CPLR 3218 & MCA Judgments: How New York's Confession of Judgment Law Affects Your Business

Key Legal Terms

Confession of Judgment (COJ)

A Confession of Judgment, often called a COJ, is a legal document signed before any dispute arises that allows a creditor to enter a judgment against a debtor without first filing a lawsuit or going through a trial.

In the merchant cash advance industry, many agreements require business owners to sign a COJ as part of the funding process. If the funder later claims the business defaulted, that document may be used to obtain a judgment quickly and begin collection efforts.

CPLR 3218

CPLR 3218 is the New York statute that governs Confessions of Judgment.

It establishes when a COJ may be filed, what information must be included, where it can be filed, and the legal requirements that creditors must satisfy before a judgment can be entered.

Understanding how this statute works is essential for any business owner who has signed a merchant cash advance agreement containing a Confession of Judgment.

Merchant Cash Advance (MCA)

A merchant cash advance is promoted as the purchase of a business's future receivables rather than a traditional loan.

Many MCA agreements also include a Confession of Judgment that allows the funder to move quickly if it claims the merchant has defaulted.

Because of that combination, CPLR 3218 has become one of the most important statutes in New York MCA litigation.

What Is CPLR 3218? New York's Confession of Judgment Statute Explained

For many business owners, the first sign that something is wrong comes after their bank account has already been frozen.

They never received a summons.

They never appeared in court.

They never had the chance to explain their side of the story.

Instead, they discover that a judgment has already been entered against them.

In many merchant cash advance cases, that happens because of CPLR 3218.

This New York statute allows a creditor to enter a judgment using a previously signed Confession of Judgment rather than filing a traditional lawsuit.

If the legal requirements are satisfied, the judgment may be entered without advance notice to the business owner.

That is why understanding how CPLR 3218 works is so important before deciding how to respond.

Business owners facing MCA collection efforts can also learn more about merchant cash advance defense and the legal strategies available before a judgment is entered.

How a Confession of Judgment Works

Most merchant cash advance agreements require the business owner, and often any personal guarantor, to sign a Confession of Judgment at the time the funding is provided.

The signed affidavit is then held by the funder.

If the funder later declares the merchant to be in default, it may file the affidavit with the appropriate county clerk.

Once accepted, the judgment can be entered without the creditor first filing a lawsuit or asking a judge to decide whether a default actually occurred.

After the judgment is entered, collection efforts may begin immediately.

That can include restraining bank accounts, filing liens, and pursuing other collection remedies permitted under New York law.

Many business owners do not learn a judgment exists until their access to business funds has already been interrupted.

What Must a Valid COJ Affidavit Contain?

Not every Confession of Judgment is enforceable.

New York law requires specific information before a judgment may be entered.

Among other things, the affidavit generally must identify the amount of the debt, include a statement explaining the obligation, and satisfy the procedural requirements established under CPLR 3218.

If those requirements are not met, the Confession of Judgment may be vulnerable to challenge.

Small errors can sometimes have significant legal consequences.

That is why reviewing the affidavit itself is often one of the first steps in evaluating a potential defense.

Business owners who already have a judgment entered against them should also understand their options for challenging a confession of judgment, particularly when procedural defects may exist.

The Three-Year Filing Deadline

A Confession of Judgment cannot remain unused forever.

New York law places a time limit on when a COJ may be filed.

If that deadline passes before the affidavit is filed, the creditor may lose the ability to use the Confession of Judgment to obtain a judgment under CPLR 3218.

Because the filing deadline depends on the date the affidavit was executed, reviewing the timeline is an important part of any legal analysis.

Business owners are often surprised to learn that an older Confession of Judgment may no longer be enforceable.

That issue should always be examined before assuming the judgment process was valid.

How MCA Companies Use CPLR 3218 Against New York Business Owners

For many merchant cash advance companies, a Confession of Judgment is not just another contract provision.

It is one of the primary reasons they can move so quickly after claiming a business has defaulted.

Unlike a traditional lender that must file a lawsuit and prove its case before collecting, an MCA funder with a valid COJ may be able to obtain a judgment without going through that process first.

That speed can leave business owners scrambling to respond after their accounts have already been frozen.

Understanding how the process works is the first step toward protecting your rights.

Why MCA Funders Require COJ Affidavits at Signing

Most business owners are focused on getting funding when they sign an MCA agreement.

Very few expect the Confession of Judgment buried in the paperwork to become one of the most important documents they sign.

From the funder's perspective, however, the COJ provides a significant advantage.

If the funder later declares the merchant in default, it may already have everything needed to pursue a judgment without filing a traditional lawsuit.

That allows the collection process to move much faster than it would in ordinary commercial litigation.

Because a Confession of Judgment can have serious consequences, business owners should understand exactly what they are signing before accepting MCA funding.

What Happens After an MCA Company Files a COJ Against You

Once a Confession of Judgment is filed and accepted, the legal landscape changes quickly.

The MCA company becomes a judgment creditor with access to powerful collection remedies under New York law.

At that point, the focus often shifts from whether the business owes money to how the judgment will be enforced.

For many businesses, the first indication that anything has happened comes when a bank account is suddenly unavailable or a payment is unexpectedly rejected.

That is why acting quickly after learning about a judgment is so important.

Business owners who discover a judgment has already been entered should promptly review their options for vacating a confession of judgment, since the available defenses may depend on the facts of the case and how quickly action is taken.

Bank Account Restraints, Liens, and Wage Garnishment

A judgment opens the door to collection efforts that can disrupt day-to-day business operations.

One of the most immediate consequences is a restraining notice served on the business's bank.

When that happens, access to company funds may be restricted before the business owner has an opportunity to respond.

The effects can be immediate.

Payroll may be delayed.

Vendor payments may fail.

Automatic withdrawals may be rejected.

Depending on the circumstances, creditors may also pursue liens against property or other collection remedies authorized under New York law.

For many business owners, these practical consequences create far greater pressure than the lawsuit itself.

The 2019 CPLR 3218 Amendments: What Changed and Who Is Protected

For years, MCA companies routinely filed Confessions of Judgment against businesses located outside New York.

The New York Legislature responded by changing the law in 2019.

Those amendments significantly limited when a Confession of Judgment may be used against out-of-state debtors.

Although the changes provided important protections, they did not eliminate Confessions of Judgment altogether.

Many New York businesses remain subject to CPLR 3218, and understanding exactly who is protected is critical.

Out-of-State Business Owners: Florida, Maryland, Virginia, and Washington, D.C.

If a business had no New York residence or New York place of business when the Confession of Judgment was signed, the 2019 amendments may provide an important defense.

For many companies located outside New York, that change closed a loophole that MCA funders had relied on for years.

Whether those protections apply depends on the specific facts, including when the affidavit was signed and where the business was located at that time.

Because the analysis is highly fact-specific, businesses should avoid assuming they are automatically protected or automatically excluded.

A careful review of the agreement and the surrounding facts is essential.

New York Residency Requirements for Individuals, Corporations, and LLCs

Residency is not always as simple as it sounds.

For individuals, the question generally focuses on where they lived when the Confession of Judgment was signed.

For corporations and limited liability companies, the analysis may include whether the business maintained a place of business in New York at that time.

Those facts can determine whether a Confession of Judgment was properly filed under CPLR 3218.

Even small details about the company's operations may affect the legal analysis.

That is one reason experienced counsel typically reviews the business structure, company records, and the underlying agreement before determining whether a residency defense may be available.

Businesses facing broader financial challenges related to MCA obligations may also benefit from reviewing commercial loan workout options before collection efforts escalate further.

Which County Must a COJ Be Filed In?

A Confession of Judgment cannot be filed just anywhere.

New York law requires it to be filed in the proper county based on where the debtor resided or maintained a place of business when the affidavit was signed.

Although this may seem like a technical requirement, filing in the wrong county can create a significant legal issue.

That is why reviewing where the judgment was entered should always be part of the initial case evaluation.

What appears to be a minor procedural mistake may ultimately affect whether the judgment can stand.

County Filing Rules for New York Businesses

For businesses located in New York City, the proper filing location generally depends on where the individual or business qualified under CPLR 3218 at the time the Confession of Judgment was executed.

That may include:

• Manhattan (New York County)
• Brooklyn (Kings County)
• Queens (Queens County)
• The Bronx (Bronx County)
• Staten Island (Richmond County)

Businesses located on Long Island generally fall under Nassau County or Suffolk County, while companies in Westchester are typically subject to filing in Westchester County.

Using the correct county is more than an administrative requirement.

If a judgment was filed in the wrong location, that error may become part of a broader legal challenge to the Confession of Judgment.

How to Challenge a CPLR 3218 MCA Judgment in New York

Many business owners assume that once a Confession of Judgment has been entered, there is nothing they can do.

That is not always true.

Depending on the facts, New York law provides several possible avenues for challenging an MCA judgment.

The appropriate strategy depends on issues such as where the affidavit was signed, whether the statutory requirements were satisfied, whether the agreement may actually be a disguised loan, and whether procedural defects exist.

The first step is understanding which legal vehicle should be used.

Plenary Action vs. Motion to Vacate: Why the Difference Matters

One of the most common mistakes business owners make is assuming they should simply file a motion asking the court to vacate the judgment.

In many MCA cases, that is not the correct procedure.

New York courts have recognized that certain challenges to a Confession of Judgment must instead be brought through a separate lawsuit known as a plenary action.

That distinction is more than procedural.

Choosing the wrong approach may delay the case while collection efforts continue.

Before filing anything with the court, it is important to determine which legal procedure applies to the specific facts of the case.

Business owners considering whether a judgment can be challenged should review their options for confession of judgment litigation, particularly when procedural issues may affect the available remedies.

Challenging the COJ on Residency Grounds

For some businesses, the strongest defense has nothing to do with the underlying MCA agreement.

Instead, it centers on where the business or individual was located when the Confession of Judgment was signed.

The 2019 amendments to CPLR 3218 significantly limited the use of Confessions of Judgment against many out-of-state debtors.

If those residency requirements were not satisfied, the judgment itself may be subject to challenge.

Because residency is determined by the facts that existed when the affidavit was executed, gathering accurate business records and organizational documents is often an important part of evaluating this defense.

Arguing the MCA Is Actually a Loan

Not every merchant cash advance is treated as a true purchase of future receivables.

New York courts look beyond the title of the agreement and examine how the transaction actually operated.

If the agreement functioned like a loan rather than a genuine receivables purchase, additional legal defenses may become available.

Among the issues courts frequently examine are whether payments were truly tied to future revenue, whether the funder assumed any meaningful business risk, and whether repayment was effectively guaranteed regardless of the company's financial performance.

That practical analysis often carries far more weight than the label printed on the first page of the contract.

Business owners who believe their MCA agreement functioned more like a loan should also review information about merchant cash advance litigation and defense, since recharacterization frequently becomes a central issue in these cases.

The Role of Criminal Usury

If an MCA is recharacterized as a loan, another important question follows.

Did the effective interest rate exceed New York's criminal usury limit?

When a court determines that a transaction is both a loan and criminally usurious, the consequences can be significant.

Rather than simply reducing the interest owed, New York law may treat the entire agreement as unenforceable.

Because this analysis depends on both the structure of the agreement and the way it was administered, every case requires an individualized review.

The answer cannot be determined simply by looking at the factor rate listed in the contract.

Procedural Defects That May Invalidate a COJ

Even when the underlying agreement is not challenged, problems with the Confession of Judgment itself may provide additional defenses.

A court may examine whether the affidavit satisfied the requirements of CPLR 3218, whether it was filed within the statutory time period, whether it was filed in the correct county, and whether other procedural requirements were followed.

These issues may appear technical, but procedural compliance is an important part of the enforcement process.

Identifying defects early can significantly affect the legal strategy moving forward.

Can an MCA Agreement Be Recharacterized as a Usurious Loan to Void the COJ?

One of the most important issues in modern MCA litigation is whether a merchant cash advance should be treated as a true receivables purchase or as a loan.

A Confession of Judgment is only as strong as the agreement supporting it.

If a court determines that a merchant cash advance is actually a loan rather than a true purchase of future receivables, the legal analysis changes significantly.

That is why many MCA disputes focus less on what the contract is called and more on how the agreement worked in practice.

The label "merchant cash advance" does not automatically determine the outcome.

New York courts look at the substance of the transaction, not just the language used in the contract.

What Makes an MCA a True Purchase Instead of a Loan?

A legitimate merchant cash advance involves the purchase of future receivables.

That means the funder accepts the risk that the business's future revenue may increase, decrease, or even disappear.

If the business earns less, the funder's recovery should generally reflect that reduced revenue.

By contrast, a loan creates an obligation to repay a fixed amount regardless of how the business performs.

That difference is one of the most important distinctions New York courts examine when evaluating MCA agreements.

The question is not simply what the agreement says.

It is whether the funder actually accepted business risk or structured the transaction so repayment was effectively guaranteed.

The Factors Courts Consider

Every case is different, but New York courts often look at several common issues when deciding whether an MCA functions as a loan.

Among the most important questions are:

• Were payments truly tied to future receivables?
• Did the agreement contain a meaningful reconciliation process?
• Could payments actually be reduced if business revenue declined?
• Did the funder assume any genuine risk if the business failed?
• Was bankruptcy treated as an automatic default?

No single factor decides the outcome.

Instead, courts evaluate the agreement as a whole to determine its true economic substance.

Business owners facing these issues should also understand how merchant cash advance litigation often centers on these same questions.

When an MCA May Become a Criminally Usurious Loan

If a court concludes that an MCA is actually a loan, the next question becomes whether the effective interest rate exceeds New York's criminal usury limit.

That analysis involves much more than looking at the factor rate listed in the contract.

The repayment schedule, total amount repaid, timing of the payments, and other financial terms all contribute to the effective annual cost of the transaction.

If the agreement is both a loan and criminally usurious, New York law may treat the entire contract as void.

That can also affect the enforceability of the Confession of Judgment tied to the agreement.

Because these cases depend heavily on the facts, careful legal analysis is essential before assuming an agreement is enforceable.

Why Actual Business Practices Matter

The written contract tells only part of the story.

Courts also examine how the agreement operated after funding was provided.

For example, if an MCA agreement promised that payments would be adjusted when business revenue declined, but the funder refused every reconciliation request, that conduct may become relevant.

Likewise, if payments continued at the same fixed amount despite major disruptions to the business, those facts may support an argument that the agreement functioned like a loan rather than a true receivables purchase.

The practical relationship between the parties often carries just as much weight as the language printed in the contract.

Your Defense Options When Facing an MCA Confession of Judgment in New York

Every MCA case is different.

The right defense depends on the agreement, the timing of the judgment, the facts surrounding the business, and the actions taken by the funder.

Rather than relying on a single strategy, many cases involve evaluating multiple defenses at the same time.

That comprehensive review often reveals options a business owner did not realize were available.

Immediate Steps to Take After Learning About a COJ

If you discover that a Confession of Judgment has already been entered, acting quickly is critical.

Start by gathering every document related to the merchant cash advance.

That includes the funding agreement, payment records, emails, correspondence, notices of default, and any documents relating to the Confession of Judgment itself.

Understanding exactly when the affidavit was signed, where it was filed, and how the agreement was administered can help determine which legal defenses may apply.

Before taking action, business owners should also learn about challenging a confession of judgment, since filing the wrong type of legal proceeding may delay or complicate the case.

Bankruptcy as a Defense

For some businesses, bankruptcy becomes an important part of the overall strategy.

Filing for bankruptcy generally triggers the automatic stay, which temporarily stops many collection efforts while the bankruptcy case moves forward.

That protection may include lawsuits, collection activity, bank restraints, and other enforcement efforts.

Whether bankruptcy is the right choice depends on the business's financial condition, long-term goals, and the nature of the MCA obligations.

For companies struggling with multiple creditors, bankruptcy may provide the opportunity to reorganize debt while evaluating additional defenses to the MCA claims.

Business owners considering restructuring should review Subchapter V bankruptcy to understand whether that option may be available.

MCA Restructuring and Settlement Options

Not every dispute ends in litigation.

In some situations, negotiating with the funder may be the most practical solution.

Whether restructuring makes sense depends on many factors, including the strength of the available legal defenses, the business's financial position, and the willingness of both sides to negotiate.

A well-informed negotiation is usually far more effective than rushing into a settlement before understanding the legal issues involved.

Businesses exploring alternatives to litigation may also benefit from reviewing commercial loan workout solutions, particularly when preserving ongoing operations is the primary objective.

The Five Most Common Mistakes Business Owners Make After a COJ Is Filed

Many business owners unintentionally make their situation more difficult after learning that a Confession of Judgment has been entered.

Avoiding these common mistakes can preserve important legal options.

Mistake #1: Using the Wrong Legal Procedure

One of the most common errors is assuming that every judgment should be challenged the same way.

The correct legal procedure depends on the circumstances of the case.

Acting before understanding the proper process can create unnecessary complications and delay meaningful relief.

Mistake #2: Waiting Too Long to Respond

Time matters. Collection efforts often begin immediately after a judgment is entered.

The sooner the agreement and supporting documents are reviewed, the more legal options may still be available.

Mistake #3: Assuming the 2019 Law Automatically Protects You

The 2019 amendments to CPLR 3218 created important protections for many out-of-state businesses.

However, those protections depend on the facts surrounding the execution of the Confession of Judgment. They do not automatically apply to every business.

Mistake #4: Ignoring Possible Procedural Defects

Many challenges have nothing to do with whether money is owed.

Instead, they focus on whether the Confession of Judgment complied with New York law.

Filing errors, timing issues, and other procedural defects can all become important parts of the legal analysis.

Mistake #5: Assuming the Agreement Cannot Be Challenged

Many business owners believe that signing an MCA agreement ends the conversation. It does not.

The enforceability of both the agreement and the Confession of Judgment depends on the facts, the governing law, and how the transaction actually functioned.

That is why every case deserves an individualized legal review before deciding the next step.

Frequently Asked Questions

The questions below address some of the issues business owners ask most often after learning that a Confession of Judgment has been entered against their business.

What Is CPLR 3218 and How Does It Affect Merchant Cash Advance Agreements?

CPLR 3218 is New York's Confession of Judgment statute.

It allows a creditor to enter a judgment against a debtor using a signed affidavit instead of filing a traditional lawsuit.

Merchant cash advance companies often include a Confession of Judgment in their funding agreements.

If the funder later claims the business has defaulted, it may use that document to obtain a judgment and begin collection efforts without first going through a trial.

Because the process moves quickly, business owners often discover the judgment only after collection activity has already begun.

Can an MCA Company File a Confession of Judgment Against an Out-of-State Business?

It depends on the facts. New York changed CPLR 3218 in 2019 to limit the use of Confessions of Judgment against many out-of-state businesses.

Whether those protections apply depends on when the affidavit was signed and whether the business or individual had a New York residence or place of business at that time.

Every situation is different. A careful review of the agreement and the surrounding facts is necessary before determining whether the residency requirements were satisfied.

How Can I Challenge a Confession of Judgment?

There is no one-size-fits-all answer. The appropriate strategy depends on the facts of the case.

Possible issues may include whether the affidavit complied with CPLR 3218, whether it was filed within the required time period, whether it was filed in the proper county, whether the residency requirements were satisfied, and whether the underlying merchant cash advance should actually be treated as a loan.

Because the procedural rules can be complex, obtaining legal guidance early often preserves options that become more difficult later.

Business owners facing enforcement should review confession of judgment defense strategies before deciding how to respond.

Can a Court Decide That an MCA Is Really a Loan?

Yes. New York courts do not rely solely on the title of the agreement.

Instead, they examine how the transaction functioned in practice.

If the funder did not assume meaningful business risk and repayment was effectively guaranteed regardless of future revenue, a court may conclude that the agreement operated more like a loan than a true purchase of receivables.

That determination can significantly affect the legal analysis, including whether criminal usury defenses may apply.

Can Bankruptcy Stop MCA Collection Efforts?

For some businesses, yes. Filing for bankruptcy generally triggers the automatic stay, which temporarily halts many collection efforts while the bankruptcy case is pending.

Whether bankruptcy is the right solution depends on the company's financial condition, long-term objectives, and the nature of the MCA obligations.

Businesses considering restructuring should also learn more about Chapter 11 bankruptcy and Subchapter V bankruptcy, both of which may provide restructuring options for qualifying businesses.

How Long Is a Confession of Judgment Valid?

New York law places time limits on when a Confession of Judgment may be filed.

If the applicable statutory deadline has passed, the affidavit may no longer be enforceable.

Because the analysis depends on the specific execution date and surrounding circumstances, every case should be reviewed individually.

What to Do Now

Finding out that a Confession of Judgment has been entered against your business can feel overwhelming.

The good news is that a judgment does not automatically mean every legal option has disappeared.

In many cases, the next steps depend on questions such as:

• Was the Confession of Judgment properly prepared?
• Was it filed in the correct county?
• Were the residency requirements satisfied?
• Was it filed within the required time period?
• Should the merchant cash advance actually be treated as a loan?
• Are bankruptcy or restructuring options available?

Those questions deserve careful legal analysis before any decisions are made.

Many business owners act under pressure without fully understanding the defenses that may still exist.

Taking the time to evaluate the agreement, the Confession of Judgment, and the collection activity often leads to a stronger legal strategy.

Why Early Action Matters

Collection efforts rarely slow down on their own. Once a judgment has been entered, creditors may move quickly to restrain bank accounts, pursue liens, and use other collection remedies available under New York law.

Responding early gives your attorney the best opportunity to evaluate every available defense and determine the most effective course of action.

Whether the right strategy involves challenging the Confession of Judgment, defending an MCA lawsuit, negotiating a resolution, or pursuing bankruptcy protection, timing can make a meaningful difference.

Businesses facing significant financial pressure should also review commercial loan workout services to understand the full range of available restructuring options.

How J. Singer Law Group Helps Business Owners

J. Singer Law Group represents businesses throughout New York that are facing merchant cash advance litigation, Confessions of Judgment, bankruptcy issues, and commercial debt disputes.

The firm's practice combines commercial litigation, restructuring, and bankruptcy experience to help business owners evaluate every available legal option under one roof.

Whether the issue involves an improperly filed Confession of Judgment, an MCA agreement that may be subject to recharacterization, or broader financial restructuring, every case begins with a careful review of the facts and a strategy tailored to the client's business.

To learn more about the firm's services, visit the J. Singer Law Group home page.

If your business is facing MCA collection efforts or a recently filed Confession of Judgment, contact J. Singer Law Group to schedule a confidential consultation.