“From a lender’s perspective, it’s great because it cuts a lot of time and money out of the process,” Steele said. Why require a COJ?įor lenders, a COJ significantly reduces the resources required to chase down a borrower that has defaulted on their payments. Traditional banks and SBA lenders generally don’t use COJs because they have other methods of securing loans, like requiring collateral. If you’re late paying rent or miss a payment entirely, a COJ would allow your landlord to immediately evict your business from the property.ĬOJs are also commonly used when friends or family loan money to each other, said Art Steele, whose Virginia-based law firm works with small businesses. Commercial landlordsĬommercial leases could include COJs as well, Milito said. MCA providers may enforce the COJ only when fraud is suspected. Merchant cash advance (MCA) providers use COJs to avoid building up legal fees that could exceed the amount of the original advance. Equipment financing companiesĬOJs on equipment financing allow lenders to quickly retrieve pieces of equipment if a borrower defaults, rather than waiting through court proceedings to collect their property, said Elizabeth Milito, a lawyer with the National Federation of Independent Business. Who uses COJs?Ĭertain types of financing from alternative lenders, such as equipment loans and merchant cash advances, may come with a COJ. Other states may ban COJs or place restrictions on how they operate. COJs are permitted in just a handful of states, including Illinois, Maryland, Michigan, Minnesota, New Jersey, Ohio, Pennsylvania, Texas and Virginia.
Many states have stepped in to regulate COJs, but they cannot necessarily shield their residents from confessed judgments entered in other states.
The Federal Trade Commission (FTC) bans COJs for consumer contracts but not for commercial contracts. Lenders may also decide to perform a public records search on their own before approving you for financing. Although judgments do not appear on your personal credit report, they are public record and could cause you problems on your business credit report. If anyone, lenders included, sues you for money and you lose, a judgment is filed against you and you must pay the money the company says you owe. The lender doesn’t need to take you to court to prove you violated the loan agreement because a signed COJ essentially means you’ve already admitted guilt.Ī judgment is a debt you owe due to a lawsuit.
#Confession of judgment how to#
If a creditor is forced to take you to court, then additional fees, such as, attorneys’ fees and court costs can be added to the original amount owed for which you may be responsible. If you do not sign it, the creditor will have to take you to court to get a judgment. You are not required to sign a Confession of Judgment. It will also have a negative effect on your credit. The creditor can enforce the judgment with collection. Once it is filed, the Confession of Judgment is a judgment against you.
If you fail to pay the amount agreed in the Confession of Judgment, the creditor can file it with the Clerk of Court. Once you complete your payments you should demand a copy of the Confession of Judgment with a notation stating that it is satisfied, signed by the creditor or his agent and dated. If you have entered an agreement to pay the amount owed, the creditor should not file the Confession of Judgment unless you fail to make payments. Once you sign the Confession of Judgment, it has no effect until your creditor files it in court. In other words, the creditor would not have to take you to court to collect the amount owed, and you cannot bring any defenses that you could raise in court. It has the same effect as a Court Judgment after trial. Signing a Confession of Judgment is a serious matter. Sometimes when you owe money to a creditor, the creditor will allow you to pay the money owed, but will also want for you to sign a Confession of Judgment or a Consent Judgment.
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