If a creditor wins a court judgment against you, you’ll have to pay the money judgment amount and any interest the judge orders. This can be pre-judgment interest, which is the interest added to the debt owed. There’s also post-judgment interest, which is the interest added to the amount of the money judgment. On April 30, 2022, the judgment interest accrual rate will drop from 9% to 2% for debt collection cases in New York state.
Written by Attorney Curtis Lee.
Updated March 10, 2022
A judgment is a court order in a civil or criminal case that represents a decision in a lawsuit. If a court enters a judgment in favor of a creditor suing you to recover a debt, it usually means the court is ordering you to pay back the debt plus other amounts. This additional money can include court costs, attorney’s fees, and interest. This type of judgment is also called a money judgment.
This article focuses on the interest component of a money judgment under New York law. This includes the two major types of interest — pre-judgment interest and post-judgment interest — and how they’re calculated. We’ll also discuss why courts often order judgment debtors to pay interest.
Explaining Pre-Judgment and Post-Judgment Interest
As its name implies, pre-judgment interest applies to the debt before the court judgment. In contrast, post-judgment interest applies to the monetary judgment amount after the court judgment. Despite applying at different times, pre-judgment and post-judgment interest rates both exist to compensate a plaintiff for being deprived of the use of their money.
Both types of interest are awarded at the court’s discretion. A judge may also decide whether the interest awarded will be simple or compounding. Simple interest applies strictly to the amount of the money judgment. Compounding interest applies to the amount of the judgment plus any prior interest.
Why Are Pre- and Post-Judgment Interest Used?
Pre-judgment interest has two functions. First, it compensates the plaintiff (also called a judgment creditor) for not having access to their money that was held by the defendant (also called a judgment debtor). Second, it forces the defendant to give up the financial benefit they received for holding on to money they shouldn’t have had in the first place.
This second reason for awarding pre-judgment interest is more theoretical, especially for consumer debt lawsuits. The lawsuits usually arise because the consumer doesn’t have the money to back the debt. Not because the consumer refuses to pay back the debt. Despite this, courts want to prevent defendants from obtaining any perceived benefit from their improper conduct.
Post-judgment interest primarily benefits judgment creditors when they win their cases. Specifically, it compensates plaintiffs for the time period after the court judgment, but before they get paid by the defendant. Ideally, after a court grants judgment for the plaintiff, the defendant would immediately write a check or transfer funds to the plaintiff. But this usually doesn’t happen.
Often, there’s a delay from the time of judgment to the time of payment. In some cases, this delay can last for months or years if there are post-judgment settlement discussions or the judgment debtor appeals the case.
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New York State Pre- and Post-Judgment Rates
According to the New York Civil Practice Law and Rules (CPLR), the interest rate on a pre- or post-judgment is 9% per annum (year). But under a new law, starting April 30, 2022, this 9% interest rate will drop to 2% if the judgment debtor (defendant) is an individual who owes a consumer debt.
This change is the result of the Fair Consumer Judgment Interest Act (FCJIA) being signed into law in late 2021. This law applies to any consumer debt judgments that a court enters after April 30, 2022, the law’s effective date. But the FCJIA also applies retroactively to some extent. If the judgment debtor hasn’t fully paid the amount of the judgment they owe by April 30, 2022, any remaining balance will automatically start accruing interest at the new 2% annual rate instead of the old 9% rate.
The post-judgment interest rate for monetary judgments in personal injury cases in New York state court is 2% per month (or 24% per year).
Federal Post-Judgment Interest Rates
Federal law permits judges to order interest on most judgments entered in federal district courts. This federal post-interest judgment interest is similar to the judgment interest in the state of New York in that interest begins to accrue from the date of judgment and continues accruing until the judgment is paid off. But when it comes to calculating the exact interest rate, federal law is a bit more complicated.
New York state law clearly states its statutory interest rate. Federal law is different because the federal post-judgment interest rate changes every week. It’s calculated by looking at the weekly average interest rate of a one-year treasury bill (sometimes called a “T-bill”) for the week immediately preceding the date of the entry of judgment. The interest rate for the one-year treasury bill is published by the Board of Governors of the Federal Reserve System every Monday and can be found on the Selected Interest Rates (Daily) – H.15 page.
If this interest rate computation sounds a bit too complicated, don’t worry. You can get a simple answer to what post-judgment interest rate applies to your case by visiting the Post-Judgment Rates page from the U.S. Bankruptcy Court for the Southern District of California. On that page, you can find an interest calculator that tells you what the post-judgment interest rate is for judgments entered during the current calendar week. This applies to everyone, not just Californians. Historical data is also available in case you’re curious about what the applicable rate of interest used to be years ago.
After a judge decides on a consumer debt lawsuit, the court enters judgment for the winning side. If the plaintiff wins, the defendant becomes a judgment debtor. Besides the unpaid debt, the judgment debtor may also have to pay pre- and/or post-judgment interest.
Pre-judgment interest exists to compensate plaintiffs for not having access to their money until a judgment is entered. It also addresses any financial benefit the judgment debtor may have had from holding onto money instead of paying a debt. Post-judgment interest compensates the plaintiff for not having their money for the time period between the entry of judgment and the defendant paying the plaintiff in full.
For New York state debt collection cases, pre- and post-judgment interest have an accrual rate of 9%. But on April 30, 2022, this rate drops to 2%. In federal court, the post-judgment interest rate is calculated by looking at the weekly average interest rate of the constant maturity treasury yield of the one-year treasury bill.