
Judgment entered
Involve an attorney about challenge grounds: defective papers, venue, disputed default. The underlying debt usually remains negotiable either way.
Account frozen
Move fast on both tracks: counsel addresses the restraint while negotiation builds the resolution that releases it.
How the 2019 New York law was passed
The bill that ended out-of-state confessions of judgment, S06395, passed the New York Senate 61 to 1 and the Assembly 83 to 43 in June 2019. It bars anyone from filing a confession of judgment in New York against a party that does not reside in the state. The funder-side trade publication deBanked noted at the time that roughly 99 percent of the industry's confessions of judgment had been filed in New York because its courts converted them to judgments so quickly, and that New York residents can still be subject to them (It's Official, The Confession of Judgment Era is Over, June 19, 2019).
Getting a confessed judgment vacated is hard. In Champion Auto Sales, LLC v. Pearl Beta Funding, LLC (2018), New York's Appellate Division, First Department, affirmed the dismissal of merchants' suit to vacate a judgment by confession, holding the agreement was not usurious. See our Pearl Capital record page for that case and a 2016 decision that went the other way.
Update, November 13, 2026. On June 8, 2026, the New York Attorney General sued the online arbitration platform Rapid Ruling, alleging it presented itself as neutral while working with merchant cash advance companies (press release). The petition says the platform was set up in 2019, soon after New York limited out-of-state confessions of judgment, with a funder helping write its rules. Those allegations have not been decided. Our breakdown of the Rapid Ruling lawsuit covers what is alleged, where the case stands and what to check in your arbitration clause.
Confession of judgment FAQ
A confession of judgment, or COJ, is a document you sign at funding in which you admit liability in advance. If the funder later claims you defaulted, it can file the COJ and obtain a court judgment against you without a lawsuit, without trial, and often without you knowing until your bank account is restrained.
It varies by state, and the landscape has shifted. New York, once the favored filing venue, barred COJs against out-of-state debtors in 2019. Some funders responded by filing in other states or dropping COJs in favor of aggressive arbitration and UCC remedies. Whether yours is enforceable depends on the contract and the states involved, which is a question for an attorney.
The funder files the COJ with an affidavit claiming default, and a judgment can be entered quickly. With a judgment in hand, the funder can restrain bank accounts and pursue business assets. Many owners first learn a COJ was filed when a payment bounces or the bank freezes the account.
Sometimes. Courts have vacated COJ judgments for defective paperwork, improper venue, disputed default claims, and other grounds. Whether your situation qualifies is a legal question for an attorney, and acting quickly matters. Even with a judgment standing, the underlying debt usually remains negotiable.
Know what you signed, keep your account stable, and address the debt before default. A COJ only becomes dangerous when the funder claims default, so the strongest move is restructuring the debt while you're still current. That's exactly what a settlement program is built to do.
If the funder has moved past paperwork and actually filed, our guide to what happens in a merchant cash advance lawsuit walks through the deadlines, the New York venue clause and where negotiation still fits.
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