Confession of judgment: what you signed and what it does

The letter says a judgment has been entered against your company for $214,000. You were never served. There was no hearing. Your bank called this morning because the account is restrained.

If that is where you are, you almost certainly signed a confession of judgment at funding, probably as a separate page you glanced at in a stack of thirty.

What the document actually is

A confession of judgment, sometimes called a COJ or a cognovit, is a sworn affidavit signed before any dispute exists. In it, the business and usually the personal guarantor state that they owe a sum, consent to judgment being entered for it, and waive the ordinary process: no summons, no complaint served on you, no opportunity to answer, no trial.

It sits in the file unused while payments run. On a claimed default, the funder fills in the amount, attaches an affidavit of default, and files it.

How entry works

In New York, where most of these were written, the mechanics come from CPLR 3218. The affidavit must state the sum for which judgment may be entered, authorize entry, and state the facts out of which the debt arose along with facts showing the sum is justly due. A county clerk enters judgment on that filing. There is no judge and no adversarial appearance.

CPLR 3218(b) allows the affidavit to be filed at any time within three years after it was executed, and no later. That deadline is one of the few structural limits built into the device.

From filing to a restrained bank account is commonly a matter of days. The first notice most owners get is a bank telling them funds are frozen.

What changed in 2019

Two things converged.

In November 2018, Bloomberg Businessweek published an investigative series by Zachary Mider and Zeke Faux titled "Sign Here to Lose Everything," documenting how merchant cash advance funders were using New York confessions of judgment against small businesses across the country, most of which had no connection to New York.

New York responded. Chapter 214 of the Laws of 2019 amended CPLR 3218 effective August 30, 2019, requiring the affidavit to state the New York county where the defendant resided when it was executed, and limiting filing to the clerk of that county or of the county where the defendant resided at the time of filing. For purposes of the section, a non natural person resides in any county where it has a place of business.

The practical effect was to close New York courts to confessed judgments against out of state merchants. That was the venue that made the tool work at scale.

At the federal level, the FTC's Credit Practices Rule at 16 CFR 444.2(a)(1) has long prohibited confessions of judgment in consumer credit contracts. It does not reach commercial credit. Legislation was introduced in Congress in 2019, the Small Business Lending Fairness Act, to extend that prohibition to commercial transactions. It was introduced, not enacted.

Where they still operate

State law varies and this is where general advice fails.

Some states prohibit cognovit provisions outright. Ohio permits them in commercial matters only, and Ohio Revised Code 2323.13 requires specific statutory warning language directly above or below the signature space, set more conspicuously than anything else on the document, and bars their use in consumer loans and consumer transactions. Other states will not entertain entry but will enforce a judgment properly entered elsewhere.

That last point matters more than the first. Under the Uniform Enforcement of Foreign Judgments Act as adopted in most states, a judgment entered in one state can be domesticated in another and enforced there as a local judgment, subject to full faith and credit. Challenges at domestication usually turn on whether the original court had jurisdiction, not on whether the debt is fair.

So the question is not only "does my state allow this." It is "where was this entered, and can it follow me here."

What a judgment means the day it exists

Once entered, a confessed judgment is a judgment. The creditor gets the standard toolkit:

• Restraining notices served on banks, which in New York under CPLR 5222 an attorney can serve without further court order
• Information subpoenas to locate accounts and receivables
• Levies executed by a marshal or sheriff
• A judgment lien attaching to real property in counties where it is docketed
• Notices under UCC 9-406 directing your customers to pay the creditor

The judgment also accrues post judgment interest at the statutory rate, which in New York is 9 percent per year for most judgments, and it remains enforceable for years, with renewal available in many states.

The narrow paths to challenge one

Be careful with what you read online here. There is a great deal of confident writing suggesting confessed judgments are easily undone. They are not.

The grounds that get traction are specific:

Defects in the affidavit. Failure to state a sum certain, failure to state the facts out of which the debt arose, a wrong county, or an affidavit executed more than three years before it was filed. These are attacked as defects in the instrument itself.

Amount entered exceeds what is due. Funders sometimes enter the full purchased amount plus fees without crediting payments actually collected. Courts take that seriously.

Jurisdictional problems. Entry against a defendant the statute no longer permits, or domestication where the entering court lacked jurisdiction over the debtor.

Fraud, misrepresentation or misconduct. In New York, CPLR 5015(a) lists the general grounds for relief from a judgment. There is an important procedural wrinkle: New York courts have often held that a defendant challenging a confessed judgment on grounds going to the merits, such as fraud in the underlying transaction, must bring a plenary action rather than a simple motion. Which route applies is fact dependent.

Three honest cautions. Deadlines are short and running now. Success is fact specific and never assumed. And vacating a judgment does not erase the obligation. It returns the parties to a normal lawsuit where the funder still has to prove its claim and you finally get to raise defenses.

This is licensed attorney work. Experienced MCA defense counsel handles that side, and we work the negotiation with the funder in parallel.

What to look at on the affidavit itself

If you have the document, five details are worth writing down before anyone reviews it.

The date of execution. Compare it to the funding date and to any entry date. The three year limit in CPLR 3218(b) runs from execution.

The stated sum. Confessions are often signed with the amount blank or with a formula. What was ultimately entered should reconcile against what you actually paid.

The county named. Post 2019 a New York filing has to name the county where the defendant resided when the affidavit was executed, and a business entity resides in any county where it has a place of business.

Who signed, and in what capacity. A signature that reads as an officer of the company rather than an individual is a different document than one signed personally.

The facts recited. CPLR 3218 requires the affidavit to state the facts out of which the debt arose and facts showing the sum is justly due. Boilerplate that recites nothing specific is a recognized point of attack.

None of that tells you whether a challenge will succeed. It tells you what a lawyer will ask for in the first ten minutes, and having it ready compresses a slow week into a fast one.

What funders use now

Since 2019 the industry shifted rather than stopped. Current agreements lean on broad personal guaranties, arbitration clauses, forum selection provisions, and ordinary collection suits filed in the funder's chosen venue. Some funders relocated filings to friendlier states. The outcome is slower for them and gives you an actual opportunity to appear, which is a meaningful improvement over the alternative.

The next step, today

Find your funding package and look for a separate page headed "Affidavit of Confession of Judgment." Note the date, the amount stated, the county named, and whether a guarantor signed it individually.

Then check your state's court records for a judgment already docketed against your entity and against you personally. If one exists, the clock started without you, and getting the documents in front of counsel this week is the difference between options and no options.