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What is a Confession of Judgement?

  • August 20, 2019
  • By Aidan Dwyer

If you are seeking funding for your small business, it’s important to become familiar with the term, Confession of Judgement. A Confession of Judgement or a COJ is a written agreement signed by a debtor. COJ’s have become increasingly common since the aftermath of the 2008 financial crisis. These terms often proclaim liability. The agreement states that the debtor accepts liability for the damages agreed upon within the COJ.  For example, if a debtor defaults on the received funding. Then, the COJ states they are 100% liable for any missing or unpaid payments. In certain circumstances, the funder can even obtain a ruling without ever notifying the debtor. COJ’s are typically seen in the contracts of business funding.

Why do Confessions of Judgment exist?

COJ’s work similarly to a prenuptial agreement in marriage.  Lenders use Confessions of Judgement to protect themselves in the event that something goes wrong. It’s a measure put into effect to make sure lenders get all of the money back that they lent out. Generally, the lender does not require COJ for every loan given out. However, if a debtor has poor credit or a history of defaults, a lender wants to ensure their money is protected. The typical way to do so is by writing up a COJ. 

COJs are in place to protect lenders. But, unfortunately, the system is being abused. Some lenders have figured out they can make more money on a default than the actual payback they would get from a borrower.  Some cash advance lenders falsely accuse borrowers of missing payments and overstate the balance outstanding. This allows them to take their signed COJ to court and cash-out by seizing the borrowers’ assets without the borrower even knowing.

Looking ahead

The future is bright for people who are seeking funding but aren’t fond of signing a confession of judgment. COJ’s seem to be on the decline. On June 17th in 2019, an important law was passed in New York. Lenders located within the Empire State can no longer issue Confession of Judgements to borrowers outside of the state. Ultimately, lenders will have to make their money the old fashioned way: lend people money and wait for the merchants to actually pay it back. This is great news for borrowers,  fairer practices ensures borrowers can feel safe when taking out financing for their businesses. 

REIL Reality 

Here at REIL capital, we are on the borrowers side. REIL strives to establish a working relationship with borrowers to get them the financing they need at the lowest rate possible, in a timely fashion. We value our clients and want to ensure them protection from harmful financial practices. 

We put lending partners that we work with through rigorous screening processes. This ensures we are only working with companies who use fair lending practices. Honesty truly is the best policy in our industry. To see how we can help your business grow, fill out our commitment free application to see what kinds of financing options are available for you. REIL Capital specialists are ecstatic to work with you and your business. 

 

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