Our objective in this post is to walk you through the single most dangerous clause buried in your merchant cash advance contract: the confession of judgment, or COJ. If you signed an MCA, there’s a real chance you signed one. Most business owners have no idea until the day their bank account is frozen.
Short answer: A confession of judgment is an affidavit, signed by you at the time of funding, that authorizes the MCA company to walk into a courthouse, hand your signed paper to a clerk, and walk out with a judgment against you. No lawsuit. No notice. No hearing. No chance to defend yourself. Within hours, they can freeze your business and personal bank accounts, lien your receivables, and start collecting against your personal assets if you signed a personal guaranty. New York amended its COJ statute in 2019 to block out-of-state filings, but the instrument is alive and well against New York businesses, and several other states (Pennsylvania, Ohio, Illinois, Virginia, New Jersey) still allow them. If you’ve signed one, or you’re about to, read this carefully before you do anything else.
1. A confession of judgment is not a contract clause. It’s a pre-signed judgment.
This is the part most people don’t understand. A COJ is not language inside the MCA agreement that says “we can sue you faster.” It is a separate, sworn affidavit, signed by you under oath, that states you owe the money and authorizes the entry of a judgment against you.
When you signed your MCA, you almost certainly signed the COJ at the same time. It was in the stack. Probably toward the back. The funder told you it was “standard paperwork.” It wasn’t.
What it actually does:
- Skips the lawsuit entirely. No complaint is filed against you. You are not served. You do not have a chance to answer.
- Skips the hearing. No judge listens to your side. The clerk enters the judgment based on your signed affidavit alone.
- Skips your defenses. Even if you have a strong defense (fraud, usury, the funder breached the agreement, the amounts are wrong), you don’t get to raise them before the judgment is entered.
You essentially gave the funder a signed blank check, and they cash it the moment you default.
2. The filing happens in days, not weeks. And you find out when your accounts are already frozen.
Here’s the timeline. Once you default, the funder sends the COJ and a supporting affidavit to their attorney. The attorney files it with the county clerk. The clerk enters the judgment. The judgment gets docketed. Restraining notices go out to your banks. Your accounts freeze.
Start to finish, this can happen inside of a week.
You don’t get a phone call before it happens. You don’t get a letter. The first thing you see is usually one of two things:
- A debit card declines at a coffee shop, or
- Your bookkeeper tries to make payroll, and the wire fails
By the time you call the bank, the restraining notice is already on file, and the bank can’t unfreeze the account without a court order or a release from the judgment creditor. You’re locked out of your own money, instantly.
3. New York’s 2019 reform helped a lot of people. It didn’t help everyone.
In August 2019, New York amended CPLR § 3218 to prohibit COJ filings against non-New York defendants. Before that, MCA funders were filing thousands of confessions in a handful of New York counties, against businesses in Florida, Texas, California, anywhere. The Bloomberg Businessweek investigation in 2018 blew the lid off the practice, and the legislature moved fast.
If you are an out-of-state business and your MCA funder tries to file a New York COJ against you today, the filing is void. That’s the good news.
The bad news: the statute still allows COJs against businesses domiciled in New York. If your business is in Brooklyn, the Bronx, Buffalo, or anywhere else in the state, the funder can still walk a confession into the county clerk’s office and turn it into a judgment within days. Senate Bill S2305, introduced in 2025, would close this loophole and ban COJs on commercial debts under $5 million, but it has not passed. As of right now, the instrument is fully live for New York merchants.
4. Other states still allow them. And funders use forum-selection clauses to drag you there.
The states that still permit confessions of judgment for commercial debt include:
- New York (against in-state defendants)
- Pennsylvania
- Ohio
- Illinois
- Virginia
- New Jersey
- Texas (in limited circumstances)
States that have banned them outright for commercial debt include California (since 1978), Massachusetts, Florida, and Indiana.
Here’s the catch. Even if your business is in a state that bans COJs, your MCA agreement almost certainly contains a choice-of-law and forum-selection clause that picks one of the permissive states. New York and Pennsylvania are the two most common. The funder’s argument is, you agreed to be sued there. So even though your home state would never enforce a COJ against you, the funder can attempt to obtain one in the chosen forum and then domesticate the judgment under the Uniform Enforcement of Foreign Judgments Act.
These forum clauses can be challenged. But the challenge happens after the judgment, after the asset freeze, with the funder already holding the leverage.
5. The amount the funder confesses is almost always inflated.
When your funder fills out the confession affidavit, they don’t just put down what you actually owe. They put down:
- The full purchased amount (the entire balance, accelerated)
- Default fees, often several thousand dollars
- Attorney’s fees, typically 33% of the balance
- “Costs of collection,” which is a catch-all bucket
- Default interest, sometimes at rates that approach criminal usury territory
By the time the judgment is entered, the amount is frequently 130% to 150% of what you actually received in original funding. We’ve seen cases where a merchant took $50,000 and ended up with a $90,000 judgment within 90 days of default.
This matters for two reasons. First, the inflated amount is what the funder will try to collect. Second, the inflated amount is often a vulnerability — if the affidavit overstates the debt, that can be a ground for vacating the judgment, which we’ll get to.
6. The asset freeze hits hard, and it hits everywhere at once.
Once the judgment is entered, the funder’s attorney serves restraining notices on every bank where they think you might hold money. This is not a guess — your bank statements were submitted as part of the original underwriting, so they know exactly where your accounts are. They serve:
- Your business operating account
- Your business savings, if any
- Your personal checking and savings (if you signed a personal guaranty, which you almost certainly did)
- Sometimes accounts at banks where you don’t even have money anymore, just to be thorough
The restraining notice freezes the funds up to twice the judgment amount. Not the amount in the account. Twice the judgment. So a $90,000 judgment can freeze up to $180,000 across your accounts. If you have less, all of it is frozen.
The funder will also serve information subpoenas on your customers, your CC processor, and anyone else who pays you. They’ll instruct those parties to redirect payments to the funder. This is the part that kills the business. You can’t make payroll. You can’t pay vendors. You can’t accept new work. The cash flow gets choked off in a single business day.
7. The Yellowstone settlement changed the landscape, but it didn’t end the practice.
In January 2025, New York Attorney General Letitia James announced a $1.065 billion judgment and settlement against Yellowstone Capital and 25 affiliated entities. Over 1,100 confession-of-judgment filings against New York businesses were vacated. More than 18,000 merchants had over $534 million in outstanding obligations canceled. The principals were banned from the industry.
This was the largest mass vacatur of confessions of judgment in history. If you had a judgment from Yellowstone or one of its affiliates, you may already have been included in that vacatur — and you should check.
But here’s what didn’t change. The COJ instrument itself is still legal. Other funders are still filing them. The Yellowstone case targeted one specific operator’s pattern of fraud and usury, not the underlying tool. If you signed an MCA in 2024 or 2025 with anyone other than Yellowstone, your COJ is still sitting in a file somewhere, waiting to be filed the moment you miss a payment.
8. You can vacate a COJ. But the procedure matters as much as the substance.
A confession of judgment is not unbeatable. Under CPLR § 5015, you can move to vacate on several grounds:
- Procedural defects. Wrong county. Improper notarization. The three-year filing window expired. The affidavit is missing required information. These are often the fastest path to relief, because they don’t require you to prove anything substantive — you just have to show the funder didn’t follow the rules.
- Lack of jurisdiction. If you’re an out-of-state defendant and the COJ was filed in New York after August 2019, the filing is void.
- Usury. If the MCA can be recharacterized as a loan (no real reconciliation provision, fixed payments, no genuine contingency on revenue), and the effective rate exceeds 25%, the underlying agreement is void as criminally usurious. A judgment based on a void contract is itself void.
- Fraud or duress. If you were misled about the terms, or pressured into signing without understanding what the COJ did, that’s a basis for vacatur.
Important procedural point. In Capitalize Group LLC v. Empire Core Group LLC, decided September 2025 in the Westchester County Commercial Division, the court held that vacatur of a confession requires a plenary action, not just a motion. This matters because filing a plenary action takes longer, costs more, and requires a different procedural strategy than filing a motion. If your attorney files the wrong kind of paper, the court will deny it on procedural grounds and you’ll have to start over. By then, the funder has had weeks of additional collection time.
The takeaway: if a COJ has been filed against you, the speed and the procedural correctness of your response matters as much as the underlying argument.
9. The best defense is to never sign one. The second best is to know exactly what’s in your stack.
If you’re being offered an MCA right now, and you have any choice in the matter, ask the funder to remove the confession of judgment from the document set. Some will. Most won’t. If they refuse, that’s a data point about how they intend to treat you if anything goes wrong.
Alternatives that typically don’t require COJs:
- SBA loans (7(a), 504, microloans)
- Traditional bank lines of credit
- Invoice factoring
- Revenue-based financing from regulated lenders
- Equipment financing through manufacturers
If you’ve already signed an MCA, do this today:
- Pull your full document package. Not just the agreement, the whole stack. Look for any document titled “Affidavit of Confession of Judgment,” “Affidavit of Defendant,” or anything similar.
- Note which state’s law governs the agreement (look at the choice-of-law clause).
- Note where the funder is permitted to file (look at the venue clause).
- If you’re behind on payments, or you can see a default coming, talk to an MCA defense attorney before you miss the next debit, not after. Once the COJ is filed, your options narrow dramatically and your costs go up dramatically.
The funders count on you not knowing any of this. They count on you signing fast, defaulting fast, and being too overwhelmed to fight back. The single biggest advantage you can give yourself is time, and the only way to get time is to know what you’re looking at before the freeze hits.
