What Is MCA Debt and Why Are Confessions of Judgment Clauses So Dangerous

Merchant cash advance (MCA) debt gives businesses fast funding by selling future credit card sales. You receive cash upfront and agree to repay with a fixed percentage of daily sales. That’s how merchant cash advance works. It can fill cash gaps quickly. But MCA debt carries high fees and complex terms. A key risk is a confession of judgment clause. Under the terms of this clause, you give away your right to notice and a court hearing. Then a lender can obtain a judgment against you without warning. That can lead to frozen accounts, liens, and added costs.

In this article, you’ll learn what MCA debt means and what a confession of judgment is. We’ll explain why these clauses are so dangerous. We will also go over some clear steps so that you can clearly spot and avoid them in future. Knowing these risks before first hand is the way you can protect your business. Keep reading to learn how to protect your rights and your bottom line.

What Is MCA Debt?

A merchant cash advance (MCA) is not a loan. You’re paid in one go, not in parts. In return, you agree to pay back a fixed percentage of your daily credit card sales until the balance is settled. This setup explains how merchant cash advance works: instead of monthly installments, payments fluctuate with your sales volume.

While MCA debt can help cover short-term expenses, it often comes with very high costs. Providers charge a “factor rate” which means you could repay 1.2 to 1.5 times what you received. Understanding Merchant Cash Advance Legal Issues means knowing these fees and the intense repayment pressure they add.

What Happens If You Default on an MCA?

If you fall behind, the provider can accelerate your repayment, demand the full balance immediately, or seize collateral. In many cases, they’ll also use aggressive legal tools like a confession of judgment to collect quickly.

Want to know what to do if you’re behind? Learn practical ways to protect yourself in How to Negotiate Business Debt Settlements.

What Is a Confession of Judgment Clause?

A confession of judgment (COJ) clause means you’re giving the lender permission – right from the start – to get a court judgment against you without a trial if you miss a payment or break the terms of the deal. In plain terms, you waive your right to notice or a hearing. You sign away due process before any dispute arises. So, What Is a Confession of Judgment? It’s a way for creditors to bypass many steps in a lawsuit.

And it often appears in MCA contracts. You might sign extra paperwork – usually a power of attorney – granting the provider authority to file on your behalf. Once they claim you’ve defaulted under the MCA terms, they simply file the confession of judgment. The court then issues a judgment without you ever appearing.

Why Is a COJ Clause So Dangerous?

First, you lose basic legal protections. You won’t get notice that a lawsuit is filed. You won’t see the complaint. You won’t have a chance to defend yourself in court. That’s a core part of due process in our justice system – but you waive it with a COJ clause.

Second, the lender can move fast. After filing, they can garnish your bank accounts, levy assets, or place liens on property. All without further court review. And they might do so based on disputed “default” claims. You may not even know it’s happening until your account is frozen.

And finally, A judgment can stay on your credit report for several years, usually up to 7, even after it’s paid. This definitely will get in your way to get loans, leases, or other financing. The judgment can also accrue interest, legal fees, and enforcement costs – making the total you owe skyrocket.

Are Confessions of Judgment Legal?

The direct answer is that it depends on the state. COJ clauses are allowed in some states with few restrictions while others ban them outright or may require strict safeguards including separate notarized agreements or court review.

Even in the states where they are legal, courts may scrutinize them if in any case they are found to be unfair or one-sided. A judge can set aside a confession of judgment if there is evidence of fraud, deception, or unconscionable terms. But that requires you to file a motion and hire an attorney, often after the damage is done.

For a deeper look at where COJs are legal, check out Merchant Cash Advance Legality: 2025 State Breakdown 

How to Spot and Avoid a Confession of Judgment Clause

Read every line of your MCA agreement. Look for words like “waiver of defenses” or “attorney may confess judgment.” These are red flags.

Negotiate it out, ask the funder to remove the clause. If they won’t, it may be safer to walk away or look for other funding.

Consider safer alternatives, small-business loans, credit lines, or invoice financing don’t usually include COJ clauses. If you’re weighing your options, see the Difference Between MCA and Bank Loans for a clear comparison.

Always consult an attorney; a qualified lawyer can spot hidden clauses, explain risks, and suggest edits. Learn why this matters in The Benefits of Hiring a Merchant Cash Advance Settlement Attorney for Your Business.

Conclusion: You Took the First Step – We’ll Handle the Next

You now know what MCA debt really means and why confession of judgment clauses are so dangerous. You’ve already taken the first step by educating yourself.

Schedule a free consultation today — we’ll review your contract, find any hidden COJ clauses, and guide you to safer financing. You don’t have to face this alone — reach out now and let Business Debt Counsel protect your business.

FAQs

What happens if you can't pay MCA debt?

If you can’t pay your MCA debt, the provider may declare you in default, demand full payment immediately, or enforce collection using legal tools like a confession of judgment. This can lead to frozen bank accounts, liens, or asset seizures.

What is a confessed judgment clause?

A confessed judgment clause (or confession of judgment) allows a lender to get a court judgment against you without notice or a trial if they claim you defaulted. You waive your right to defend yourself in court.

Can MCA freeze your bank account?

Yes. If your MCA agreement includes a confession of judgment or if they get a court order, the funder can freeze your business bank accounts to collect the debt.

What happens when you default on an MCA loan?

When you default on a merchant cash advance, the funder may accelerate repayment, file a confession of judgment, garnish accounts, or place liens on your assets. It can also damage your business credit score.

How to get rid of MCA debt?

Options include negotiating a settlement with your MCA provider, hiring a debt relief attorney, consolidating debt, or, in extreme cases, filing for bankruptcy. It’s wise to get legal advice before taking action.

Can a UCC freeze your bank account?

A UCC filing itself doesn’t freeze your account — it gives the lender a secured interest in your assets. But if you default, they can use a judgment (including a confession of judgment) to freeze accounts or seize collateral.