What You Can Still Do After an MCA Confession of Judgment

Backed into a corner, you signed a confession of judgment. The MCA funder then filed that COJ with the county clerk. This may seem like the end of the road, but it isn’t. For starters, check whether the funder actually made the filing as legally required. Then you can sue to vacate, for example because of fraud or because the merchant cash advance was really a usurious loan. A bankruptcy filing stops enforcement of the judgment. Act quickly.

The COJ you agreed to when you took out the MCA let the funder try to take your money without a trial. They didn’t need to give you a notice of their intention to start action because you agreed they could go ahead.

For instance, in one case, a mushroom seller was paying $2,935.71 per day. When their sales dropped, it asked the funder, Argus, for lower payments. Their request fell on deaf ears. Just two days later, the MCA funder filed a confession of judgment for $319,993.20 plus $105,822.75 in attorneys’ fees.

The Right County Within the Correct Time Period

The process for getting judgments by confession of judgment is found at NY CPLR section 3218. The actual filing must have been in the right county within the correct time period. A funder can only file in the county you said was your home in your COJ affidavit, or the one you live in at filing. An LLC or corporation is a resident of any NY county where it has a place of business. Plus, the MCA funder can only file within three years after you signed the COJ.

The affidavit you signed must state, concisely and in detail, the facts that support the debt. It should be enough so that third parties know the details well enough to investigate the debt themselves. Courts say this rule protects third parties, not you as the defendant. So an insufficient affidavit alone is rarely enough for you to win.

Outside of New York, law and regulation of COJs varies state by state. In Texas, HB 700 and OCCC rules make it an unfair, deceptive or abusive act to use a COJ. A New York settlement with Yellowstone, the MCA funder, canceled $534 million of debt, and many judgments were vacated. But the deadline for claims was January 9, 2026. And the settlement did not cover the claims of anyone who got a COJ from a different funder.

Sue to Have the Judgment Vacated

Was the MCA not what the funder represented to you? You can sue to have the judgment vacated for fraud. According to CPLR section 5015, a court may vacate a judgment because of fraud, misrepresentation, or other misconduct of an adverse party. You generally can’t ask for the judgment to be vacated by filing a motion in the same case where the judgment came from. The regular procedure is filing a separate lawsuit, called a “plenary action.” In a 2021 case, the Second Department denied an MCA guarantor’s motion for that reason. The guarantor kept their right to sue separately in another court case.

Lots of merchant cash advance funding businesses avoid regulations by claiming the MCA is not a loan. On the contrary, if the advances are actually a loan, and the interest on it is too high, this could breach the rules. The court will look at the substance, not just the form or language, in deciding whether the MCA is a loan. Arguably, it is a loan if the funder is absolutely entitled to get their money back, whether or not the business succeeds. To work out whether repayment was absolute, courts look at three factors:

• whether there was a reconciliation clause,
• a finite term, and
• whether you gave the funder recourse if you go bankrupt or out of business.

As an example, a court found that repayment was absolute in the mushroom seller’s case, which reached the Fourth Department in 2024. The reconciliation clause was “illusory.” The funder faced no consequence for ignoring it, and it had sole discretion over payments. Next, the court saw there was a finite term implied by the target amount the funder was aiming for. And Argus could change the amount of the payments, and was always able to keep making withdrawals beyond what the business could actually pay, forcing a default.

Why does whether a merchant cash advance is a loan matter? According to NY Penal Law section 190.40, in NY, it is criminal usury to “knowingly” charge over 25% a year. And criminal usury, according to a 2021 case in the NY Court of Appeals called Adar Bays, makes a loan void from the start. Then the lender can’t collect principal or interest. You have to prove the loan was usurious. In the mushroom seller’s case, the usury claims were outside the one-year statute of limitations, so those got thrown out. But the court decided that claims of fraud and fraudulent inducement stayed alive. You still have to win the fraud claim.

Bankruptcy Affects MCA Funders

Filing for bankruptcy automatically stops the enforcement of any judgments you had against you before the case. The mushroom seller filed bankruptcy soon after the judgment. There is more than one way bankruptcy affects MCA funders. One way is that a judgment lien obtained up to 90 days before you filed can get set aside. That can work if you were insolvent, the funder got more than they would get in Chapter 7, and if no exception applies.

Now, it is important to pull a copy of the MCA agreement and COJ affidavit. Check that the county is correct, and find the date you signed it. Then look at the file number if they filed the judgment and see whether it’s in the right county and within the three years after the COJ. Next, check for whether the agreement includes a reconciliation clause and any requests for changing your payment amount. For each of these, you’ll need to act quickly or risk losing rights that run on a short deadline. It’s vital that you talk to a lawyer quickly if you want to claim that the merchant cash advance was really a loan and the interest is illegal. Same with filing to vacate the judgment if it was gotten by fraud.