A confession of judgment (often abbreviated COJ or "cognovit") is a contract clause and a separately signed instrument in which a borrower agrees in advance that if they default, a court can enter a judgment against them without a lawsuit, without a trial, and without notice. In the merchant cash advance industry it has been one of the single most consequential pieces of paper a business owner can sign. This guide explains what the COJ actually does, what the 2019 New York reform changed, where COJs are still enforceable, and what is realistically possible when one has been entered against you.
For the broader picture on MCA risk, read this alongside the MCA debt trap guide and the MCA debt overview.
What a confession of judgment actually is
A typical MCA contract bundles several documents together at closing: the receivables purchase agreement, a personal guarantee, a UCC-1 authorization, and a separately signed affidavit titled "Confession of Judgment" or "Affidavit of Confession of Judgment." The COJ instrument:
- Is signed and notarized by the merchant (and by the owner-guarantor in their personal capacity)
- Specifies a dollar amount — typically the full advance plus the contracted total of payments, fees, and a default acceleration premium
- Names the jurisdiction where the judgment will be filed (almost always favorable to the funder)
- Acknowledges that if the merchant defaults, the funder can present the COJ to the court clerk and obtain a money judgment
The COJ is not the contract. It is a stand-alone instrument the funder holds in escrow. The MCA contract performs normally — the funder takes its daily ACH — until a default trigger fires. At that point, the funder files the COJ.
Why funders use COJs
Without a COJ, a defaulted creditor's path is:
- File a lawsuit, serve the defendant
- Wait for the answer period (typically 20–30 days)
- Move for summary judgment or proceed to trial
- Obtain a judgment, then pursue post-judgment remedies (levy, garnishment, lien)
With a COJ, that entire timeline collapses to "file the affidavit at the courthouse." Many MCA funders have obtained money judgments within 24–48 hours of a missed ACH, then immediately served restraining notices on the merchant's bank to freeze accounts, all before the merchant even knew a case existed.
The 2019 New York reform
For roughly a decade, MCA funders concentrated COJ filings in New York. New York CPLR § 3218 allowed a creditor to file a COJ in any New York county regardless of where the merchant was located or where the contract was performed. Out-of-state merchants from Texas, California, Florida, and every other state were waking up to frozen accounts because of a judgment entered in a New York county they had never visited.
In August 2019, New York amended CPLR § 3218 to limit COJ filings to debtors who were New York residents at the time of signing. After the amendment, an MCA judgment by COJ can only be entered in New York if the merchant was a New York resident — meaning a New York individual, or a New York-domiciled entity, at the time the COJ was signed.
The effect was immediate. The volume of COJ filings in New York dropped substantially. MCA funders pivoted to other states (notably Pennsylvania and New Jersey for some products), pivoted to ordinary lawsuits, or pivoted to other contractual mechanisms — particularly UCC lien enforcement and arbitration clauses combined with personal guarantees.
This does not vacate older judgments
The 2019 amendment was not retroactive. Judgments entered against out-of-state merchants in New York before August 2019 remained valid, though some have been collaterally attacked on personal-jurisdiction grounds in the merchant's home state.
Where COJs are still enforceable in 2026
The legal landscape varies sharply by state. In the broadest terms:
- Banned outright in consumer contracts. The FTC's Credit Practices Rule (16 C.F.R. § 444) makes COJs unenforceable in consumer credit contracts nationwide. This does not apply to commercial transactions.
- Banned or restricted in commercial contracts. A growing minority of states. California, Texas, Florida, and Massachusetts have made COJs unenforceable or close to it in commercial contracts.
- Restricted by domicile. New York (post-2019), New Jersey, and Pennsylvania allow COJs but limit out-of-state filings.
- Still permitted with formalities. Many states permit commercial COJs if statutory formalities are observed — separate document, notarization, specific waiver language, dollar amount in the COJ itself.
- Permitted without restriction in commercial settings. A shrinking set of jurisdictions.
Whether a given COJ is enforceable against a given merchant in a given state is a fact-intensive question. The two threshold issues are (a) where the COJ was filed and (b) whether that forum has personal jurisdiction over the merchant. A judgment entered in a state where the merchant has no contacts is vulnerable to a motion to vacate for lack of personal jurisdiction.
What happens after a COJ is filed
The post-COJ enforcement sequence is fast and largely procedural:
Restraining notices
Within hours of the judgment, the funder serves a restraining notice on every bank where the merchant or guarantor holds an account. The bank is required to freeze the account up to twice the amount of the judgment. This typically includes operating accounts, payroll accounts, personal accounts of the guarantor — anything the funder can identify.
Income execution
The funder serves an income execution on the guarantor's employer (if W-2 income exists) or on customers of the merchant business (to redirect receivables).
Property execution
If the funder is aware of specific assets — vehicles titled to the guarantor, real estate, business equipment — it can pursue a sheriff's levy.
UCC remedies in parallel
Most MCA contracts also create a security interest in the merchant's receivables perfected by a UCC-1. The funder can serve notice of default and a "lockbox direction" to the merchant's processor or customers, demanding that they redirect payments. This runs in parallel with the COJ enforcement. See the UCC-1 guide for the mechanics.
Defenses and motions to vacate
A COJ is not unattackable. The most common defenses, in rough order of effectiveness:
Personal jurisdiction
If the merchant has no minimum contacts with the forum state — no office, no employees, no transactions in that state — the judgment is vulnerable to a motion to vacate for lack of personal jurisdiction. Post-2019 New York judgments entered against in-state defendants are mostly secure here; pre-2019 judgments against out-of-state merchants frequently are not.
Defects in the COJ instrument
Many states require specific formalities — that the COJ be a separate signed instrument, that it state the amount confessed, that the underlying obligation be specified. A COJ that does not meet local statutory requirements may be void on its face.
The transaction is a disguised loan
The single biggest defense in MCA litigation generally. If a court reclassifies the receivables purchase as a loan, the contract is subject to state usury law. With effective APRs frequently in the 80–200% range, an MCA reclassified as a loan is usually criminally usurious. The leading framework (LG Funding v. United Senior Properties, NY 2018) looks at three factors: (1) whether the funder has reconciliation rights when receivables decline, (2) whether there is a fixed term, and (3) whether default is triggered by events not tied to actual revenue. The more the contract behaves like a loan with a fixed schedule and traditional default triggers, the more likely reclassification.
Fraud in the inducement
If the funder made material misrepresentations about the financial product — particularly the effective cost, the daily payment mechanism, or the personal-guarantee scope — that can be grounds to vacate.
FTC and state UDAP claims
The FTC has brought enforcement actions against MCA funders for deceptive practices (RCG Advances, Yellowstone Capital). State attorneys general have brought similar cases. A successful FTC/state action against the funder can produce restitution and judgment-vacating relief for borrowers in the affected pool.
What to do right now if a COJ has been filed against you
- Get a copy of the judgment and the filed COJ instrument. Both are public records in the county where the judgment was entered. You need to see the actual document you allegedly signed, the notary's stamp, and the amount confessed.
- Identify the forum. Where was the judgment filed? Do you have any contacts with that state? If you are a non-resident and the judgment was filed in a state where you do not transact business, personal jurisdiction is a viable challenge.
- Inventory frozen accounts. Call every bank where you or the business holds accounts. Restraining notices are typically served before you receive any notice from the funder.
- Engage MCA-specialized counsel. COJ defense is its own specialty. A general commercial attorney is rarely the right fit. Move time is measured in days.
- Evaluate the bankruptcy automatic stay. A Chapter 7, Chapter 11, or Subchapter V filing triggers an automatic stay that halts judgment enforcement. The stay does not vacate the judgment, but it stops the bleeding while reorganization or settlement is pursued. See Chapter 11 and Subchapter V.
- Don't sign a new MCA to pay the COJ judgment. The standard response to a frozen account is panic, and the standard panic move is to take another MCA. This is the stacking trap. See the MCA debt trap guide.
Settlement leverage after a COJ
Even with a COJ judgment in place, MCA funders settle. The reasons:
- The merchant's accounts may be empty by the time the restraining notice clears the bank — there is nothing to take
- The judgment is collectable only through real assets, which may already be encumbered by senior lenders
- Bankruptcy threat is real — the funder gets nothing in a Chapter 7
- The reclassification / usury defense is real — the funder prefers cash now to a judgment that may be vacated
Most COJ-judgment settlements fall in the 30%–60% range of the confessed amount, often structured as a lump sum plus a short tail. Settlement letters should include (a) full release of the personal guarantor, (b) full satisfaction of judgment filed with the court, (c) UCC-3 termination of the related blanket lien, and (d) a covenant not to oppose any future loan application.
Frequently asked questions
Did I sign a confession of judgment without realizing it?
If you took an MCA before 2020 and signed paperwork in a "closing package" with multiple notarized documents, very likely yes. The COJ is typically a separate single-page or two-page affidavit, often titled "Affidavit of Confession of Judgment" or "Confession of Judgment by Affidavit." Newer MCA contracts (post-2020) often replace the COJ with mandatory arbitration clauses combined with personal guarantees, which work differently but produce similar outcomes.
Can a COJ be filed against me in a state I have never been to?
Before 2019 in New York, yes — and that was the entire industry's model. After the 2019 amendment, no in New York. In other states, it depends on the state's COJ statute and on personal-jurisdiction analysis. An out-of-state filing is more vulnerable than an in-state one.
Will bankruptcy vacate the judgment?
No. Bankruptcy does not vacate the judgment — that requires a state-court motion to vacate. But bankruptcy does discharge the underlying debt that the judgment represents (assuming no fraud exception applies under §523), which makes the judgment effectively uncollectable as to the discharged debtor. Liens on specific property survive discharge unless avoided.
Are COJs banned now?
In consumer contracts, yes — FTC Credit Practices Rule. In commercial contracts, no, not generally — but the geography has shrunk significantly since 2019. The most aggressive MCA funders have migrated to arbitration clauses and direct UCC lien enforcement, which produce similar speed without the COJ formalities.
Does a COJ affect the personal guarantor?
Yes — the COJ is almost always signed by the owner-guarantor in their personal capacity in addition to the business entity. The judgment is entered against both, and post-judgment enforcement reaches both the business and the guarantor's personal accounts, wages, and property.
This page is general information about a fast-moving and state-specific area of commercial law. Confirm any specific situation with qualified counsel before acting. See the disclaimer.
Last reviewed on 2026-05-16.