Confessions of Judgment in MCA Cases: Your Rights

How Confessions of Judgment Work

When a business signs an MCA agreement, the funder typically requires the business owner to sign a confession of judgment as part of the deal. This document authorizes the funder to file an affidavit with the court and obtain a judgment for a specified amount without any lawsuit, hearing, or opportunity for the business to be heard. The business owner often does not realize the significance of what they have signed until a judgment appears and their bank account is frozen.

The 2019 New York Reform

New York’s legislature responded to widespread COJ abuse in the MCA industry with significant reforms effective in 2019. The legislation imposed new procedural requirements on COJ filings, created enhanced protections for out-of-state businesses, and established additional grounds for vacatur. For businesses that signed MCA agreements before the reform, the new law still provides important procedural protections when the COJ is filed after the effective date.

Grounds for Vacating a COJ

A confession of judgment can be challenged on multiple grounds. Fraud or misrepresentation in the underlying transaction, defects in the affidavit, failure to comply with the 2019 reform’s procedural requirements, and improper filing against out-of-state debtors are among the most common. When a COJ is vacated, the judgment is wiped out and any account freezes based on that judgment must be released.

What to Do If a COJ Has Been Filed Against You

Time matters. Once a COJ is filed and a judgment is entered, the funder can immediately restrain your bank accounts. An attorney can move to vacate the COJ and release the restraint, but the sooner you act, the less damage the freeze causes to your operations.