Finance term
Confession of Judgment (COJ)
Also known as: COJ, cognovit note, warrant of attorney
Definition
A Confession of Judgment (COJ) is a pre-signed legal document in which a borrower consents in advance to a court judgment against them if they default — allowing the lender to skip trial, notice, and appeal. COJs are banned or severely restricted in commercial finance contracts in New York (2019), Virginia (2020), and New Jersey (2021) due to widespread abuse.
Detailed explanation
A Confession of Judgment is a contractual clause where the borrower pre-authorizes a judgment against themselves in the event of default, waiving the right to be served with a lawsuit, present a defense, or appeal. The lender simply files the pre-signed document with the court upon claiming default and receives a judgment — immediately enabling wage garnishment, bank account levies, and property liens.
COJs were widely used by MCA funders in New York through 2019 to enforce collections rapidly and cheaply. The New York State Attorney General's 2019 investigation led to legislation (CPLR §3218) restricting COJs in commercial financing — funders can no longer use NY COJs against out-of-state debtors. Virginia enacted similar restrictions in 2020; New Jersey in 2021. Federal legislation has been proposed but not enacted.
Borrowers should check every business financing contract for COJ provisions before signing — they may appear as 'warrant of attorney' or 'cognovit note.' An experienced commercial attorney can flag COJ clauses. Per the Federal Trade Commission's guidance on commercial financing practices (https://www.ftc.gov/business-guidance/small-businesses), borrowers should understand all enforcement provisions in a loan agreement before signing.
If a COJ clause appears in a financing contract in a state where they remain legal (most states other than NY, VA, NJ for commercial use), borrowers should consult legal counsel to understand the implications before executing.
◈ Worked example
- MCA contract signed in 2018 includes NY COJ clause → borrower defaults → funder files COJ with NY court → judgment issued within days without borrower notification or defense
- Post-2019 NY MCA contract → no COJ allowed against out-of-state debtors under CPLR §3218 amendment
- Borrower in state with no COJ restriction signs commercial loan with COJ clause → upon default, funder can enter judgment without trial
Common questions
The most-asked questions about Confession of Judgment (COJ) — answered straightforwardly.
Is a Confession of Judgment in my contract legal? +
Depends on the state. New York banned COJs against out-of-state commercial borrowers in 2019. Virginia and New Jersey have similar restrictions. In most other U.S. states, COJs in commercial (not consumer) contracts remain legal. If you see a COJ or 'cognovit note' clause in a financing contract, have a commercial attorney review it before signing.
What happened to COJs in New York MCA contracts? +
New York's 2019 reform (amendment to CPLR §3218) prohibited the use of New York courts to enter COJ judgments against out-of-state commercial borrowers. This was a response to widespread abuse documented by ProPublica and the NY Attorney General, where MCA funders used NY-filed COJs to freeze bank accounts of out-of-state businesses within 24-48 hours of alleging default.
Further reading
This glossary entry is educational content. ClearValue Lending is a business & personal financing platform — not a lender, broker, or financial advisor. Specific product terms vary by lender; verify with the lender or issuer before applying. See privacy policy.
https://clearvaluelending.com/glossary/confession-of-judgment