The collection of post-judgment interest is in the news, and is being cited as a relic of “a different era” which can cost the amount of debt owed by an individual to “balloon in a way that makes it hard to” repay. The topic of post-judgment interest is becoming “a hotly contested battleground for creditors, loan buyers, and consumer advocates” who are taking to state legislatures across the country to try and reduce what can be charged.
The report notes how post-judgment interest rates vary from state to state, and in some states, like Massachusetts, can be as high as 12%. In some cases, the amount owed by an individual can double or triple once interest starts accumulating after a judgment has been awarded. Consumer advocates claim that post-judgment interest can lead to consumers falling further behind on their debts, which only makes their climb out of debt even harder.
Rick Perr from Kaufman Dolowich & Voluck shares the industry’s point-of-view in the article, noting that interest is applied to a “variety of types” of judgments, not just those involving consumer debts, while also reminding the audience of the cost of depriving creditors of what they are owed, and that states have determined the “economic penalty” that should be assessed in those situations.
The interest rates that states have set on judgments were done at a time when money was more expensive. The article mentions that Massachusetts set its 12% cap back in 1982, at a time when interest rates were generally much higher. Interest rates have fallen significantly since then, but the state has not changed the rate that can be charged on judgments.
At the end of the day, the problem isn’t necessarily the interest on the judgment, it’s the underlying debt itself, mentioned Don Maurice of Maurice Wutscher, who was also quoted in the report.
“Persons who have judgments against them are financially distressed, the problem is not trying to collect more on the judgment, the problem is trying to collect any amount,” he said. “It just doesn’t make sense that anyone who is practicing good compliant business practices is going to want to sit on judgments to accrue interest.”
