Small business owners in need of short term funding are sometimes required by their merchant cash advance provider to sign a confession of judgement prior to receiving their funding, without understanding what this means and how it can hurt their business. A confession of judgement is a signed document that gives the lender the permission to enter a judgment against the borrower immediately upon default, often without notice or a hearing. Confessions of judgement are controversial, and not every state allows them, but they are allowed in many states. Where they are allowed, they are very powerful collection tools. A confession of judgement can significantly impact not only the business but also the business owner's personal assets, if the business owner signed a personal guaranty.
How Are Confessions of Judgement Controversial?
Confessions of judgement are controversial because the borrower often forfeits all rights to dispute the claim and generally waives the right to notice and a hearing. Some state courts have found that confessions of judgement are a violation of a borrower’s due process rights if they prevent the borrower from raising legitimate defenses to the underlying debt or prevent the borrower from being notified that the judgment has been entered.
How Will a Confession of Judgement Hurt My Business?
A confession of judgement may have a significant impact on not only your business but also can impact your personal assets if you have signed a personal guaranty. The funding agreement usually allows the lender to file the COJ as soon as your business defaults on the repayment terms of your merchant cash advance. A filed confession of judgement helps a lender collect from your assets, which can put you at serious risk of having to file for bankruptcy.
If you signed a confession of judgment with your merchant cash advance, you may be at greater risk than you realize. Creditor’s Relief can analyze your situation and help you explore alternative debt repayment options that may alleviate the problem of merchant cash advances coupled with confessions of judgement.