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Judgment Interest

When one enforces, collects, or is paid on a judgment in one lump sum, and there are no recoverable enforcement costs, the total amount owed (including interest) is easy to determine.

In the case of California, having a simple non-compounded 10% interest rate, the amount owed is what the original judgment listed, plus 10% interest per year (and is adjusted for payments and costs). Other states may have different interest rates. Texas, Kentucky, and Colorado have annually compounded interest rates. Otherwise interest rates are only compounded each time the judgment is renewed.

In California, the daily interest owed is approximately the (principal judgment amount and the costs - payments) divided by 3,650. (The 3,650 is 365 days times 10% interest.)

For example, a judgment for $10,000.00 has about $2.734 interest accrued per day. Judgment interest is not compounded, except for every time you renew a judgment.

When the debtor makes irregular payments and/or you have substantial recoverable costs, for example, the cost of getting a writ, paying the sheriff, paying a process server, and/or performing debtor-related exams and document productions, it's not so easy to determine the exact amount owed.

If you are going to get paid in full, you must take care not to collect more than is owed. You can figure out what is due by reading laws, doing some research, and carefully tallying how much is owed.

If you are recovering more than a few judgments, it's a good idea to buy a software program. One good choice is Tvalue from www.TimeValue.com. Tvalue is a general amortization schedule/calculator program, that can be configured to calculate judgment interest. Another specific good choice, is the Excel spreadsheet product available from www.JudgmentProgram.com.

Also, Judgment programs, like the ones you can get from the National Judgment Network or from http://judgmentmanagementsystem.info, which calculates interest and does much more.

In California, costs become part of the judgment (statutorily) after both a memorandum of costs has been filed, and the time limit for objection (by the debtor) has passed. In California, one must claim costs within two years of incurring them.

Unlike interest, costs are added to the judgment, and once costs are added, they increase the interest accrual rate that is itemized on writs. You must truncate interest rates, not round them up. (0.7039 becomes 0.703.)

In California, the time limit for the debtor to object to your memorandum of costs, which must be served on the debtor (by first class mail is ok) are 10 days if personally served, and 15 days if you have the debtor served by first class mail. You must fill out page two of the memorandum of costs, and have someone else sign and date it, and deposit the sealed and stamped envelope addressed to the debtor, in the mailbox.

Take for example, a judgment for $1,000 awarded 2 years ago. The judgment earned $100 a year - 10% of $1,000. As example, one spent $300 on process servers, lien recording fees, court fees, levy fees, and writs, over that time period.

If one files and serves a memorandum of costs for the judgment, then fifteen days later, the debtor will owe $1,000 for the base judgment, $200 interest for 2 years, and $300 for costs.

The debtor now owes $1,500 - but of that amount, only $1,300 will earn 10% interest, so interest now accrues in this example, at $130 per year - starting 15 days after the memorandum of costs was served.

Payments must be applied to the interest first. After this, the payment is added to the principal amount owed. When you use a sheriff to levy the debtor's assets, the sheriff gets paid first.

When a sheriff recovers money from a debtor with a court writ, payments are applied as follow: First to the Sheriff, Second to cover the cost of obtaining a writ, Third to accrued interest, Lastly to the principal amount of the judgment including previous court-approved costs.

Here is the California Code Civil Procedure section 685.050, showing how amounts collected by the levying officer, are applied to the satisfaction of the judgment, when a writ of execution has been issued:

685.050. (a) If a writ is issued pursuant to this title to enforce a judgment, the costs and interest to be satisfied in a levy under the writ are the following:
(1) The statutory fee for issuance of the writ.
(2) The amount of interest that has accrued from the date of entry or renewal of the judgment to the date of issuance of the writ, as adjusted for partial satisfactions, if the judgment creditor has filed an affidavit with the court clerk stating such amount.
(3) The amount of interest that accrues on the principal amount of the judgment remaining unsatisfied from the date of issuance of the writ until the date interest ceases to accrue.
(4) The levying officer's statutory costs for performing the duties under the writ.

Interestingly, the California judicial council forms for memorandum of costs and writs, can lead to occasionally (and wrongly) showing negative amounts owed, when multiple writs are obtained after a levy has already been done. This happens mostly because the people who designed these forms wanted to make very sure interest could never be compounded.

The solution is to make sure you understand how to calculate judgment interest, and that your memorandum of costs is filled out carefully and correctly, so that the writ will not show a negative number.

If the writ shows negative numbers, attach a spreadsheet showing the amounts collected, amounts credited to the principal, and amounts credited to accrued interest.

Federal Interest Rates: As per 28 U.S.C. 1961, Judgment interest is the weekly average of 1-year Treasury yields. Changes every week, what else would one expect of the Federal Government. (Use the National Judgment Network's www.postjudgmentinterest.com.) Generally, Federal judgments last for 20 years, except in places like Florida.


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