Short answer: No. But you need to move fast, and you need to understand what you’re actually dealing with.
I see this question come up constantly in small business forums, and every time I read it, I feel it in my gut. Because the person asking is usually panicking. They woke up one morning, checked their bank account, and found it frozen solid. Or a process server showed up at their shop. Or their accountant called and said “we have a problem.” And now they’re on Reddit at 2am trying to figure out if their life is over.
It’s not. But let me be honest with you about what a Confession of Judgment actually is, what the MCA industry doesn’t want you to know, and what your real options look like right now.
What the Hell Is a Confession of Judgment?
A Confession of Judgment (COJ) is a clause buried in your merchant cash advance agreement that you almost certainly signed without fully understanding. I don’t say that to be condescending. I say it because the MCA industry specifically designs it that way.
Here’s what it does: by signing it, you gave the MCA company permission to walk into court, file some paperwork, and get a judgment against you and your business without telling you first. No hearing. No phone call. No chance to say “wait, that’s not right.” The funder’s attorney files an affidavit with the county clerk, and under New York CPLR Section 3218, a signed confession of judgment allows the creditor to obtain an enforceable judgment — sometimes within 24 to 48 hours of your alleged default. The first most business owners hear about it is when their bank calls to say the account is frozen.
One poster on r/smallbusiness described the exact scenario — they didn’t even know the judgment existed until their operating account got locked and they couldn’t make payroll. That’s not an unusual story. That’s the standard playbook.
The FTC actually banned confessions of judgment in consumer credit contracts back in 1985 under 16 CFR 444.2, because they recognized it was fundamentally unfair to strip someone of their right to defend themselves in court. But MCAs are classified as commercial transactions, not consumer loans, so they slip through that protection. It’s a loophole, and the MCA industry has driven a truck through it.
How the MCA Debt Spiral Actually Works
Before we get into fighting back, I want to talk about how people end up here, because the “just don’t take an MCA” advice is useless when someone is already drowning.
MCAs target businesses that can’t get traditional bank loans. As one commenter on r/smallbusiness put it: “People don’t get MCAs because it’s their first choice, they get them because it’s their only choice.” The application process is fast, the money shows up quickly, and the daily repayment structure seems manageable at first. But the effective interest rates are astronomical. The New York Attorney General found rates as high as 820% annually in the Yellowstone Capital case. Eight hundred and twenty percent.
What happens next is called stacking. Your first MCA squeezes your cash flow. So you take a second one to cover the gap. Then a third. A nail salon owner posted on r/smallbusiness recently with six active MCAs from different lenders, paying over $80,000 a month combined. She owned a nail salon. The top comment was “there aren’t enough hands and feet available to save you.” Brutal, but it captured the math.
Another poster on r/Entrepreneur described being $300,000 in debt from stacked MCAs on a clothing business. The daily payments made it impossible to fund inventory, which killed revenue, which made the payments harder to cover, which led to another MCA. Classic death spiral.
A former MCA portfolio manager turned defense attorney explained on r/smallbusiness how the industry works from the inside: “I managed a portfolio for a large fintech alternative financing company originating merchant cash advances… It’s safe to say I’ve been on both sides of the aisle.” He started a firm specifically to defend business owners against the same companies he used to work for. That should tell you something.
The thing that makes MCAs particularly nasty compared to regular business loans is the daily ACH withdrawals. A traditional loan payment hits once a month. MCA payments hit every single business day, sometimes multiple times. One slow week doesn’t just hurt. It can trigger a default, and once you’re in default territory, the COJ clause activates. The funder can file the COJ, obtain a judgment, and serve a restraining notice on your bank — all within 3 to 5 business days.
“I Already Got Served. Am I Screwed?”
This is the part you came here for. No, you’re not screwed. But you need to understand what “not screwed” looks like in practice.
There are several legitimate grounds to fight a Confession of Judgment, and courts vacate them more often than the MCA industry wants you to believe.
Procedural defects. COJ filings have specific requirements. The affidavit needs proper notarization. It needs to state the correct county where you resided when you signed it. The amount needs to be accurate. If it was filed more than three years after you signed the agreement, it may be expired. Any of these errors can be grounds for vacatur. MCA companies file these things in bulk and they cut corners. An attorney who knows what to look for can sometimes get the judgment tossed on technicalities alone.
Jurisdictional challenges. This is a big one. In August 2019, New York amended CPLR Section 3218 to ban the filing of confessions of judgment against out-of-state defendants. If your business is not in New York and the COJ was filed in a New York court after that date, it may be void. Before the reform, MCA companies based in New York would file COJs in New York courts against businesses in Florida, Texas, California, wherever, and those business owners would have their accounts frozen in a state they’d never set foot in. Bloomberg’s investigation, titled “Sign Here to Lose Everything,” found over 25,000 confessions of judgment filed in New York courts over a four-year period, representing approximately $1.5 billion in claimed debts. That investigation is a big part of why the law changed.
Recharacterization as a loan. This is the legal argument that has gained the most traction recently. MCAs are technically structured as purchases of future receivables, not loans. That’s how they avoid usury laws and banking regulations. But courts have started examining whether MCAs are genuine receivables purchases or disguised loans, using tests that look at reconciliation genuineness, contract terms, and actual risk assumption. The key factors: Are the daily payments fixed regardless of your actual revenue? Does the funder bear any real risk if your business declines? Did you sign a personal guarantee that ensures repayment no matter what? If the answer is yes to these, courts can recharacterize the MCA as a loan, and suddenly state usury caps apply. New York’s civil usury cap is 16%. When the actual rate is 200% or 400% or 820%, the entire agreement can be declared void.
Fraud or misrepresentation. If the MCA company or broker misrepresented the terms, lied about the total repayment amount, or engaged in deceptive practices during the sales process, that’s a defense. One poster on r/legaladvice described their employer telling them paperwork was for a “$1,000 payroll bonus” when it was actually an MCA personal guarantee for $35,000. Their PayPal got frozen. The top comment got 500+ upvotes and said basically: this is beyond Reddit’s pay grade, get a lawyer immediately. Which was the correct advice.
No actual default. Sometimes MCA companies claim default when no default occurred. They might point to a dip in revenue or a late reconciliation response. If you were making payments as agreed and can prove it, the COJ filing itself may be improper.
The Yellowstone Capital Case Changed Everything
If you’re dealing with MCA debt right now, you need to know about what happened in January 2025. New York Attorney General Letitia James secured a $1.065 billion judgment against Yellowstone Capital, one of the largest MCA companies in the country. This was the biggest single-state consumer restitution in New York history.
The AG’s investigation found that Yellowstone had disguised loans as merchant cash advances to avoid usury laws, charged interest rates up to 820%, and filed confessions of judgment against out-of-state borrowers in New York courts to seize their bank accounts.
The settlement required Yellowstone to cancel $534 million in outstanding debt for over 18,000 businesses nationwide. Over 1,100 court judgments were vacated — the largest mass vacatur of confessions of judgment ever. Yellowstone and its officers were permanently banned from the MCA industry.
This matters for you because it established a clear precedent. If your MCA company engaged in similar practices, the legal arguments that worked against Yellowstone may work in your case. And if your MCA was from a Yellowstone affiliate or Richmond Capital entity, findings that agreements were illegal loans become administrative determinations, converting contested litigation into simpler motion practice.
Practical Steps: What to Actually Do Right Now
1. Revoke your ACH authorization. You have the right to instruct your bank to reject the funder’s automated withdrawals under NACHA operating rules. This is not a breach of contract. This is a legitimate exercise of your rights as an account holder. It preserves your operating capital while you figure out your legal situation. Do this before you do anything else.
2. Send a formal reconciliation demand. Most MCA agreements include a reconciliation provision that ties payments to actual revenue. Send a written demand referencing the specific contractual section, with documentation showing your revenue decline. The funder’s response (or silence) becomes evidence of whether the agreement is really a revenue-based purchase or a fixed-payment loan in disguise.
3. Get an attorney who specializes in MCA defense. Not a general business attorney. Not your cousin who does real estate closings. Someone who handles MCA cases specifically. Merchants who negotiate with counsel achieve 30-60% balance reductions, compared to 10-15% without representation. The funder’s calculus changes entirely when they see an attorney letter.
4. File a motion to vacate if a judgment exists. You typically have 30 days to file, but this varies by state. Your attorney will identify the strongest grounds: procedural defects, jurisdictional issues, recharacterization, or fraud. The motion doesn’t guarantee success, but it pauses enforcement and forces the funder to actually litigate.
5. Consider Chapter 11 Subchapter V. If your business is viable but the MCA debt is killing it, filing for bankruptcy immediately triggers an automatic stay under 11 U.S.C. 362, halting all COJ enforcement, bank freezes, and asset seizures. Chapter 7 can discharge the underlying MCA debt; Chapter 11 allows restructuring while you keep operating. One r/smallbusiness commenter described Chapter 11 reorganization as “my best friend. God I love this country.”
6. Know what NOT to do. Don’t ignore it and hope it goes away. Don’t try to hide assets by “selling” them to family or friends — as one r/smallbusiness commenter warned: “no, you can not divest assets by ‘selling’ them to family or friends.” Courts see through this and it can create new legal problems. Don’t sign anything new without an attorney reviewing it. And don’t believe the funder when they tell you resistance is futile. The current legal environment contradicts that narrative entirely.
The Legal Landscape Is Shifting in Your Favor
Several states now ban or restrict confessions of judgment entirely. California declared them unconstitutional in 1978. Indiana made it a Class B misdemeanor to obtain one. New Jersey banned them in 2020. The trend is clear and it’s moving in borrowers’ favor.
New York’s FAIR Business Practices Act, effective February 2026, amended General Business Law Section 349 for the first time in 45 years. The statute now prohibits unfair and abusive acts (not just deceptive ones) and extends protections to small businesses. There’s also a pending New York Senate Bill S2305 that would bar confessions of judgment on any debt under $5 million, which would cover virtually every MCA agreement in existence.
Several New York county clerks have also started pushing back, questioning COJ filings and seeking to curtail their use. The infrastructure that MCA companies relied on to rubber-stamp these judgments is starting to develop friction.
The Bottom Line
Getting served with a Confession of Judgment is terrifying. Your bank account is frozen, your business can’t operate, and the MCA company is acting like the matter is already settled. They want you to believe it’s over.
It’s not over. People fightthese and win. The Yellowstone case alone freed 18,000 businesses from predatory debt. Courts vacate confessions of judgment regularly when the proper grounds are presented. The law is changing, and it’s changing in your direction.
But time matters. You probably have 30 days or less to file a motion to vacate. Every day you spend frozen in panic is a day you’re not building your legal defense.
Get an attorney. Revoke your ACH. Demand reconciliation. Document everything. And stop reading Reddit at 2am.
Well, after you finish this post.