What is a Confession of Judgment?
Learn what a confession of judgment is, understand the serious risks of signing one, and know why many states have banned these controversial clauses.
A confession of judgment (COJ) is a legal document where a borrower agrees in advance that if they default, the lender can obtain a court judgment against them without a trial or any opportunity to defend themselves. It essentially waives your right to due process before a lender can seize your assets.
How Confession of Judgment Works
When you sign a COJ:
- You pre-authorize the lender to enter a judgment against you
- If the lender claims you defaulted, they can immediately file the COJ with a court
- The court enters judgment without notifying you or giving you a chance to respond
- The lender can then freeze bank accounts, garnish wages, or seize assets
- You may not even know a judgment has been entered until your accounts are frozen
Serious Risk
A confession of judgment removes your ability to dispute unfair claims. Even if the lender is wrong about a default or the amount owed, they can enforce the judgment before you have any chance to object.
Where COJs Are Used
Confessions of judgment are most commonly found in:
- Merchant cash advances
- High-cost short-term business loans
- Factoring agreements
- Some equipment financing contracts
Legal Status
Many states have banned or restricted confessions of judgment:
- Banned in most states: California, Texas, and many others prohibit COJs for consumer and small business transactions
- New York historically allowed: Many predatory lenders filed COJs in New York courts, even against out-of-state borrowers
- Federal proposals: There have been legislative efforts to ban COJs nationally for small business financing
- Still used: Some lenders continue to include COJs where technically legal
Protecting Yourself
To avoid confession of judgment risks:
- Read all loan documents carefully before signing
- Search for "confession of judgment" or "cognovit" language
- Ask the lender directly if the agreement includes a COJ
- Consider walking away from any financing that requires a COJ
- Consult an attorney if you are unsure about contract terms
If You Signed a COJ
If you already signed a contract with a confession of judgment and face difficulties:
- Consult a business attorney immediately
- Document all communications with the lender
- Do not assume you have no options — you may be able to challenge the judgment
- Check if the COJ is enforceable in your state
Legitimate lenders generally do not require confessions of judgment. If a lender insists on a COJ, consider it a major red flag and explore alternative financing options.
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Read more →Important Disclosure
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