The judgment was entered before you knew there was a dispute. No hearing. No notice. No opportunity to respond. That was the design.
A confession of judgment — sometimes called a cognovit — is a clause in your MCA agreement that authorizes the funder to obtain a court judgment against you without filing a lawsuit, without serving you with process, and without giving you an opportunity to present a defense. You agreed to it when you signed the contract. The clause was embedded in the agreement alongside dozens of other provisions. Most business owners do not remember signing it. Most did not understand what it meant. Most did not have an attorney review the agreement before signing.
The confession of judgment is the funder’s most powerful tool. It converts a contract dispute into a court judgment instantaneously. The judgment becomes a lien on your property. The judgment enables bank account restraints. The judgment appears on your credit record. All of this happens before you know about it.
How It Works
When the funder decides you are in default — and the contract gives the funder broad discretion to make that determination, often triggered by a single missed ACH payment or a decrease in processing volume — the funder’s attorney files an affidavit of confession with the court clerk. The affidavit attaches your signed confession of judgment, states the amount owed, and describes the default. The court clerk enters the judgment. No judge reviews the merits. No hearing is scheduled. No notice is sent to you.
The first indication that a judgment exists may be a frozen bank account. It may be a letter from a sheriff. It may be a lien search that reveals a judgment you never knew about. The amount of the judgment is not limited to what you actually owe. It typically includes the full remaining balance of the MCA as calculated by the funder, legal fees, collection costs, default penalties, and any other charges the agreement specifies. The number on the judgment may bear little resemblance to any amount you recognize or can verify.
The 2019 New York Law
New York was historically the jurisdiction of choice for MCA confessions of judgment because its courts accepted and entered them routinely. In 2019, New York amended its Civil Practice Law and Rules to restrict the use of confessions of judgment in significant ways.
The amendment prohibits confessions of judgment against out-of-state defendants in consumer transactions. For commercial transactions, the amendment imposed new requirements on the affidavits that accompany confessions of judgment, including specific factual allegations about the default, the calculation of the amount owed, and the basis for the funder’s claim. The affidavit must be accompanied by a purchase agreement and proof of default. General or conclusory allegations are insufficient.