What I Don’t Like About the New Post-Judgment Interest Rate Statute in Tennessee (Everything)

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.
Do you see what I mean about the lack of simplicity?Looking at that, can you tell me what the interest rate is?
The legislature must have known that they were going to completely confuse people, because the statute contains a sub-part at Tenn. Code Ann. § 47-14-121 (b) designed to make the math easier:

(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%.

There’s an “opt-out” in the statute, if the “judgment where a judgment is based on a statute, note, contract, or other writing that fixes a rate of interest within the limits provided in § 47-14-103 for particular categories of creditors, lenders or transactions, the judgment shall bear interest at the rate so fixed.” Tenn. Code Ann. § 47-14-121 (c).
Here are my concerns:
  • 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.
My strategy in response will be to always plead my contract rate of interest in my Complaint and ask that the contract (or default) rate be awarded in my Judgment. Invariably, that rate is going to be higher than 5.25%, and that rate will not require modifications every six months.
A final note, keep in mind that the legislature did not modify Tenn. Code Ann. § 47-14-123, which sets the pre-judgment rate of interest at 10%.

4 thoughts on “What I Don’t Like About the New Post-Judgment Interest Rate Statute in Tennessee (Everything)

  1. Hey There. I found your blog using msn. This is
    an extremely well written article. I’ll be sure to bookmark it and return to read more of your useful information. Thanks for the post. I’ll definitely
    return.

  2. Pingback: Creditors Rights 101 | Does Tenn. Code Ann. § 47-14-103 Impose a Ceiling on Interest Where the Note says “Maximum Rate Allowed”? (No.)

  3. Pingback: Post-Judgment Interest Rates in Tennessee Have Finally Increased (by .25%) | Creditors Rights 101

  4. At My Plumber of South Florida we stand behind every
    job we do or your money back. There are a lot of people that have a hard time understanding how they can be wise about the way that they utilize a plumber.
    Getting a contractor who can deliver requires you to check on particular elements such as the qualification, licensing and insurance.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s