What Is a Confession of Judgment?
A confession of judgment is a written agreement, signed by the defendant, that accepts the liability and amount of damages that was agreed on. A confession of judgment is a way to circumvent normal court proceedings and avoid a lengthy legal process to resolve a dispute. Signing such a confession of forfeits any of the rights the defendant has to dispute a claim in the future.
Confession of Judgment Explained
The same effect of a confession of judgment can be attained by having a borrower sign a cognovit note when the borrower first becomes indebted to the lender. The note would say how much the debtor owed and that the debtor voluntarily subjects themself to court authority to resolve any dispute. If the debtor defaults, the note could be presented to the court to obtain a judgment without even notifying the debtor of the court proceedings. Such action can be controversial because it does not allow the defendant to present a proper defense.
In the aftermath of the 2008 financial crisis, confessions of judgment were frequently filed as lenders sought to resolve lapsed accounts.
Different Ways a Confession of Judgment May Be Applied
The terms of a confession of judgment can vary by jurisdiction. For example, confessions of judgment in Pennsylvania are limited to commercial transactions. Precedents set in court initially restricted the use of confessions of judgment to non-consumer debt.
After a confession of judgment is filed in Pennsylvania, the court will notify the party named in the document. The law grants the lender the right to take action within 30 days to obtain recompense for the debt. This can include levying the property of the borrower.
The borrower can file petitions and motions to attempt to hold off the confession of judgment from being enacted.
A confession of judgment might be included as part of a contract signed between a lender and borrower as a form of personal guarantee. This would establish the document as a provision to be enacted if the borrower does not fulfill his or her obligations during the agreed upon time frame for repayment. Small businesses that seek financing such as a line of credit might find a confession of judgment included in their lending agreement. Lenders might require a confession of judgment to be signed by their clients before releasing credit or funds to them.
Businesses that provide services or goods to other businesses on credit might use a confession of judgment as well. For example, a vendor might require a confession to be signed by a business that has limited or poor credit history.