I am pretty sure that somewhere in the volumes of Creditors Rights 101, I’ve written about the new statute changing the interest rate to be charged on judgments, which went into effect on July 1, 2012. I can’t find it, so here’s a quick primer.
Once upon a time, interest on judgments was simply 10% (here’s a copy of the old statute). The beauty of the old statute was three-fold. One, it was easy math to compute 10% interest. Two, it was a fixed rate and it never changed, making long-term calculations easier. Three, ten percent is a creditor “friendly” rate, so Defendants were motivated to pay off the Judgment or refinance it.
The new statute is Tenn. Code Ann. § 47-14-121. This statute not only lowers the post-judgment statutory interest rate, but it throws simplicity out the window.
Here’s the relevant text:
…the interest rate on judgments per annum in all courts, including decrees, shall:(1) For any judgment entered between July 1 and December 31, be equal to two percent (2%) less than the formula rate per annum published by the commissioner of financial institutions, as required by § 47-14-105, for June of the same year; or(2) For any judgment entered between January 1 and June 30, be equal to two percent (2%) less than the formula rate per annum published by the commissioner of financial institutions, as required by § 47-14-105, for December of the prior year.
(b) To assist parties and the courts in determining and applying the interest rate on judgments set forth in subsection (a) for the six-month period in which a judgment is entered, before or at the beginning of each six-month period the administrative office of the courts:(1) Shall calculate the interest rate on judgments that shall apply for the new six-month period pursuant to subsection (a);(2) Shall publish that rate on the administrative office of the courts’ website; and(3) Shall maintain and publish on that website the judgment interest rates for each prior six-month period going back to the rate in effect for the six-month period beginning July 1, 2012.
So, rather than requiring parties to do their own math, the administrative office of the courts will do the math for you and will post the the current (and historical) statutory interest rates to its website. That page of the website can be found here. As of today, the rate is 5.25%.
- The math got a lot more difficult. Instead of the nice, round 10%, we’re now using a variable rate of 5.25% (as of today).
- There appears to be an obligation to research and modify the rate every six months. Payoffs just got a lot more difficult.
- By lowering the rate to a very Defendant friendly 5.25%, the legislature removed some incentive to pay off judgments. Frankly, I wonder if you can get a rate better than 5.25% from your bank. I’d rather pay off VISA at 24% than a judgment creditor.
- Creditors with oppressively high contract rates will now be motivated to stick with those high rates (24%), rather than cut the Defendant a break and let it default to the statutory rate.