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Consumer protection laws established over the last several decades have made collecting money judgments more difficult than in the past. Judgment creditors do not have as much going for them these days. But they still have some advantages, like the ability to charge debtors interest on unpaid balances. Interest is good motivation to pay if you are a judgment debtor.
Among other things, a money judgment establishes a legally recognized debt that is recorded in county court. The debt is also considered an asset under the law. As such, it is subject to interest – in much the same way mortgages and auto loans include interest payments.
States Treat Interest Differently
The experts at Salt Lake City’s Judgment Collectors, a Utah collection agency specializing in money judgments, explain that the states treat interest differently. Likewise for just about every aspect of civil judgments. Nonetheless, let us talk about how interest is charged on judgments in Utah.
When a Utah judgment is governed by a previous contract between the two parties, any interest rate mentioned in that contract is the rate that must be honored for the judgment. Otherwise, Utah’s civil code allows creditors to charge interest at a rate of two percentage points higher than the federal interest rate – in the year the judgment was entered.
That last part is critical. If the federal interest rate were 5% at the time the judgment was entered, the creditor could charge up to 7% annually until the debt is paid off. The federal interest rate would have no bearing on the amount of interest charged in subsequent years.
Interest Is Calculated Annually
Another advantage creditors have is the ability to calculate interest annually. Just like with a mortgage or auto loan, interest is calculated at the start of the year based on the outstanding balance. So if a debtor never makes any payments for the first few years, the amount of interest being charged continues to go up.
On the other hand, total interest charged goes down as payments are made. So if nothing else, it is in a debtor’s best interest to negotiate a monthly installment plan similar to monthly mortgage payments. At least this way, interest payments slowly decrease over time.
Time Is the Enemy With Interest
Judgment Collectors says that time is normally a judgment debtor’s best friend in the sense that it becomes more difficult for a creditor to collect as time goes on. But where interest is concerned, time is the debtor’s enemy.
Time allows interest to accumulate. So if a debtor has any intention of paying a money judgment, it would make sense to pay as quickly as possible. The sooner the debt is paid off, the less interest the debtor pays. The opposite is also true. Time only adds to the debtor’s interest payments.
Also bear in mind that interest is applied to the entire outstanding debt. And because most states allow judgment creditors to add attorney’s fees, court costs, and other collection expenses to the debtor’s bill, all those additional costs are subject to interest. Now a debtor is paying interest on the creditor’s court costs, for example. Ditto for the creditor’s attorney’s fees.
It Can Get Out of Hand
Interest can be highly motivating in getting judgment debtors to pay up. Failing to pay can mean interest gets out of hand. A debtor who delays paying could ultimately end up paying more in interest than the original debt was worth. That doesn’t make sense. If you are facing an unpaid judgment, do yourself a favor and find a way to pay.
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