What is a Cognovit Judgment in a Bankruptcy Case?

Only a few states allow a cognovit judgment in a bankruptcy case. These states are Delaware, Maryland, Ohio, Pennsylvania and Virginia. Cognovit notes are still considered controversial as they may impinge on the debtor's due process.

What is a Cognovit?

A cognovit, also known as a confession of judgment, is a contract or a contractual provision signed by a debt holder that allows a creditor to summarily take a bankruptcy judgment upon filing a complaint of nonpayment. In some cases, the debtor does not receive any notice of the filing. Some courts have determined that a cognovit judgment is against a debtor's due process right as the debtor is not present to raise a defense.

Common Attributes

Of the state statutes that allow cognovit notes, the following are common denominators:

1. Cognovit or confession of judgment provisions can only apply to commercial transactions and are not allowed in consumer or residential transactions. The exception is where the residence was put up as additional collateral for a commercial loan. In this case, the creditor can only execute the debt against the property with a prior hearing.
2. A cognovit judgment clause must be in writing that is conspicuous (i.e. type that is larger than the type contained in the document, bold, or set apart). It also must be clear and intelligible enough to alert the debtor that he, she or it is voluntarily waiving certain rights.
3. The confession of judgment must be signed by the debtor or the person or entities the creditor seeks restitution. In other words, the personal guarantor must have signed the document and it is insufficient that the document contains the signatures of the principal borrower(s).

State Laws

• Delaware, Maryland and Pennsylvania require no specific language in a cognovit judgment.
• Delaware requires a hearing to allow the debtor defendant an opportunity to verify that he/she/it voluntarily and understandably waived right to notice.

• Ohio requires notice with the following language in distinctive type that is to appear above or below signatory spaces:  
  • "WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE."

• Pennsylvania assumes an intelligent and knowing waiver unless the debtor-signer has an annual income of less than $10,000. In such a case, the creditor must show that the waiver was intelligent and knowing.
• Virginia's code states that a valid confession of judgment must contain the following in bold faced print:
  • "IMPORTANT NOTICE - THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE"

Find an Attorney

In certain states, a cognovit judgment waives your right to notice. In a bankruptcy, this is not advisable as you also waive your right to assert a defense. Consult with a bankruptcy attorney to protect all of your rights in a bankruptcy.