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.

Many confessions filed after the amendment do not comply with these requirements. The affidavits are boilerplate. The default allegations are vague. The amount calculations are unexplained. These deficiencies create grounds for vacatur that did not exist before the amendment.

Your Rights

A confession of judgment is not permanent. It is not final. It can be challenged. It can be vacated. You have the right to move to vacate the judgment on several grounds: that the confession was obtained through fraud or misrepresentation, that the underlying MCA agreement is unconscionable or void as a usurious loan, that the amount claimed is incorrect or inflated, that the procedural requirements under CPLR 3218 were not followed, that you are an out-of-state defendant and the confession was filed in violation of the 2019 amendment, or that you have a meritorious defense to the underlying claim.

You also have the right to seek an emergency order releasing any restraints on your bank accounts pending the motion to vacate. Courts recognize that a business with a frozen operating account cannot function — cannot pay employees, cannot pay rent, cannot serve customers, cannot generate the revenue that might satisfy the underlying obligation. The restraint may be causing more harm than the judgment is worth.

The motion to vacate must be filed promptly. Time matters. Courts look at whether you acted with reasonable diligence upon learning of the judgment. If the first notice was a frozen bank account, the motion should be filed within days. If you learned of the judgment and waited months, the court will question the delay and may deny the motion on laches grounds regardless of its underlying merits.

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The consequences of inaction are compounding. Once the judgment exists, the funder can serve restraining notices on every bank account it identifies. It can domesticate the judgment in other states where you have assets. It can assign the judgment to a collection agency that adds its own fees to the balance. It can commence supplementary proceedings to examine your assets under oath. Each enforcement step is harder to undo than the last, and each step occurs faster than the business owner expects. The judgment is a machine. Once activated, it runs until someone stops it.

An attorney experienced in MCA confession of judgment litigation can evaluate the judgment, identify every available ground for vacatur, seek emergency relief to release restrained accounts, and file the motion on an expedited basis. The window between learning of the judgment and the funder’s full enforcement is narrow. The response must be faster than the enforcement. That is not a general principle. It is the specific, practical reality of how confession of judgment litigation unfolds.

For more on this topic, see How to Vacate a Confession of Judgment in New York.