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Interest On Judgment Contracts
Judgment enforcers who are not attorneys or collection agencies must have judgments assigned to them. The reason is, if you are not a lawyer, you can only (usually) represent yourself, and cannot represent anyone else. That means in addition to a notarized acknowledgment of judgment, if you are not buying the judgment for cash upfront, you will also need to use a future-payment contingency purchase agreement. Such purchase agreements vary by state and by the judgment recovery expert.
This article is my opinion, and not legal advice. I am a judgment broker, and am not a lawyer. If you ever need any legal advice or a strategy to use, please contact a lawyer.
Part of every future-payment judgment recovery contract, will be wordings about interest. Each state has different rates for judgment interest. Judgment interest is usually simple interest, and is not usually compounded. Some states allow one-time interest compounding when the judgment is renewed. When a judgment is purchased for cash upfront, interest is no longer a concern to the original judgment creditor. The interest owed is not as important as the available assets of the judgment debtor.
In your judgment purchase agreement contracts, do you split any interest that you may recover, or keep it all? The answer is, it is up to you, and what your original judgment creditor will agree to. It sometimes depends on the situation. Most judgment enforcers split recovered interest with the original judgment creditor, some do not. Even if your contract usually specifies that you keep all the interest; because there is so much competition with so many judgment enforcers, and creditors that shop their judgments around so much; sometimes you must strike a deal to split the potential interest recovered, to get a particular judgment.
Most of the time, judgments are not recovered. When there is a recovery, it is usually not with the full amount that includes all interest earned. In situations where the judgment debtor has assets, accrued interest is sometimes waived as a bargaining chip for judgment settlement. Most judgment debtors do not respond to bargaining chips such as waiving interest owed, and instead respond to involuntary levies, garnishments, and examinations.
Accrued judgment interest must be calculated, especially when a writ of execution is obtained from the court. Often, judgment interest needs to be documented with a form or a declaration at the court. There are many free judgment interest calculators on the web, and professional-grade spreadsheets and programs that one can purchase.
Keeping track of judgment interest is not always easy. Even in states such as California (see CCP 695.220) where judgment interest is 10% simple interest each year; partial payments and expenses can be complicated, and alter the amount owed, usually after they are filed at the court. Some states have judgment interest rates that vary, or are tied to Federal interest rates.
One reason to keep careful track of the interest owed is for those rare situations where you collect in full. It is not legal to collect more than what is owed. With consumer debt judgments, there are strong FDCPA laws that can punish those who miscalculate and collect more than what is owed.
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