A Default Judgment Was Entered Against Your Business. Can It Be Vacated?

By MercResolution · Published 2026-09-04 · Updated 2026-09-07

A default judgment can be vacated for defective service, excusable neglect with a real defense, or lack of jurisdiction, but deadlines are short and state-specific. Here is what to gather, what happens to levies meanwhile, and why settlement runs alongside.

A default judgment against your business can often be vacated, but only by a motion filed in the court that entered it, on grounds that court recognizes, within a deadline that is short and state-specific. The usual grounds are that you were never properly served, that the missed answer was a mistake rather than indifference and you have a real defense, or that the court lacked jurisdiction. Until it is set aside the judgment remains fully enforceable, which is why a settlement is usually negotiated at the same time.

This article explains the grounds courts accept for setting a default aside, how the deadlines work and why they are so easy to miss, what to gather before anyone files a motion, what happens to garnishments and liens while it is pending, why a settlement runs alongside, and how confessions of judgment and out-of-state judgments differ.

"The judgment arrived as a bank freeze, not a court notice. The owner had never seen the lawsuit, because the registered agent's address was three offices ago. That is a real ground to vacate, and it has a clock on it that had been running since before he knew."

What a Default Judgment Is, and Why It Is Not the End

A default judgment is entered when a defendant does not answer or appear by the deadline. The court treats the creditor's allegations as admitted, the creditor proves its damages by affidavit, and the resulting judgment usually includes the accelerated balance, contractual fees, interest, costs and attorney fees. It is a real judgment in every sense: the creditor can garnish bank accounts, record a lien on real property, seize non-exempt assets, and register it in other states to enforce it there. The tools it now holds are described in what a creditor can do with a judgment against your business.

It is also the judgment courts are most willing to reconsider. The law prefers decisions on the merits, and every court system has a procedure for setting aside a default when the defendant moves promptly and shows a recognized reason. The earlier the motion, the lighter the burden; the longer the delay, the more there is to explain and the fewer routes remain.

The Grounds Courts Recognize

Defective service

A court's power over a defendant depends on valid service. If the papers went to the wrong address, were left with someone not authorized to accept them, were served on the Secretary of State without the steps that method requires, or were never served at all, the judgment rests on nothing. The creditor's return of service, in the court file, states who was served, where and how, and it is the document to scrutinize.

Mistake or excusable neglect, plus a meritorious defense

Where service was valid but the answer was missed, most courts ask three things: that the failure was a mistake, accident or misunderstanding rather than conscious indifference; that the defendant has a meritorious defense, meaning facts which, if proved, would change the outcome; and that reopening the case will not unfairly prejudice the creditor. Texas applies a test of this shape and other states use similar standards. Papers misrouted inside the company, a serious illness, or a reasonable belief that a settlement was being finalized are explanations courts have accepted; a decision to ignore the suit is not.

A void judgment

A judgment entered by a court with no jurisdiction over the defendant is void, not merely wrong. An out-of-state business sued in a forum it has no real connection with can challenge the judgment on that basis, and in many jurisdictions a void judgment can be attacked outside the ordinary deadlines. The forum problem MCA funders create by suing far from home is covered in being sued in New York by an MCA funder when your business is elsewhere.

The Deadlines Are Short and Depend on the Court

The general shape is the same almost everywhere: a short window, measured in weeks, for the simplest motion, and harder routes with heavier burdens afterward. In Texas, a motion for new trial must be filed within thirty days of the date the judgment was signed; after that, a party who never participated may have a restricted appeal within six months for errors on the face of the record, and beyond that lies the bill of review, an equitable proceeding with demanding requirements. The federal rules allow a motion within a reasonable time, with a one-year outer limit for mistake or excusable neglect. New York allows a year from notice of entry for an excusable default, with a separate provision for defendants not personally served. Verify the rule for the specific court before relying on any of this.

What to Gather Before Anyone Files a Motion

A motion to vacate is decided on evidence, most of it supplied by you in a sworn affidavit. Pull the court file, which will include the petition, the return of service and the judgment, and check the registered agent's address history against where the papers were sent. Collect your own evidence of what you received and when: mail logs, the agent's records, staff who handle deliveries. Write a dated timeline of when you learned of the suit and the judgment and what you did next; promptness is part of the test.

Then assemble the merits: the agreement, statements, payment history, reconciliation requests, dispute letters, and any communication with the creditor or its lawyer, especially anything suggesting a settlement was in progress. The defense does not have to be proven at this stage, but it has to be real and specific. The errors that most often undermine these motions are the ones described in the mistakes businesses make when sued for debt.

What Happens to Garnishments and Liens While the Motion Is Pending

Filing a motion does not, by itself, stop enforcement. The judgment remains in force until the court vacates it, and a creditor that has already garnished your bank can leave the freeze in place while the motion is decided. Some courts will stay enforcement on request, some require a bond in the amount of the judgment, and some act only if the creditor agrees. Ask counsel about a stay on day one, and about exempt funds in any frozen account.

Creditors often agree to hold enforcement while a motion is pending as part of settlement discussions, which is one reason the two tracks run together. If a frozen account is the immediate problem, the free 30-minute consultation covers that triage; you can request the free, confidential debt analysis or describe the situation to Stephanie through the chat button to get it scheduled.

Why a Settlement Is Usually Negotiated at the Same Time

A credible motion changes the creditor's position. If it is granted, the creditor is back at the beginning, facing a defended case and having spent money on a judgment that no longer exists. A creditor looking at a strong service defect or a plainly meritorious defense often prefers to agree: an order vacating the judgment by consent, paired with a settlement that ends the case, or a settlement that leaves the judgment in place only until payment is complete and then releases it.

The structure matters. Insist on a release and satisfaction of judgment filed with the court, a release of any abstract of judgment recorded in the county, termination of any UCC filing, and an express release of the guarantor. A proposal that replaces the default judgment with an agreed judgment for a larger amount is not a settlement; it is a consent to enforcement. And file the motion by the deadline regardless of how the talks are going; a creditor that knows the deadline has passed has no reason to keep negotiating.

Confessions of Judgment and Out-of-State Judgments

A judgment entered on a confession of judgment is a different creature. There was no lawsuit to answer; the funder filed an affidavit you signed at funding, and the clerk entered judgment. Vacating it means attacking the affidavit, the procedure or the underlying debt, on grounds and deadlines of their own. New York restricted these instruments against businesses outside the state, but verify the current rule for the state named in your agreement. The mechanics are covered in MCA confessions of judgment.

A judgment from another state must be registered in yours before it can be enforced, and that registration can be contested on limited grounds, chiefly that the original court lacked jurisdiction or never served you. The main challenge still belongs in the court that entered the judgment, and the clock there does not wait for domestication.

Where MercResolution Fits

MercResolution is a commercial debt resolution firm in Houston, Texas. We are not a law firm; the motion to vacate is filed and argued by licensed attorneys, whom we engage immediately when a client arrives with a default judgment. Our work runs alongside: we assemble the financial picture and the paperwork weaknesses counsel will use, negotiate directly with the creditor or its lawyer for a resolution that ends the enforcement, and make sure the agreement includes the satisfaction of judgment, the lien releases and the guarantor release. The first conversation is a free, confidential analysis; how an engagement runs is on our how it works page.

We handle business debt only, and if the motion deadline is days away, we will tell you to call a lawyer today and us second.

Frequently Asked Questions

How long do I have to vacate a default judgment?

It depends on the court and the ground. The simplest motion usually has a window measured in weeks from the date the judgment was signed; in Texas a motion for new trial is due within thirty days. Later routes exist but carry heavier burdens. Defective service and void judgments can sometimes be raised outside the ordinary deadlines. Confirm the rule for the specific court immediately.

Can a default judgment be vacated if I was never served?

Yes, and it is the strongest ground. A judgment entered without valid service rests on no jurisdiction over the defendant and can be set aside, often even after the usual deadlines. The evidence is the creditor's return of service compared with where and how the papers were actually delivered. Act as soon as you learn of the judgment; delay is used against you.

Does filing a motion to vacate stop the bank garnishment?

Not automatically. The judgment remains enforceable until the court vacates it, and a garnishment already served can stay in place while the motion is pending. Some courts will stay enforcement on request or on the posting of a bond, and creditors often agree to pause while settlement is discussed. Ask counsel about a stay and about exempt funds on the first day.

What is a meritorious defense?

A defense that, if the facts you allege are proved, would change the outcome of the case in whole or in part. Examples include payments never credited, fees the contract does not allow, a creditor's own breach, an expired limitations period, or a guarantee that was never triggered. You do not have to win it at the motion stage, but it must be specific and supported by sworn facts.

Can I negotiate with the creditor instead of filing a motion?

Do both, in that order. File the motion by the deadline, because it is what gives the creditor a reason to negotiate, then discuss an agreed order vacating the judgment or a settlement that releases it on payment. A creditor that knows the deadline has passed has little reason to compromise. Any agreement should include a filed satisfaction of judgment and a release of the guarantor.

This article is for educational purposes only and is not legal, tax, or financial advice. MercResolution is not a law firm. Every situation is different — get a free, confidential analysis of your specific circumstances.