Confession of Judgment and the Automatic Stay: 6 Things a Filing Does and Does Not Undo

A signed affidavit of confession is a judgment waiting for a clerk, and a bankruptcy petition changes what the clerk and the sheriff may do with it without changing what the owner signed. That gap is where most of the disappointment lives. Business owners hear that filing "stops everything," and for the company it stops a great deal; for the paper the owner signed in a personal capacity, it may stop nothing at all.

The six effects below are sorted by what the petition reaches. Three concern the company as debtor. Three concern what survives the filing, in the company's case or around it.

1. An Affidavit Not Yet Filed Stays Where It Is

In New York a confession affidavit may be filed "within three years after the affidavit is executed," and only in the county where the defendant said it resided or where it resides at filing, a non-natural person residing "in any county where it has a place of business." Until it is filed, there is no judgment. After the petition, section 362(a)(1) stays "the commencement or continuation ... of a judicial, administrative, or other action or proceeding against the debtor" on a prepetition claim, and 362(a)(6) stays "any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case." Delivering a confession to the county clerk to convert a prepetition advance into a judgment is the kind of act those words describe.

The affidavit does not expire because of the stay. It waits, and if the case is dismissed the stay ends with it under section 362(c)(2).

2. A Judgment Already Entered Cannot Be Enforced Against the Company

Section 362(a)(2) stays "the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case." Paragraphs (3) and (4) stay acts to obtain possession of estate property and acts "to create, perfect, or enforce any lien against property of the estate." Those three provisions cover most of what a funder does with a confessed judgment in New York. A CPLR 5222 restraining notice forbids a bank to transfer the judgment debtor's property "to any person other than the sheriff" and lasts up to a year; an execution under CPLR 5230 goes to the sheriff; a levy under CPLR 5232 requires the bank to "forthwith transfer" the property. After the petition, none of those steps may continue against the company or its accounts.

The money frozen by a prepetition restraining notice does not become the funder's by reason of the freeze. The frozen balance remains the company's interest in property, which section 541(a)(1) brings into the estate, and section 542(b) requires an entity owing a matured debt that is estate property to "pay such debt to, or on the order of, the trustee," subject to setoff. The funder that served the notice becomes a creditor with a claim like others, and its argument for priority has to rest on a lien that survives scrutiny, not on the fact that it reached the bank first (a race the Code was built to discourage, and one whose finish line, for a judgment lien created in the ninety days before filing, the trustee can move back to the start under the preference statute discussed below).

Remedies for a violation depend on who the debtor is. Section 362(k) gives "an individual injured by any willful violation" actual damages, including costs and attorneys' fees, and punitive damages "in appropriate circumstances." A company is not an individual in most courts' reading, including the Second Circuit's; a corporate debtor's route to damages runs through the court's civil contempt power.

3. The Judgment Itself Remains on the Docket

A petition stays enforcement. It does not vacate anything. The confessed judgment sits in the county clerk's records the day after filing exactly as it sat the day before, and removing it is a state-court matter. CPLR 5015(a) lets the court that rendered a judgment relieve a party from it for reasons including "fraud, misrepresentation, or other misconduct of an adverse party" and "lack of jurisdiction to render the judgment," with a one-year limit stated only for excusable default.

The fraud ground is not theoretical. In February 2026 the First Department affirmed findings that the Richmond Capital respondents made misrepresentations "to courts in affidavits filed to obtain judgments," although that was an Attorney General proceeding on that record and says nothing about any other funder's affidavits. Defenders of the device will describe a confession as a bargained convenience (a description that sits awkwardly beside a statute that has to police which county a confession may even be filed in).

4. The Owner's Own Confession Is Untouched by the Company's Case

Merchant cash advance confessions can be signed twice: once for the company and once by the owner, who also signs a guaranty. The Montana Shoot the Moon transactions came with "confessions of judgment, personal guaranties by Shoot the Moon's principals," and UCC filings. CPLR 3218(d) provides that where joint debtors do not all confess, the judgment is entered and enforced "against only those who confessed it." The owner confessed.

The company's stay does not follow the owner home. The Second Circuit has repeated its own rule that stays under section 362(a) "are limited to debtors" and do not reach co-defendants who have not filed. Protection can be extended to a non-debtor only by motion, in what the Fourth Circuit in A.H. Robins called an "unusual situation" where "the debtor may be said to be the real party defendant." Nothing in that standard is automatic, and an owner's guaranty of the company's advance is not the indemnity arrangement that case involved.

Some agreements make the filing itself the trigger. In LG Funding v. United Senior Properties of Olathe, the agreement provided that if the merchant filed for bankruptcy the funder "would be entitled to enforce the provisions of the personal guaranty." The company's petition, in other words, can be the event that activates the owner's exposure. An owner who files the company while holding a signed personal confession resembles a homeowner who shutters every window of the house before a storm and leaves the car parked on the lawn: the structure is protected, and the thing the storm was going to take anyway is still sitting outside with the keys in it.

5. A Judgment Lien From the Last Ninety Days Can Be Unwound

The Code defines a "transfer" to include "the creation of a lien," and a "judicial lien" as one "obtained by judgment, levy, sequestration, or other legal or equitable process." A lien created by docketing a confessed judgment within ninety days before the petition is therefore a transfer the trustee or debtor in possession may test under section 547(b), with all of its elements and defenses.

And the owner has a separate tool if the owner files personally. Section 522(f)(1)(A) lets an individual debtor avoid "the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption," where the lien is a judicial lien. The company has no exemptions and no such tool.

6. A Company Liquidating in Chapter 7 Gets No Discharge of the Judgment

Section 727(a)(1) denies a discharge when "the debtor is not an individual," and section 1141(d)(3) withholds it from a company whose chapter 11 plan liquidates all or substantially all of its property and which does not continue in business. Where a discharge is granted, section 524(a)(1) voids a judgment "to the extent that such judgment is a determination of the personal liability of the debtor," and liens that were not avoided can pass through the case intact.

The judgment outlives the company, in other words, as a record of a debt the company will never pay.

What to Settle and What to Litigate

A confession of judgment is a document a lawyer should read before anyone decides whether a filing, a vacatur motion or a negotiated release is the right response, and the owner's personal confession deserves that reading first. Delancey Street, which settles business debt, is not a law firm and does not file bankruptcy petitions or motions to vacate. It negotiates merchant cash advance balances outside of court, and it looks over the agreements, confessions, guaranties and UCC filings at no charge and in confidence, coordinating with independently licensed counsel when the path runs through a courtroom. Where the funder already holds judgments against both the company and the owner, bankruptcy counsel for each may be the right call, and Delancey Street will say so. The confession was drafted to make a lawsuit unnecessary. It never made a lawyer unnecessary.