Let's break this down.

How You Got a Default Judgment Without Knowing About It

Here's what probably happened. When you signed your MCA agreement, buried somewhere in that stack of documents was a confession of judgment clause (COJ). You signed it. You probably didn't read it. And that clause gave the MCA funder permission to walk into a New York court, file an affidavit, and get a judgment entered against you — without a hearing, without a trial, without even telling you it was happening.

That's not an exaggeration. That is literally how a confession of judgment works under CPLR § 3218. The funder files the paperwork with a county clerk, the clerk stamps it, and now there's a judgment against your business. And if you signed a personal guarantee (you almost certainly did), it's against you personally too.

The first sign most business owners get? A call from their bank saying the account is frozen. Or worse — payroll bounces, vendor payments fail, and you're scrambling to figure out what happened. What happened is the funder already obtained the judgment days ago. You just didn't know.

And if the funder didn't use a COJ? They filed a lawsuit, you didn't respond in time (maybe you never got properly served, maybe you did and didn't understand the deadline), and the court entered a default judgment because you failed to appear. MCA lenders are aggressive about this. Some will move for default judgment 31 days after alleged service — that's 1 day after the statutory window to answer. One day. That's not an accident, that's a strategy.

So Can You Vacate It?

Yes. Under New York law (CPLR § 5015), a court can set aside a judgment on several grounds. You need to file a motion to vacate, and you need to show the court at least one of the following:

  • Excusable default — you had a legitimate reason for not responding. You didn't know about the lawsuit. You were never properly served. You were dealing with a medical emergency. The key here: the court also wants to see that you have a meritorious defense (a real argument against what the funder is claiming). You need both. And this motion has to be filed within one year of when you were served with the judgment.
  • Lack of jurisdiction — the court didn't have authority over you or your business. This is a big one for MCA cases, and we'll get into why in a second.
  • Fraud or misconduct by the funder — the MCA company misrepresented something, manipulated the process, or filed the COJ improperly. Procedural defects in the affidavit, wrong county, bad notarization — all of these count.
  • The judgment was based on a prior order that's been reversed or vacated — less common in MCA cases, but it exists.

The jurisdiction argument is where things get interesting for a lot of business owners. And this is the part most people don't know about.

The 2019 Reform That Changed Everything

In August 2019, Governor Cuomo signed Senate Bill S6395, which amended CPLR § 3218. The short version: if your business is located outside of New York, a confession of judgment filed against you in a New York court after August 30, 2019 is unenforceable.

That's not a technicality. That's the law.

This happened because Bloomberg Businessweek published an investigation in 2018 called "Sign Here to Lose Everything" that exposed exactly how the MCA industry had been weaponizing confessions of judgment. The numbers were staggering — over 25,000 COJ filings in New York courts over four years, worth an estimated $1.5 billion, filed against business owners in Texas, Florida, California, states where they had zero connection to New York whatsoever.

The legislature's stated purpose was "to remedy abuses in the use of confessions of judgment by creditors against out-of-state debtors." They weren't subtle about it.

So if you're an out-of-state business owner and an MCA funder filed a COJ against you in New York after that date, your motion to vacate is strong. Very strong. An attorney who specializes in MCA defense should raise this immediately — if they don't bring it up on their own, they don't know what they're doing.

But here's the catch: if you're a New York resident or your business is based in New York, the 2019 reform doesn't protect you. You're still exposed to COJs under the current statute. That doesn't mean you can't vacate — it means you need a different angle.

Other Grounds That Work (Even for New York Businesses)

Even if the 2019 reform doesn't apply to you, MCA default judgments are vulnerable. Here's why:

Procedural defects in the COJ. MCA agreements are mass-produced from templates. The origination process is fast and sloppy. Errors in the confession of judgment — wrong county, improper notarization, missing residency information, expired three-year filing window — happen constantly. Each one is a ground for vacatur. Your attorney should be pulling the court file and going through every line.

Improper service. If the funder filed a breach of contract lawsuit (not a COJ) and you never got served, or the process server's affidavit doesn't match reality, that's a jurisdictional problem. A judgment entered without proper service is void. Not voidable. Void. Courts take this seriously.

Usury recharacterization. This is the big one. MCA funders structure the transaction as a "purchase of future receivables," not a loan. That's how they avoid state usury laws. But courts are increasingly looking past the label. If the MCA had a fixed repayment amount with no true reconciliation based on actual revenue — meaning you owed the same amount regardless of how your business performed — courts may reclassify it as a loan. And if the effective annual rate exceeds 25%, that's a violation of New York's criminal usury statute. The agreement isn't just unenforceable at that point. It's void. A confession of judgment entered on a void agreement has no legal force.

In January 2025, New York Attorney General Letitia James obtained a $1.065 billion judgment against Yellowstone Capital, one of the biggest MCA companies in the country. That settlement vacated over 1,100 confessions of judgment and discharged debt for more than 18,000 merchants. The AG found effective interest rates as high as 820%. That case created a roadmap that other defendants can use.

The MCA company inflated the amount. Default fees, attorney fees, penalties stacked on top of the purchased amount. If the numbers don't match the original agreement, that's a defense. Your attorney needs to audit every dollar.

What Happens After You Vacate

Vacating the judgment is step one, not the finish line. When a judgment is vacated, the case gets reopened. The bank freeze gets lifted (your attorney can file an emergency motion to release funds while the vacatur is pending, if your accounts are frozen right now). Any liens obtained from the judgment get removed.

But the underlying debt doesn't disappear. You're back to square one — the funder still has a claim, and you now have the opportunity to actually defend yourself on the merits. That means your attorney can raise usury defenses, challenge the contract terms, negotiate a settlement. Many funders will settle for 30% to 60% of the outstanding balance rather than deal with the cost and uncertainty of litigation. Especially if you've just successfully vacated their judgment — that tells them their paperwork had problems, and they know it.

The Timeline You're Working With

If the judgment is from a COJ: You generally need to file within one year of learning about the judgment under CPLR § 5015(a)(1). But if you're raising a jurisdictional argument (like the 2019 out-of-state ban), there's no strict time limit — a void judgment is void regardless of when you challenge it.

If you just found out your account is frozen: You need an attorney today. Not next week. Today. An emergency order to show cause can be filed within 24 to 48 hours, with a hearing within 48 to 72 hours after that. Every day you wait is a day the funder has your money locked down.

If you've been sitting on this for months: You still have options. After the one-year window, the grounds get narrower (fraud, jurisdictional defects, void agreements), but they don't disappear entirely. Courts in New York have discretion to extend deadlines, and public policy strongly favors resolving disputes on the merits rather than letting default judgments stand.

What You Should Do Right Now

Don't try to handle this yourself. Don't call the MCA funder and try to negotiate while a judgment is hanging over your head — you have no leverage until the judgment is challenged. Don't move money out of frozen accounts (that can expose you to contempt proceedings). And don't assume that because a judgment exists, you're stuck with it.

Get an attorney who specifically handles MCA defense. Not a generalist. Not a debt counselor. Someone who knows CPLR § 3218, CPLR § 5015, and the specific pressure tactics MCA funders use. The consultation is usually free. The cost of doing nothing is your bank account, your receivables, and your ability to operate your business at all.