Owners carrying merchant cash advance debt often want to know whether an MCA loan attorney can get them out of a confession of judgment. That depends on the case, and the law generally doesn’t give the person who signed the COJ much of a break. For business owners dealing with these documents, they can get complex really quickly. Here’s what you need to know.
The Rules for Confessions of Judgment
A confession of judgment (COJ) is when you agree in writing to let a creditor swoop in and take a judgment against you without having to sue you first. It’s for a specific dollar amount that you already agreed to. It’s a fast track for the creditor, cutting out the middle man of the lawsuit.
One common setting is the settlement of a lawsuit. This is when a company agrees to pay someone a certain amount of money because of a lawsuit, but if they fail to do so, that plaintiff can go straight to the county clerk and get a judgment for that amount without suing the company for breach of the settlement. The plaintiff typically holds onto it in escrow, and only files it if you fail to make payments you promised as part of a settlement. Parties who settle a dispute out of court, to avoid the cost and burden of litigation, sometimes use one the same way.
In New York, the rules for confessions of judgment are in the Civil Practice Law and Rules (CPLR) section 3218. You can get a judgment against someone just by filing an affidavit where the defendant admits how much he or she owes, says it’s okay to enter a judgment, and also gives the county where the defendant lives. If it’s a money judgment, the affidavit also has to spell out briefly why the debt is owed and why the amount confessed is due and payable. A confession can also be given to cover a contingent liability, something you might owe later. For a confession of judgment to be valid in this situation, you need an affidavit that concisely lays out the facts giving rise to that liability and states that the amount confessed does not exceed the potential liability amount.
The creditor can’t just go ahead and take the judgment unless the debtor has given the creditor the right to enter it. And they can’t use it if it was more than three years after the debtor signed it, or if the debtor is dead.
The Specificity Standard
To confess judgment for a specific amount, the affidavit has to spell out what actually caused the debt - enough detail so other creditors could look into it and check if it’s legit. When a debtor and a creditor are on the same page, they can sometimes be a problem for the other creditors. That’s because they might agree to a judgment on paper, even if it hurts the other people who are owed money. The courts say this rule exists to protect people other than you in case the judgment is a sham. It’s not there to protect you. That last point is the one that catches owners off guard.
People who owe money sometimes try to get a confessed judgment thrown out, saying the documents used to get the judgment weren’t specific enough. In Balahtsis v. Shakola (2d Dept. 2021), the court had entered a judgment in August 2018, based on a confession of judgment and an affidavit from March 2018 that the defendant signed for legal fees owed to the plaintiff. In July 2019 the defendant tried to get the judgment vacated, claiming the affidavit didn’t meet the specificity standard. The Supreme Court said no, and the Appellate Division, Second Department, agreed. The court said it wasn’t open for the defendant to complain that the confession of judgment was too vague, because the rule that it must be specific was intended to prevent bogus judgments from hurting people who had nothing to do with the deal, not to protect the person who signed it.
The court in Balahtsis shows that a move by the debtor to dispute something that looks like a slam dunk can be turned around, because a requirement in the law was never meant to help the debtor. Sometimes a statute that seems to help you was not actually written to protect people in your position.
Very Limited Ways to Get Out of It
So what can an attorney actually do? A lawyer can look at the confession of judgment and see if the creditor was allowed to do it in the first place - for example, if it had been more than three years since you signed it when the judgment was entered - and if there’s anything that would get it set aside. But a defense based on the idea that the affidavit wasn’t specific enough is not likely to work. If you want to challenge a confessed judgment, you should have a lawyer look at the confession, the affidavit that went with it, and the dates they were signed and the judgment was entered. There aren’t many ways to beat this judgment, but the first step is to have a lawyer examine the paperwork.
To be fair, the document isn’t all downside. With one in hand, the lender can seize your money or assets quickly without a court fight. For you, it cuts out a long legal battle you’re likely to lose, so you might save some lawyer bills. But you’re also saying, “Yes, I owe this money,” and you’re handing the lender a really strong weapon to collect it.
For an owner who is already behind on a merchant cash advance, the practical lesson is that once you sign the confession of judgment, you’re likely locked into paying the money. And if you can’t pay, there are very limited ways to get out of it. Signing one hands the creditor a way around the lawsuit. That’s a major piece of power you’re giving up when you sign it, and it’s not something you can easily take back.
If you don’t have a strong case to get a confessed judgment thrown out, the next step might not be court. You can try to negotiate with the creditor to resolve the debt or, if it makes sense, talk to a bankruptcy lawyer. Which path you take depends on your situation. Get professional help to decide.
Delancey Street isn’t a law firm, we are a debt settlement company. Our senior advisors talk with cash advance providers and lenders about settling for less than the full balance. If we think you should file bankruptcy or if you need legal advice, we’ll refer you to a trusted attorney. If we think you don’t have a good case or that there’s a cheaper way to handle this, we’ll say so on that first call. We don’t try to sell you another loan. The first call is always free, and it’s always private.
