If you are a business owner considering a merchant cash advance (MCA), it’s essential to understand the potential legal risks, particularly concerning confession of judgment and default judgment. These legal tools can significantly impact your business if you are unable to meet your payment obligations. Let us delve into what these terms mean and how they can affect you.
Understanding confession of judgment
A confession of judgment is a legal agreement that allows a lender to obtain a judgment against you without a trial, if they allege that you’ve defaulted on your payments. By signing this agreement, you waive your right to present your case in court. This puts you at a disadvantage, enabling the lender to take swift legal action without your input or defense.
Understanding default judgment
A default judgment occurs when you fail to respond to a lawsuit. If you ignore a legal notice or fail to appear in court, the judge can rule in favor of the lender by default. This means the court assumes you have no defense, and the lender can proceed to collect what they claim you owe.
How MCA companies utilize these tools
MCA companies often use confession of judgment clauses to protect themselves. When you take out an MCA, you might be required to sign a confession of judgment. This ensures that if you stop making payments, the lender can quickly obtain a judgment and start collection efforts. MCA companies prefer this because it bypasses lengthy legal procedures and allows them to act swiftly.
Default Judgments come into play when an MCA company files a lawsuit against a borrower who doesn’t respond. This might happen if the borrower doesn’t receive notice of the lawsuit or understand its importance. Once a default judgment is entered, the MCA company can collect the debt through bank levies or wage garnishments.
Vacating a default judgment
If you’ve received a default judgment, all hope isn’t lost. You can try to “vacate” or remove the judgment. This usually involves showing the court that you have a good reason for not responding to the lawsuit and a valid defense. Common reasons include not receiving proper notice of the lawsuit or having a medical emergency that prevented you from responding. Seeking legal help is crucial to navigate this process and protect your business.
Confession of judgment and default judgment are potent legal tools MCA companies use to expedite debt collection. As a business owner, it’s crucial to understand these terms and their implications. If you’re considering a merchant cash advance, carefully review all documents and seek legal advice before signing. If you’re already facing a judgment, remain calm and consult with an attorney who can help you explore your options and devise a plan that works for your business.