What is a Confession of Judgment?

A confession of judgment is clause often hidden within a contract for a business loan or commercial lease. COJ clauses are common in alternative funding contracts such as merchant cash advances.

By signing a confession of Judgment, you are signing away your right to go before a judge in the event of a legal suit for non-payment. In some cases, even just defaulting can trigger a confession of judgment. These clauses not only make you liable for the debt, but also any legal fees incurred. A COJ can be filed against you without warning and you don’t get to plead your side of the case.

Sometimes a confession of judgment can even seize personal property in the event of non-payment. This could be your house or any asset within legal grasp.

Typically COJ clauses are buried within the loan contract and are unbenounced to the borrower. So, when a borrower gets a COJ filed against them that had no idea it existed, in can come as quite an unpleasant surprise. In fact, a business owner could learn about a confession of judgment for the first time when one is filed against them.

How a Confession of Judgment Works

A confession of judgment’s terms will vary based on jurisdiction. Some jurisdictions do not allow for a COJ to be tied to consumer (or personal) loans. Some states require that the borrower be notified by the court if such filing is filed against them. The borrower can then file petitions in an attempt to postpone the confession of judgment.

A COJ may be filed in courts having jurisdiction for the debt. [CCP §1132(a)]  The judgment will include the principal, interest, and incurred legal costs.

A judgment of this type allows the plaintiff to execute full collection of the totaling amounts through wage garnishment, asset repossession, etc.

Should I Sign a Contract With a Confession of Judgment Clause?

By signing a confession of judgment, you are signing your legal rights away to protect yourself financially in the occurance of such judgment. We would never reccomend signing a contract that includes a COJ clause unless you have explored all other funding options. If you have no other options, and funding is an absolute necessity, then that is a call only you can make.

If you find yourself in a position of needing funding from a lender that has included a COJ clause, ask them if it’s mandatory to have that clause in the contract in order for you to be approved. You can still inquire with other funders in the alternative loan market if they say yes. By doing so, you may very well find a funding source that doesn’t require you to sign a confession of judgment.

Can I Get Out of a COJ Filed Against Me?

It may seem like a hopeless situation if you’ve had a confession of judgment filed against you. There’s still hope for an alternative resolution that will cause your lender to vacate the judgment. The options you have will vary state by state but include a settlement through negotiations. There are business debt restructuring companies that specialize in this very process.

If approved for a restructuring program, you will be set up on a manageable payment plan. Your assets and finances will no longer be in jeopardy of garnishment or being taken.

If you have had a confession of judgment filed against you, call us for a free consultation. There are many cases where we can help stop the strain and stress of such judgment.