A Confession of Judgment (COJ) is a weapon that many merchant cash advance providers use against their small business owner clients. It is a document that allows the MCA company to get a legal judgment entered into public record without having to actually win a lawsuit first. This means they do not need to prove you violated the MCA agreement. A signed COJ essentially means you’ve already admitted guilt without ever having your day in court. And as the owner of a business that took out an MCA, you might have already signed one.
How MCA providers use COJs to strangle your business
A lot of MCA providers ask borrowers to sign a Confession of Judgment when filling out other paperwork at the start of the process. It may be hidden among other loan paperwork. If you allegedly violate one of the MCA agreement’s terms, such as by falling behind on repayments, the COJ gives the lender the power to go to their local courthouse and file a judgment against you without a trial.
For many businesses — and owners — this is a fast track to ruin. If your business signs a COJ, the lender can only go after business assets. But if you, the business owner, sign the document or personally guarantee the loan, the lender has the right to seize your personal assets. Your home, your savings, everything you’ve worked for could be on the line.
COJs are not valid in every state, but New York law still allows them. A creditor can go directly to the Clerk of the Court and, based on an affidavit alone, have a judgment entered against you. No trial, no defense, just swift and brutal action.
New York’s 2019 law change
However, New York COJ law changed in 2019 to create a vital exception. Confessions of Judgment are now unlawful if the debtor is a business outside New York that does no business in the state. This is key because many MCA providers are based in New York and issue advances to small businesses across the country that having nothing to do with the Empire State. But if you do business in New York and signed a COJ as part of your MCA agreement, you could still be vulnerable. The threat is real and imminent.
Fight back
Do not let MCA providers use COJs to destroy your business and your life. Understand the power they wield and take action to protect yourself. If you are dealing with a burdensome MCA and a COJ, seek legal help immediately. Your business depends on it.